However, satisfaction of this demand brings us back to the problem of the market dynamics of globalisation, which, as we all learnt from bitter experience, can have very negative effects. In a discussion about bond market development in the region, it would be useful for us to remind ourselves what this problem is. The pattern of the flow of international funds in Asia has, for some time now and encouraged by financial liberalisation, been characterised by a two-way traffic of investment flows. In the one direction, there is the very substantial outflow to the industrialised economies, predominantly in the form of bond investments but equity investment also featured, and characterised by a large element of public funds. In the other direction, there is the inflow of private sector foreign funds, of more, or less, substantial magnitude, depending on the macroeconomic circumstances, in the form, relatively speaking, of much more equity related investments. This recycling of funds brought benefits and risks. The greater presence of foreign funds, mostly in institutional form, and managed and serviced by highly versatile foreign financial intermediaries, in domestic financial markets in the region, no doubt, promoted financial sector development. Indeed, the overall efficiency, including the level of sophistication, of financial intermediation in the region has been substantially enhanced, contributing to economic growth and development. But, as we have observed, it also presents considerable difficulty to monetary authorities in the region in the maintenance of monetary and financial stability.

We are in the process of reviewing the Microfinance Act to suggest amendments for more effective regulation of the sector, including regulation of non-deposit taking micro-credit institutions through an appropriate regulatory framework, and a unified customer protection framework for microfinance customers. We plan to issue further directions, in the period ahead, to strengthen the regulatory and supervisory mechanism for microfinance. Further, we have identified that regulation of the microfinance sector in a holistic manner is difficult because the microfinance institutions (MFIs) are regulated by a number of regulators which are exempted from the purview of the Microfinance Act. Therefore, we will convene an inter-regulatory council comprising of all regulators of MFIs during this year. 24  While we make every possible effort to put other financial institutions in order, we have to put our own house in order. In line with this, implementing an Enterprise-wide Risk Management Framework (ERM) and strengthening compliance in the bank have been identified as one of our strategic priorities. In line with new trends in central banking in the area of risk management, implementation of an ERM framework helps to move away from a ‘silo based’ approach to a ‘whole of business’ approach to risk management. ERM enables the integrated oversight of all risks across all levels, locations and departments using a uniform approach with consistent foundations and organisational arrangements for designing, implementing, monitoring, reviewing and continuously improving risk management throughout the Central Bank.