Nepal’s financial inclusion index rises to 0.47, Driven by access and digital usage expansion

KATHMANDU: Nepal Rastra Bank (NRB) has reported a significant improvement in the country’s financial inclusion status, with the Financial Inclusion Index (FII) rising to 0.47 in the fiscal year 2023/24, up from 0.40 in 2021/22, reflecting steady progress in ensuring more citizens have access to formal financial services.

The FII, developed and maintained by NRB, is a comprehensive tool designed to measure and monitor the progress of financial inclusion across three dimensions — Access, Usage, and Quality. It draws from a methodology similar to the Human Development Index (HDI), with values ranging from 0 to 1, where a higher score indicates greater financial inclusion.

This year’s increase was driven by advancements across all three dimensions:

Access Index rose from 0.38 to 0.47, signaling that a broader segment of the population now has access to financial institutions, digital financial tools, and service channels.

Usage Index climbed from 0.43 to 0.49, reflecting higher engagement with banking services, particularly through digital payments, electronic banking transactions, and other formal financial platforms.

Quality Index, which captures metrics like financial literacy, customer satisfaction, barriers to access, and consumer protection, increased modestly from 0.36 to 0.41, indicating improvements in service fairness, transparency, and inclusivity.

The index was developed based on 55 indicators: 15 related to Access, 15 to Usage, and 25 to Quality. To reflect their importance and data availability, NRB assigned weights of 35% to Access, 45% to Usage, and 20% to Quality. The emphasis on usage stems from the growing adoption of digital financial services and the lack of long-term time-series data for quality metrics.

According to NRB, these improvements are not just in the quantity of available financial services but also in how they are used and perceived by the public. The central bank credits the progress to policy reforms, digital innovation, and increased financial infrastructure, particularly in remote and underbanked regions.

“This index highlights meaningful progress in bringing more people into Nepal’s formal financial system,” the statement from NRB reads. However, it also notes that improving service quality and ensuring equal access for all remain critical challenges.

The development of the FII involved collaboration among various departments within NRB and consultation with international experts. Notably, insights from knowledge-sharing programs with the Reserve Bank of India (RBI) helped refine the index structure and methodology.

Financial inclusion has become a national priority for Nepal, especially to empower rural and underprivileged communities. The FII’s role is crucial in helping policymakers identify where services are working, and where further efforts are needed to ensure fair, effective financial access.

The NRB has committed to ongoing improvements in areas such as financial literacy, digital infrastructure, service innovation, and customer protection. These will be essential to build a more inclusive, resilient, and sustainable financial system that benefits all segments of the population.

As Nepal continues its push toward a more digitally connected and financially inclusive society, the upward trend in the FII offers a promising indicator of long-term socio-economic development.