Financial inclusion, in a modern context, has evolved beyond simply having a bank account. Globally, the successful integration of fintech with financial inclusion serves as a key mechanism for accelerating economic growth and meeting global Sustainable Development Goals (SDGs). However, despite remarkable progress in financial technology and growth in account ownership, 1.3 billion adults¹ globally remain unbanked. The persistence of financial exclusion is now primarily driven by structural friction², even with the rise of digital finance. These modern obstacles include socio-economic inequality, rigid identity and compliance standards, and significant digital literacy and infrastructure capacity gaps ([11]). Further, branch-based traditional banking systems often fail to reach rural, low-income, or undocumented population.

As the digital economy expands, CBDCs have emerged as a transformative innovation that can integrate the financially excluded into the formal system. This enhancement is critically contingent upon specific design features that directly address structural friction, especially through the provision of offline functionality, low-cost transactions, simplified risk-based KYC, and its state back nature³ to foster trust and address financial anxiety ([2]).

Although research on CBDC has expanded rapidly, much of the existing literature has primarily focused on monetary policy transmission, financial stability implications, and technological design considerations. While financial inclusion is widely recognized as a key motivation for CBDC issuance, especially in emerging and developing economies ([12]), the literature provides limited systemic analysis of how CBDC design features can address the multiple dimensions of financial inclusion. The link between CBDC design features and structural barriers to financial access, usage, and demographic inclusion remains insufficiently explored. This study develops a conceptual framework to explain how CBDCs may help reduce these barriers and promote inclusive participation in the formal financial system.

This study employs a conceptual and comparative policy analysis framework to explore the potential of CBDC as a mechanism for enhancing financial inclusion. The analysis is grounded in an extensive review of the existing body of literature, encompassing peer-reviewed academic studies, policy documents, central bank publications, and reports issued by leading international institutions such as the International Monetary Fund, the Bank of International Settlements, and the World Bank. By synthesizing theoretical insights and policy perspectives from these sources, the study critically evaluates the opportunities, challenges, and policy implications associated with CBDC implementation in the context of financial inclusion.

The comprehensive assessment of CBDC features, implementation strategies, and their implications for financial inclusion is undertaken through a synthesis of the existing literature and policy evidence. To provide deeper insights into the practical application of CBDCs, a comparative analysis of selected country experience is conducted, with particular emphasis on identifying key opportunities, implementation challenges and policy lessons. Country selection is based on the presence of CBDC pilot projects or operational initiatives, and the relevance of their experiences to financial inclusion objectives. The analysis is informed by a wide range of secondary sources, including central bank publications, policy reports, international institutional documents, and publicly available statistical data. Through a systematic comparison of this experience, the study highlights variations in CBDC frameworks, implementation approaches, and their observed or anticipated outcomes for financial inclusion, which refers to the expected improvements in access to, use of, and participation in formal financial services, particularly among underserved and financially excluded population.

By integrating insights from literature and international experience, the study develops a conceptual framework for understanding how CBDCs may contribute to enhancing financial inclusion, particularly in developing and emerging economies.

Financial exclusion continues to persist due to structural barriers that limit access to and usage of formal financial services. In this context, CBDC has emerged as a potential public digital infrastructure that could help reduce these barriers and enhance financial inclusion.

The conceptual framework developed in this study posits that specific design features of CBDC can influence financial inclusion outcomes by mitigating structural frictions that constrain access to and usage of formal financial services. Key CBDC characteristics, such as low-cost digital transactions, simplified onboarding requirements, interoperability with existing payment systems, offline functionality, and central bank backing, have the potential to facilitate participation in digital financial ecosystems among individuals excluded from traditional banking systems. By addressing documentation constraints, reducing transaction costs, enhancing payment accessibility, and strengthening public trust in digital financial services, these features may contribute to broader and more inclusive engagement with the formal financial system.

