The Impact of Digital Financial Inclusion on Economic Development in Sri Lanka

Abstract

Introduction: Digital financial inclusion refers to the use of digital platforms such as mobile banking, digital wallets, and online payment systems to expand access to financial services, especially for underserved and rural communities. In the context of Sri Lanka, a developing economy, digital financial inclusion plays a critical role in fostering economic growth and addressing financial disparities. This research investigates the impact of digital financial inclusion on economic development in Sri Lanka while accounting for control variables such as inflation and interest rates.

Methodology: The study adopts a quantitative approach, using EViews software to analyze the relationship between digital financial inclusion and economic development. Control variables such as inflation and interest rate are incorporated to isolate the specific effects of digital financial services on broader economic outcomes. The study was derived data collected through published reports from the Central Bank of Sri Lanka. Specifically, the sample size consists of time-series quarterly data over a 10-year period (2014–2023), representing the key indicators and trends relevant to digital financial inclusion and economic development. The analysis was conducted using descriptive statistics, correlation analysis, and regression analysis with the pretests. As well, the researcher discussing the hypotheses based on the results obtained from the regression analysis.

Findings: The findings of the study have important policy implications for governments and financial institutions in Sri Lanka, offering recommendations on how to harness digital financial inclusion to foster economic development, reduce inequality, and enhance financial resilience in the face of global challenges. Ultimately, the study contributes to the growing body of literature on the role of digital finance in economic development, particularly in emerging economies like Sri Lanka.

Conclusion: This research underscores the intricate relationship between digital financial inclusion (DFI) and economic development in Sri Lanka. While mobile subscriptions and internet access alone have limited impact, their effectiveness depends on complementary factors such as digital literacy, infrastructure quality, and policy support. The study reveals ATM availability significantly contributes to GDP per capita by bridging traditional and digital banking gaps, while debit card usage poses challenges due to insufficient infrastructure. Conversely, credit card usage positively influences economic growth by promoting digital transactions and enhancing financial integration. These findings highlight the need for holistic strategies to optimize DFI's role in sustainable economic development in Sri Lanka.