Intermediation for Development: A New Index with a New Prospect

Abstract

This paper presents a construction of a new index that measures the role of banks in supporting pro-development activities and poverty alleviation. The index is called “Intermediation for Development Index (IFDI)”. It consists of four sub-indices (dimensional indices). The first sub-index is the Size Index (SI). It measures the size of a bank by its total assets and total deposits. The second sub-index is the Financial Intermediation Index (FII). It measures the function of a bank as a financial intermediary. The third sub-index is the Financial Orientation Index (FOI). It measures to what extent a bank is oriented to corporate vs. retail finance. The fourth sub-index is the Regional Orientation Index (ROI). It measures to what extent a bank is oriented to provide finance to the poorest region in the country.