as they are well capitalized, they are not dependent on scarce and volatile donor resources unlike ngos and mfis. banks offer savings, remittance, loans and other financial products that are prima facie attractive to the hitherto unserved micro finance clients. on the downside, however, banks lack key ingredients, most of all, the financial methodologies to reach the low income population. there are several issues trammeling banks. the issue of commitment is fairly significant. the commitment of commercial banks ( particularly the larger banks ) to micro enterprise lending is often fragile and generally vests on the direction provided by one or two board members rather than it being rooted in their institutional mandate. secondly, they are hampered by their organizational structures. programs for the poor or microfinance programs need to be inserted into the larger bank structure while retaining flexibility, operational independence and autonomy. banks need an appropriate financial methodology to work with efficiency. for gains in the penny economy, they need suitable financial methodology to service the micro enterprise sector and financial innovations that enable cost effective analysis of credit worthiness, the monitoring of relatively poor clients and acceptance of effective collateral substitutes. human resources also need attention given that microfinance programs differ so radically from traditional banking. banks need to recruit and retain specialized staff to manage these programs. issues of recruitment, training and performance linked incentives for bank personnel need special consideration. cost effectiveness is a critical issue. micro finance programs are costly to administer given the overheads of banks. despite these apparent disabilities, if banks work on this, they are ideally suited to microfinance provision. the targeted interventions of the swarn jayanti shahri rozgar yojana and the district industries centres which are designed to impart vocational training to the target group of this program as also the prime minister rozgar yojana have enjoyed only limited success ratios attributable not so much to infirmities in policy design issues as to faulty implementation and poor targeting, lack of predisbursement credit assessment, coupled with poor post - disbursement credit supervision and no space for capacity building and handholding in between. the clear winner is financial inclusion. savings credit extended to the urban poor by the banks can help grow the micro enterprises and power economic growth. let me begin with a simple example. micro enterprises like the ubiquitous street - corner paan wallah who runs a small self - sustaining enterprise, if extended credit by banks, can expand his business, can

price pressure is first seen in other prices than consumer prices. if the riksbank waits to adjust the repo rate until inflation expectations and inflation have already increased, there is a risk that the delay will be too great. in this type of situation larger interest rate adjustments may be required than if the riksbank had acted at an earlier stage. this brings me to the current economic situation. however, first i would like to take a brief look back at the events that occurred in connection with the acts of terrorism in september. the riksbank ’ s actions following the terrorist attacks on 11 september 2001 after the terrorist attacks in the usa, the entire world was shocked to realise that something so dreadful could happen. the executive board made an assessment that the uncertainty caused by the acts of terrorism risked further subduing demand internationally, mainly through the effects on companies ’ and households ’ confidence in the future, which could result in a more profound and prolonged economic downturn. this was why the riksbank lowered its interest rate, together with the central banks in the usa, the rest of europe and several other countries. prior to the terrorist attacks in the usa on 11 september, new statistics indicated that the global economic downturn could reach its lowest level at the end of 2001. however the picture was not clearcut. as a result of the terrorist attacks, uncertainty increased even further regarding the time scale for a recovery. if the consumers ’ confidence with regard to the future were to decline, together with rising unemployment and a weak development in the stock markets, there was a great risk that activity in the us economy would be subdued. companies often react to uncertainty with a “ wait and see ” policy, which means that they postpone investments. in addition, there was uncertainty as to whether the financial system could cope with the problems arising as a result of the devastation in new york. on top of this, certain sectors in the global economy would be hit directly, for instance, insurance companies, airlines, tourism, etc. all of this risked worsening the economic downturn both in the usa and in other countries. the role of a central bank in this type of situation is to contribute to creating confidence and promoting financial stability. it is then important to act quickly and resolutely. this may be considered to contradict the claim that it is important for the riksbank to act predictably. however, for those who have observed the central banks ’ actions on other occasions when problems in the