been decided that the volcker rule, which drew the most attention in the dodd - frank act, will apply from july 2015. although regulatory reform is crucial for the stable growth of the financial sector, it can also cause negative side effects in the short term by increasing the cost burdens for financial institutions and thus leading to a contraction of financial activities. the fact that an international agreement has been forged, and that the reform efforts have made some progress, has however had the positive effect of reducing the uncertainties about future changes. the bank of korea can take pride in having ensured that domestic economic activity did not become estranged from international trends, by implementing its monetary and credit policies in line with changes in international financial markets, and in having stood up for our national interests by active involvement in the global efforts for regulatory reform. i would stress that the process whereby a substantial number of bank of korea staff participate in the g20, the imf, the fsb and the basel meetings, convey the meeting results to the korean economic and financial community, and then report the domestic reactions back to these international meetings, has helped our economic agents to prepare themselves for handling the changes in the global economy and, at the same time, helped to ensure the reflection of our economic conditions in the regulatory and policy decision - making process as much as possible. of course, we should be careful that this does not have the negative side effect of lessening our reform efforts to bring korea ’ s economic system into conformity with international norms. my dear colleagues, this year there will be many changes in the bank of korea ’ s policies, as much as in the external environment. given the korean economy ’ s heavy external dependence, in this situation of a rapidly changing and uncertain external environment it is not very realistic or wise for us to conduct economic policies in an inflexible manner by following previously set principles. this is because the downside risk caused by policy failure due to factors that we cannot control may be considerable. however, when the u. s. and other advanced economies begin to show signs of pulling out of their crises, we can achieve a certain degree of growth in line with favorable external economic conditions, and can therefore adopt measures to further strengthen the basis for long - term growth of the domestic korean economy. what challenges do you think are before us? as korea ’ s central bank, we need to pay close attention to the effectiveness and efficiency of our monetary and credit policies in carrying them out. with the g

regulated entities engaged in micro finance pursue the goal of customer protection within a well - calibrated and harmonized set - up. as you all may be aware ; the reserve bank has recently come out with the consultative document ( cd ) on ‘ regulation of microfinance ’ seeking feedback from all the stakeholders. i wish to highlight some of the major aspects we are trying to address through this proposed framework. over - indebtedness and multiple lending 12. the protection of small borrowers has been enshrined in the nbfc - mfi regulations which do not permit more than two nbfc - mfis to lend to the same borrower. besides, there is a regulatory ceiling on the maximum amount that can be lent by an nbfc - mfi to a microfinance borrower. but it is observed that small borrowers are increasingly able to get multiple loans from 2 / 5 bis central bankers'speeches several lenders well beyond their repayment capacity, contributing to over - indebtedness. the borrowers then end up defaulting on their repayment obligations. then there are reports of coercive recovery practices by the entities looking to recover their dues. in this entire process what we see is a compromise with the basic tenet of responsible lending with the small and marginal borrowers ending up becoming victims of over - indebtedness. 13. in the proposed framework, it has therefore been suggested that the regulations should focus on repayment capacity of the borrowers rather than considering only indebtedness or indebtedness from only nbfc - mfis in isolation. it has been proposed to address the issue of over - indebtedness by prescribing a common definition of microfinance loans which will be uniformly applicable to all lenders and linking loan amount to household income. the proposal is that the payment of interest and repayment of principal for all outstanding loans of the household at any point of time should not be more than 50 per cent of the household income. pricing of micro finance loans 14. over the years, modifications in the regulatory instructions and clarifications governing loan pricing for mfis have evolved in sync with changing circumstances. following the recommendations of malegam committee, the guidelines issued in december 2011 prescribed a uniform margin cap ( 12 per cent for smaller nbfc - mfis with portfolio of rs. 100 crore and less and 10 per cent for others ) along with a