Derivation of weight for measuring financial inclusion index using a non-parametric analysis approach: A study based on Bihar

Abstract

To address the criticism of arbitrary weight selection in current approaches, this paper generates a composite Financial Inclusion (FI) Index to evaluate financial inclusion across 38 districts in Bihar, India, for the financial year 2020–2021. Financial inclusion is assessed through four dimensions: availability, accessibility, awareness, and usage of financial services, incorporating novel indicators such as training programs organized, persons trained, Bank Mitra engaged, and amount accumulated by Bank Mitra. A two-stage Data Envelopment Analysis (DEA) is employed to derive data-driven weights, supplemented by a comparison with the United Nations Development Programme (UNDP) approach, using data from the state-level banker’s committee report. The DEA results reveal that 27 districts are efficient (score of 1), while Sheikhpura scores the lowest (0.2727). The UNDP approach classifies 19 districts as high FI (>0.6), 16 as medium (0.4–0.6), and 3 as low (<0.4), with Patna achieving the highest score (0.940) and Arwal the lowest (0.377). By pointing out areas needing intervention, the proposed FI Index improves policy development and is simple to compute and comparable throughout regions. This study advances a strong, scientifically sound instrument for measuring financial inclusion with possible use in many spheres.