##tors and entrepreneurs should be largely left alone, or whether public policy authorities should be actively involved in regulating those. 13. innovations bring in positive changes in efficiency, productivity, quality, competitiveness, and market share, among other factors. however, as innovations usually result in paradigm shifts, they are typically disruptive. it takes effort and time to understand them. the associated dangers include untested effects, lack of clarity on long term effects, and can lead to misunderstanding and misusing the innovation. innovations can sometimes be bad per se ; sometimes even good innovations can be misused. 14. the world economic forum opines that financial innovation has been more positive than negative and hence it will be better not to regulate them away by imposing excessively harsh standards or outright bans on new products. the forum suggests that let innovation occur ; but react appropriately and quicker to any flaws that become apparent and therefore the tendency should naturally be to err on the side of caution. 15. an oecd report argues that we should preserve the benefits of innovative activities, while ensuring that new products and services that prove harmful are appropriately contained. indian experience 16. how have we been regulating financial innovations in india? the reserve bank has employed several approaches while examining whether a financial innovation should be regulated. they include : i. to ignore bis central bankers ’ speeches ii. to watch out iii. to regulate passively iv. to regulate actively, and v. to ban 17. what determines the approach? i can answer this in a simple, rule of thumb manner as follows : i. can the innovation cause large scale damage ; then ban it. ii. is the size or magnitude very small ; then ignore it. iii. can informed decision be taken by the consumers ; then caution them. iv. can it be beneficial to many consumers ; passively regulate it with light touch regulation. v. can it be beneficial to many consumers, but consumer protection issues loom over ; then actively regulate it. 18. for example, the prize chits and money circulation schemes have been banned, whereas with regard to the virtual currencies like bitcoins, we cautioned the public about the risks involved in dealing with them. we had a studied stance and we preferred to err on caution based on the simplicity or complexity of the product or service. while we said “ yes ” to micro finance, we said “ no ” to complex derivatives. in some other cases, we looked for risk mitigants and

maturity transformation matter, continuity and availability will be the essence for the services rendered by the platform. accordingly, the expectations in this regard have been spelt out. conclusion 27. in the end, let me reiterate that the reserve bank considers that the innovation of p2p lending through platforms facilitates direct interaction between small lenders and small borrowers, and hence further financial inclusion ; as consumer protection issues can get amplified, the role of the platforms come into focus ; with appropriate regulatory arrangement, we hope that the platforms will be worthy of the trust that the lenders and the borrowers repose on them. bis central bankers ’ speeches