Financial Inclusion Index for Nepal

Financial inclusion is a multifaceted concept that entails three broad aspects of financial services: access, usage and quality. Financial Access refers to how widely the financial system has penetrated among its users and what percentage of population has access to financial services; usage, on the other hand, refers to the amount as well as the frequency of financial services used; and quality refers to the level of financial knowledge and quality of the products and services delivered.

Financial inclusion has emerged as a key policy priority in recent years, drawing significant interest from policymakers. Many countries have included this agenda in their major policies and started tracking progress in various dimensions using Financial Inclusion Index (FII).

In this context, NRB has started the calculation of FII by using 55 indicators pertaining to access, usage and quality of financial services. Access and usage dimension include banking services, digital payments, insurance, investment and social security schemes. On the other hand, quality aspect includes existing barriers, consumer protection, financial literacy, and inequality in the financial services. Out of the 55 indicators, 15 indicators correspond to ‘Access’, 15 indicators correspond to ‘Usage', and the remaining 25 indicators correspond to ‘Quality’. The assigned dimension weights are: Access (35%), Usage (45%) and Quality (20%).

The FII rose from 0.40 in FY2021/2022 to 0.47 for FY2023/24, indicating substantial progress in financial inclusion. The 'Access Index' rose from 0.38 to 0.47 and the 'Usage Index' rose from 0.43 to 0.49, driven primarily by the increased adoption of retail digital payment instruments and higher volume of digital transactions. The 'Quality Index' rose from 0.36 to 0.41, reflecting moderate improvement in the quality dimension of financial services.

Financial Inclusion Index for Nepal. Data Source: NRB