Constructing synthetic indicators for bancarization in Paraguay using PCA

Abstract

The Covid-19 pandemic afected the relation between financial institutions and their clients highlighting the need for bancarization indicators to interpret specific events. This study presents the construction of aggregate measures that facilitate the analysis and monitoring of bancarization. The synthetic indicators comprise variables in four dimensions of intermediation services provided by banks and financial companies in Paraguay. These are financial depth, infrastructure, coverage, and electronic transactions. All variables are considered in relation to adult population. The methodology employed is Principal Component Analysis (PCA). The results suggest that the methodology is sensitive, and it allows measuring and tracking progress of bancarization over time.