Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index

Khera, Purva; Ng, Stephanie; Ogawa, Sumiko; Sahay, Ratna

doi:10.1111/aepr.12377

Cited by 102 publications

(63 citation statements)

References 21 publications

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“…Khera et al (2022) provides a novel measurement of digital financial inclusion using a three‐stage principal component approach (PCA) for 52 emerging market and developing economies. Based on this new index, they have found that the adoption of digital financial services has been a key driver of financial inclusion, and countries/regions in Africa and Asia and regions have achieved greater progress.…”

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confidence: 99%

“…Overall, this index has great potential for deepening our understanding of the relationships between comprehensive financial inclusion, digital financial inclusion as well as traditional financial inclusion. In this aspect, Khera et al (2022) may wish to provide more discussions so that the importance of subindices can be better appreciated. For example, Khera et al’s Figures 1 and 2 indicate that African countries excel in digital financial inclusion, so it would be insightful to explain which of the access and the usage components are relevant in promoting the development in digital financial inclusion.…”

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confidence: 99%

“…Some additional empirical evidences may also help to convince readers about the validity of this index. For example, Khera et al's (2022) Figure 3 ranks Mongolia as the most advanced country in terms of both comprehensive as well as digital financial inclusion, and their Figure 4 shows that Ghana ranks No. 1 in improvements of digital financial inclusion.…”

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Shen

2022

Asian Economic Policy Review

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Khera et al. (2022) provides a novel measurement of digital financial inclusion using a three-stage principal component approach (PCA) for 52 emerging market and developing economies. Based on this new index, they have found that the adoption of digital financial services has been a key driver of financial inclusion, and countries/regions in Africa and Asia and regions have achieved greater progress. They also warn against a digital divide and call for policies to close the gap.The novelty of this new index rests on three characteristics: it is focused; it is comprehensive, and it utilizes the PCA approach. This index focuses on the payment aspects of financial inclusion, and considers the "access" and "usage" aspects of both digital and traditional aspects of financial inclusion. The three-stage PCA approach first extracts the supply-side and demand-side aspects of financial inclusion for both traditional and digital financial services, then extracts the principal components of the access and usage indices for the traditional and digital financial inclusion, respectively, and finally builds up a comprehensive index encompassing all these subcomponents.The constructed index provides a good chance to measure the level of the adoption of digital financial services in a specific country, and hence provides an instrument for evaluating the policy implications of financial inclusion, especially digital financial inclusion. For example, the subindex provides a chance to evaluate the severeness of the digital divide and the risk of financial exclusion. The indices show wide variations in digital financial inclusion across countries, whether it is mainly driven by a reluctance in constructing more digital financial infrastructure due to financial constraints, or a distrust of digital technology will need further investigation.Overall, this index has great potential for deepening our understanding of the relationships between comprehensive financial inclusion, digital financial inclusion as well as traditional financial inclusion. In this aspect, Khera et al. (2022) may wish to provide more discussions so that the importance of subindices can be better appreciated.

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Comment on “Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index”

Shen

2022

Asian Economic Policy Review

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“…To empirically examine digital‐based financial inclusion, Khera et al . (2022) develop a novel, comprehensive index of digital financial inclusion for 52 emerging and developing economies for 2014 and 2017. The index is constructed by combining the widely used cross‐country data on financial inclusion and related aspects.…”

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Comment on "Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index"

Sawada

2022

Asian Economic Policy Review

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A recent Asian Development Bank (ADB) report reveals that the global digital sector expansion would allow Asia and the Pacific to generate an economic dividend of more than $1.7 trillion per year, and create 65 million new jobs annually over the next 5 years (Asian Development Bank (ADB), 2021). In the finance sector, accelerated digitalization can potentially close the persistent financial inclusion gap between the rich and the poor, especially in developing countries. To empirically examine digital-based financial inclusion, Khera et al. (2022) develop a novel, comprehensive index of digital financial inclusion for 52 emerging and developing economies for 2014 and 2017. The index is constructed by combining the widely used cross-country data on financial inclusion and related aspects. Essentially, Khera et al. determine striking "digital leapfrogging" patterns in financial services. Countries in Asia and the Pacific as well as Africa have increasingly accelerated digital financial inclusion compared to other regions (Kera et al.'s Figure 2). In the wake of rapid digitalization, if the index is extended beyond 2020, it will offer valuable information to determine the impact of COVID-19 and identify suitable "build-better" policies for a desirable new normal.Although Khera et al. and its database are significant, certain issues remain. First, Khera et al. can potentially strengthen the interpretation and analysis of each chart. For example, Khera et al. may discuss potential determinants of differentiated trajectories of the nexus between traditional financial and digital financial inclusion, as demonstrated in their Figure 4. While I agree with Khera et al. that these diverse patterns could be driven by substitution between traditional and digital financial services, they could have verified whether the upper-left group in their Figure 4 corresponds with an initially low level of traditional financial system.Second, according to the list of variables employed, the new index seems to miss the popular use of digital financial transactions in the real world. For example, the poor in developing economies are already using mobile phone apps

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“…Morgan (2022) provides an overview of the development of financial inclusion and fintech in the Association of Southeast Asian Nations (ASEAN) region and India. This is complemented by Khera et al (2022) who provide estimates of a several new indices that enable us to see how digital financial inclusion and overall financial inclusion vary across emerging market and developing economies, and over time. Developments within central banks are discussed by Cornelli et al (2022) who focus on big data in Asian central banks, while Xu (2022) examines the development of China's digital currency (DC), the China e-CNY.…”

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Digital Finance in Asia: Editors' Overview

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Asian Economic Policy Review

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Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index

Cited by 102 publications

References 21 publications

Comment on “Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index”

Comment on “Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index”

Comment on "Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index"

Digital Finance in Asia: Editors' Overview

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