july 19, 2005 has since been placed on the website of the rbi. the report considers ( a ) policy options and strategies for deepening and widening of financial services ; ( b ) promotion, development and rating of microfinance institutions and other outreach entities ; and ( c ) regulatory issues and concerns. the report will form a basis for evolving a policy framework in consultation with the government, nabard and other stake - holders. it is, however, necessary to recognise that there are several issues which have to be clarified as one proceeds with a response, to what may be termed as, the new paradigm in micro - finance, described above. importantly, the new paradigm seems to imply a process of formalising what has essentially been an informal mechanism of credit - disbursal, occasionally coupled with other activities, and expanding its scope. it is worth recounting some of the major issues in this regard. first, how do we distinguish micro - finance institution from micro - credit institution and both these from other financial institutions? is it by the ceilings imposed on the size of deposits, lendings and / or by defining activities? what part or percentage of the activity could be non - financial while the institution continues to be an mfi? is there merit in differentiating between not - for - profit mfis and the profitseeking ones? second, how do we identify, for regulatory purposes micro - credit institutions as distinct from microfinance institutions since the latter may need more varied skills and in any case, warrant a policy view by more than one financial sector regulator? third, should the shgs, which have no formal organisational structure, be brought within the ambit of the proposed formal framework for the mfis? fourth, currently there are five organisational forms of the mfis, viz., trusts ; societies ; cooperative societies ; not - for - profit companies and non - banking finance companies. there are also instances of large corporates undertaking micro - credit activity as a part of their operations. what are the merits and demerits of recognising one or more or all the organisational forms under a formalised regulatory framework for the mfis? fifth, there is also a need to recognise the large regional differences in the spread of shgs and the mfis across the country. while the issue needs deeper analysis to identify the reasons for such variation and to promote balanced growth of the mfis, it, prima facie, appears

at the start of june i wrote to the leaders of the local government in laanemaa that eesti pank finds that having a single network of cash machines for all the banks would not improve access to banking services in rural areas. this is because it would not be possible for any commercial bank to differentiate its services from those of other banks by offering higher quality if there were a single network. furthermore, a single network dilutes the responsibility of each individual bank, making it harder for clients or the public to affect the decisions taken by the banks. cost efficiency will probably become even more important, meaning there are no grounds to expect that access to cash services in rural areas will improve. i do not conclude that the commercial banks ought to maintain an unnecessarily large network of branch offices and cash machines. there is no real difference here whether such a network is supported by the clients of the banks or by the estonian taxpayer, in any case it is an unreasonably expensive solution. that said, the commercial banks do need to explain their vision for access to banking services more clearly than they have done so far, and they should themselves arrive at a solution that is acceptable to society. in short, the position of eesti pank is that the guiding principle for the provision of cash and banking services across estonia is that it should make economic sense. at the same time, every person in estonia must have access to banking services, and so we must find alternative flexible solutions in estonia. the next question is how those flexible solutions should be supplied. although this topic is under discussion in the minister ’ s working group, i can suggest some options drawn from the experience of other countries, which the banks and the government may want to consider during their discussions on the accessibility of banking services : • a cashback system in shops – when paying for their food in shops by card, people can add some extra to the total amount paid and then get that in cash from the shop. for this to work, the commercial banks need to allow shopkeepers to offer this service without charging them any percentage of the cash that is withdrawn. the banks would gain by having a more efficient cash network, shopkeepers would gain additional clients in their shops, and those clients would benefit by being able to withdraw cash more conveniently and securely. • state service points – offices providing a wide range of services from the state, the banks and other enterprises, all in one place. this would allow people in rural