Within this framework, CBDC design features act as key enabling factors that promote financial inclusion through two primary channels, which are expanding financial access for unbanked individuals and enhancing the usage of formal financial services among underbanked populations. By addressing these access and usage barriers, CBDCs may facilitate border financial inclusion outcomes, including greater participation in digital payments, Improved savings opportunities, and stronger integration of marginalized groups into the formal financial system.

However, the effectiveness of CBDCs in promoting financial inclusion depends on supporting institutional and technological conditions, including digital infrastructure, regulatory frameworks, financial literacy, and cybersecurity capacity, which influence their ability to reduce structural barriers and achieve inclusive financial outcomes.

Accordingly, the conceptual framework (Figure 1) illustrates how CBDC design features, together with structural barriers and enabling conditions, shape financial inclusion outcomes and support broad economic participation and inclusive development.

Figure 1. Conceptual framework.

Several countries have begun experimenting with or implementing CBDCs, providing valuable insights into how alternative design choices can advance key policy objectives, including financial inclusion, payment efficiency, and the resilience of payment systems. The following country cases illustrate how CBDC initiatives are being designed to ease financial inclusion constraints by broadening access to digital payment services, lowering dependence on cash, and providing accessible digital wallets for populations underserved by traditional banking infrastructure (Table 1).

Table 1. Country experiences with CBDCs.

When assessing country experiences with CBDC implementation, it is important to distinguish between indicators of adoption and indicators of financial inclusion. Measures such as wallet registrations, transaction volumes and the amount of CBDC in circulation provide evidence of user uptake and extent of system utilization. However, these indicators do not necessarily demonstrate a reductio in financial exclusion or an improvement in financial inclusion. More direct evidence of inclusion is reflected in increased access to formal financial services among previously unbanked and underserved populations, greater usage of financial services, and reduced demographic and geographic disparities in financial participation. Therefore, while adoption metrics are useful for evaluating the acceptance and usage of CBDCs, they should be interpreted alongside inclusion specific indicators to assess their effectiveness in advancing financial inclusion objectives.

The establishment of CBDC requires a clear legal mandate empowering the central bank to issue digital money, a sound and stable monetary and financial system, and adequate public financial capacity to support development, operational maintenance, and cybersecurity. Further, basic digital payment infrastructure, including RTGS systems, retail payment platforms, and widespread mobile connectivity and electricity is essential, along with risk-management frameworks covering AML/CFT, data protection, and operational resilience (Lannquist & Tan, 2023).

In the Sri Lankan context, the country currently exhibits a robust and stable monetary and financial system, following effective policy formulation and implementation undertaken to mitigate the adverse repercussions of the recent financial and economic downturn. Among retail payment instruments, the value of transactions processed through the RTGS system (high-value payment system) amounted to 1358.1 per cent of GDP, reflecting the system’s critical role in high-value payments. Meanwhile, the Common Electronic Fund Transfer Switch (CEFTS) recorded the highest per capita transaction value among retail payment methods, accounting for 58 per cent of GDP in 2024, indicating strong adoption and usage of electronic retail payments⁸.

Further, Sri Lanka possesses a well-established digital and financial infrastructure conducive to CBDC implementation. Electrification coverage reached 99.3 per cent as of 2016, while internet penetration stood at 105.6 per cent. Total telephone penetration, including cellular connections, amounted to 141.2 per cent, with fixed-line penetration at 9.7 per cent, reflecting strong communication network readiness. In addition, the country demonstrates a healthy financial infrastructure, with a bank branch density of 17 and a combined ATM, CRM, and CDM density of 33 per 100,000 persons. This is further supported by the establishment of the Data Protection Act and a strengthened AML/CFT framework in Sri Lanka, enhancing trust, security, and regulatory preparedness for CBDC adoption⁹.

Accordingly, Sri Lanka has a strong digital payment infrastructure and supportive financial inclusion policies, providing a solid basis for CBDC exploration. However, Sri Lanka is still at an early stage, and progress toward pilot testing, legal preparedness, and system integration is essential for CBDC adoption.

