adequate formal credit. this challenge may be on account of factors such as information asymmetry on their financials and business viability, and also on account of limited formalization even today within the msme sector. many msmes lack comprehensive financial records or credit scores, and in some cases, they may not have sufficient collateral to support the scale of financing they require. these issues result in a substantial gap between the credit needs of these units and the available supplycreating what is known as the credit gap. five years ago, the report of the expert committee on msme ( chair : u. k. sinha ) constituted by rbi estimated this credit gap to be between 20 and 25 lakh crore, underscoring the pressing need to address the financial barriers that continue to constrain this vital sector. 1 / 5 bis - central bankers'speeches rbi initiatives on its part, the reserve bank of india ( rbi ) has consistently prioritised the inclusion of msmes in the formal financial system through a range of targeted measures. one of the key initiatives is the priority sector lending ( psl ) guidelines, mandating a subtarget of 7. 5 per cent of banks'adjusted net bank credit for micro enterprises, while all loans to msmes qualify under psl. rbi has also promoted collateral - free lending by requiring banks not to insist on collateral for loans up to 10 lakh for micro and small enterprises ( mses ) and encouraging financial institutions to lend under the cgtmse scheme which carries zero risk weight for the guaranteed portion of loans. to address the issue of delayed payment to msmes, rbi has introduced several innovations. the trade receivables discounting system ( treds ) facilitates msmes'trade receivable financing through electronic platforms. the account aggregator ( aa ) framework and inclusion of gstn in the aa ecosystem streamline financial data access for msme lending. more recently, the unified lending interface ( uli ), launched as a pilot program in august 2023, allows msmes to access tailored, frictionless credit using digital data. additionally, rbi has implemented a revival and rehabilitation framework for msme loans up to 25 crore, providing an on the tap structured mechanism for stress resolution. in line with its commitment to capacity building, rbi also runs the namcabs 4 program, which familiarises bankers with the specific credit needs of the msme sector, helping to improve their understanding and support for msme financing. these efforts,

in times of distress. the federal reserve has also highlighted the systemic risks associated with the large portfolios of fannie mae and freddie mac. the inherent lack of counterparty discipline is a significant problem associated with the regulation of these government - sponsored enterprises ( gses ). currently, this lack of market discipline, which is a consequence of conjectural federal government guarantees, is self - perpetuating : it has engendered a the u. s. banking agencies recently asked for public comment on a notice of proposed rulemaking for implementing basel ii. pillar three of basel ii is particularly intended to strengthen market discipline. cost of capital for the gses that is nearly comparable to that of the federal government. it should be no surprise, then, that the gse portfolios have grown dramatically since the early 1990s. their growth rates have subsided more recently in light of recent accounting, regulatory, and governance problems, but without significant improvements in market discipline, it is likely that the rapid growth of gse portfolios will resume. market information is not a panacea in the formulation of monetary policy and, likewise, it is not one in the context of supervision and regulation. first, market information is unavailable for many banks, often because they issue public debt only infrequently. second, market discipline for banks is somewhat dependent on the federal reserve's policies and actions, and thus it has a " mirror problem " of its own. that is, through a " certification effect, " bank supervision can potentially create significant moral hazard in that investors may believe that governmental regulation supersedes their need to assess the firms'financial condition. third, the objectives of financial markets and the federal reserve are not perfectly aligned. for example, equity holders of a failing institution may have an incentive to " bet the bank " and thereby maximize the value of the put option the institution believes it holds from the deposit insurer. the onus continues to rest with the federal reserve and other financial regulators to harness the forces of market discipline as a necessary complement to more traditional modes of supervision and regulation. conclusion in summary, markets inform and, in some cases, complement the monetary, supervisory, and regulatory actions of the federal reserve. as i hope that i have made clear, the interaction of market signals and policy is neither simple nor straightforward. you watch us and react to our actions, while simultaneously we monitor you and respond as best we can to the signals you provide about evolving economic and financial conditions. to