Financial Literacy, Regulation, and Borrower Rights: A Capability–Asymmetry Study of Rural Women’s Microfinance in India- A Case Study in West Bengal
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Abstract
Objective: This study examines the impact of financial illiteracy on rural borrowers’ ability to exercise their legal rights in microfinance transactions, with a focus on Self-Help Group (SHG) members in Kharagpur-II Block, West Bengal. While microfinance is widely promoted as a tool for poverty alleviation and financial inclusion, literacy gaps and institutional barriers constrain its effectiveness.
Methods: A descriptive design was employed using survey questionnaires and focus group discussions. Stratified random sampling selected 150 women borrowers associated with Bangiya Gramin Vikash Bank. Quantitative data were analysed through correlation, regression, and Chi-square tests, while qualitative insights were triangulated to capture structural aspects of borrower disempowerment.
Results: Findings reveal a modest positive correlation between financial literacy and loan performance (r = 0.366, p < 0.01), with regression analysis showing literacy accounts for only 13.4% of performance variance. Borrowers demonstrated stronger awareness of repayment schedules but weaker skills in interest calculation, reflecting compliance-oriented literacy rather than empowerment-oriented capability. Qualitative evidence highlights dependence on private MFI field agents, lack of vernacular documentation, and weak grievance redressal mechanisms, which reinforce information asymmetry and restrict borrower rights.
Conclusions The study proposes a Capability–Asymmetry Framework integrating financial capability theory, information asymmetry, and political economy critiques of microfinance. It argues that financial literacy is necessary but insufficient, calling for structural reforms such as vernacular loan documentation, independent grievance cells, and community paralegals. These measures can strengthen borrower empowerment and provide actionable insights for policymakers, regulators, and practitioners seeking to enhance rural financial inclusion in India.
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