Construction of a Financial Inclusion Index for Kenya

Abstract

This study constructed a Financial Inclusion Index (FII) to measure access to, availability of and usage of financial services in Kenya using data collected from IMF reports for the period 2013 – 2019. A two-stage principal component analysis (PCA) method was applied in constructing the FII that was found to satisfy the Kaiser-Meyer-Olkin (KMO) measure to both the indicators and the dimensions. The research offers ideas for policy-making by highlighting the contributions of the variables to the dimensions, subsequently, the contributions of the dimensions to the index. Therefore, the FII can act as an analytical tool for surveillance of the variables for a more inclusive financial system.