permitted them only after they are available. for example, we did not permit banks to engage agents to collect or pay moneys, until technology enabled banking correspondents were available. we permitted mobile banking initially only for very small amounts and as security and confidence were built only then, higher amounts were permitted. 19. as regards micro finance, let me explain a little more, as it offers a good case study. when micro finance came on the scene in early 1990s, we recognized it as a new paradigm, with immense implications and were very supportive. when the demands for regulating the micro finance institutions were made, shri jagdish capoor, the then deputy governor, stated in 2001 “ as mfis are significantly different from commercial banks both in terms of institutional structure and product portfolio, application of the same set of regulatory and prudential guidelines to mfis, in our view, not only runs the risk of distorting the emerging market but it may also reduce the efficiency of these institutions ”. when the demands gained momentum by 2005, the then governor, dr yv reddy stated in august 2005, “ microfinance movement across the country involving common people has benefited immensely by its informality and flexibility. hence, their organisation, structure and methods of working should be simple and any regulation will be inconsistent with the core - spirit of the movement ”. thus we were extending every possible support for a financial innovation which was assessed by us as very important for furthering financial inclusion in the country. we were very convinced that light touch regulation was sufficient in those formative years. however, as the sector grew, certain inadequacies and failures became apparent. as shri anand sinha, my predecessor mentioned in april 2012, “ in their eagerness to grow business, the institutions had given a go by to the conventional wisdom and good practices such as due diligence in lending and ethical recovery practices. over - indebtedness of the borrowers led to difficulties in repayments and the forced recoveries by some mfis led to public uproar and the subsequent intervention by the state government ”. consequently, we also had to tighten our regulations on micro - finance, based on the malegam committee recommendations. bis central bankers ’ speeches regulating p2p lending platforms 20. the first set of questions that we need to answer in dealing with the issue of regulating the p2p lending platforms are : i. to regulate them or not? ii. if to regulate,

gdp + 0. 90 * in m3 * significant at 1 % corresponding error correction ( ec ) model including crude oil price and rainfall as exogenous variables is estimated as : wpi - inflation = – 0. 038 * ec + 0. 766 * growth in money supply ( – 1 ) + 0. 063 * growth in crude oil price + 0. 139 * deficit in rainfall. * significant at 10 % the error correction term is negative and the speed of adjustment coefficient for non - agricultural gdp is significant at 1 % and that of wpi at 5 % with negative signs. this implies that in the short - run changes in price cause changes in money supply which, in turn, causes changes in prices. this pattern is more pronounced when plotted against the actual inflation rates ( chart 8 ). iv. conclusions the above discussion leads to the following major conclusions. first, the new series of wpi inflation marks a major change in terms of scope and coverage of commodities and is more representative of the underlying economic structure. as per the new series, the manufactured products inflation is lower than what was seen on the basis of the old series. the food price inflation, on the other hand, is higher than what was seen on the basis of the old series. the high level of food prices is indeed a matter of concern as the prices of protein - based items, which have a higher share in the consumption basket, are showing larger increases. moreover, there is continuing shortage of food items such as pulses and edible oils. if the supply response doesn ’ t improve, there is a risk that food price inflation could acquire a structural character. second, historical data show that india is a moderate inflation country. but there have been phases of sharp spikes in inflation emanating from war, drought and commodity price shocks. supply shocks when accompanied by demand pressures further amplified inflationary pressures. but the inflation rate has reverted to its trend following policy response and improved supply conditions. in the periods of high inflation, monetary policy responded with a combination of available policy instruments through changes in policy interest rates, cash reserve ratio ( crr ), statutory liquidity ratio ( slr ), and in the earlier regime through increased in administered interest rates and credit control. third, the volatility as well as incidence and duration of double digit inflation has reduced over time. inflation control since the mid - 1990s has been particularly successful which can be attributed to wide ranging reforms which have improved the macro - policy framework and