CBDC adoption is associated with several challenges. One key issue is the digital divide, as individuals without access to smartphones, internet connectivity, or reliable electricity may remain excluded. Cybersecurity and data privacy concerns also arise, requiring a careful balance between protecting users and ensuring effective regulatory oversight. In addition, low levels of financial literacy and limited public trust in digital financial products can hinder widespread adoption. There is also a risk of bank disintermediation if deposits shift from commercial banks to CBDC holdings. Finally, the implementation of CBDC involves significant costs related to technology development, infrastructure investment, and public education ([1]).

To mitigate these challenges, central banks can introduce offline payment functionality and low tech wallets, strengthen cybersecurity and privacy frameworks, implement financial literacy and public awareness campaigns, adopt tiered wallets and holding limits to manage disintermediation risks, and rely on public private partnerships to reduce costs and leverage existing payment infrastructure ([18]).

The way forward for CBDC adoption lies in integrating CBDCs into national financial inclusion strategies, ensuring interoperability with existing payment systems, and fostering collaboration with key stakeholders. A phased, pilot-based approach combined with strong consumer protection, data privacy, and financial literacy efforts will be essential to achieve inclusive and sustainable implementation.

Financial inclusion remains a fundamental pillar of sustainable and inclusive economic development. Despite significant advancement in digital financial services, a substantial segment of the global population continues to face barriers to accessing and effectively utilizing formal financial system. Structural constraints, including stringent documentation requirements, high transaction costs, geographic disparities in financial infrastructure, and limited financial literacy, persistently restrict the participation of vulnerable groups, particularly low-income households, rural communities, and women.

This study examines the potential role of CBDC as a digital bridge for advancing financial inclusion. Through the development of a conceptual framework, the study illustrates how specific CBDC design features, such as offline functionality, simplified identification mechanism, interoperability with existing payment systems, and reduced transaction costs, can help mitigate structural barriers that constrain financial access and usage. The framework further underscores that the effectiveness of CBDCs in promoting financial inclusion is contingent upon enabling conditions, including the availability of digital infrastructure, supportive regulatory frameworks, adequate financial literacy, and public trust in digital financial systems.

The findings indicate that CBDCs can serve as a form of public digital financial infrastructure, enabling governments and central banks to broaden access to secure and low-cost digital payment systems. However, CBDC should be regarded as a complementary policy instrument rather than a sole solution to financial exclusion. Their success in prompting inclusive financial participation will depend on careful design, supportive institutional frameworks, and coordinated policies that address technological, regulatory, and social adoption challenges.

From a policy perspective, central banks and policymakers should prioritize the development of inclusive CBDC designs, invest in robust digital infrastructure, strengthen regulatory and cybersecurity frameworks, and promote financial literacy to facilitate broad based adoption. Further research may extend the conceptual framework proposed in this study by undertaking empirical analysis of CBDC pilot initiatives and assessing their impact on financial inclusion indicators across diverse economic contexts. Such efforts can provide valuable insights into the potential of CBDC to advance inclusive financial systems and support broader economic empowerment in both emerging and developing economies.

¹Analysis of the unbanked population reveals it is concentrated among highly vulnerable segments: it is predominantly female (55%), comprised mainly of individuals from the poorest 40% of households (52%), characterized by low educational attainment (62% with primary education or less), and exhibits low economic activity (54% out of the workforce). The largest demographic subset is working-age adults, specifically those aged 25 - 54 (46%).

²Structural barriers/frictions to financial inclusion are systematic constraints embedded within economic, institutional, and infrastructural frameworks that hinder access to and utilization of formal financial service by underserved populations.

³Direct Liability of the Central Bank.

⁴Unbanked (Total Exclusion): These individuals lack any formal financial account, representing the most basic level of exclusion from the financial system.

⁵Underbanked (Partial Exclusion): These individuals have an account but rely on expensive, non-traditional services for critical needs.

⁶Token-based CBDCs involve the transfer of a token between wallets.

⁷Account based CBDCs involve the transfer of a claim on an account.

⁸CBSL Payment Bulletin - second quarter 2025.

⁹Annual economic Review 2024 - Key social indicators.