When Compensatory Indices Mislead: Non‐Compensatory Two‐Stage Sorting of Financial Inclusion in Lower‐Middle‐Income Countries

ABSTRACT We extend the non‐compensatory ELECTRE TRI‐B inspired sorting model with multiple evaluators with a two‐stage membership procedure to categorise 27 lower‐middle‐income countries (LMICs) based on their financial inclusion (FI) levels. By employing four access and four usage FI dimensions, we impose an ‘access‐first’ constraint and require the joint satisfaction of access and usage constraints for high, mid, and low FI classification. Unlike commonly used multivariate techniques and compensatory methods, this access‐first approach prevents an advantage in FI usage from offsetting a weakness in FI access, therefore providing a clearer picture for LMICs' FI levels. The results indicate that once the access condition is met, the usage FI dimensions decide whether to confirm or upgrade the category of a given country. Countries such as Nepal, Mauritania, and Nigeria show relatively better performance on some usage dimensions, but not in the access block; hence, they are sorted in mid or low FI categories.