Index of Financial Inclusion and its Relationship with Human Development: Comparative Study of Composite Index and Sarma Analysis

Abstract This study to find the dimensions and weights as the best measure of the financial inclusion index by comparing the Sarma analysis with the Composite Index, then analyzing its relationship to human development. The quantitative approach uses Factor Analysis followed by Fixed Effect Model. The data sample is 217 countries grouped by income level from 2011 to 2017. It was found that Access and Usage are two essential dimensions of the financial inclusion index, with the weight of Access (0.60) greater than usage (0.4). Human development acts as an intervening variable and has a significant effect on increasing financial inclusion.