changes we have witnessed since the introduction of qqe are broadly consistent with this transmission mechanism. nominal long - term interest rates have declined, with yields of 10 - year jgbs down by about 0. 3 percentage point. medium - to long - term inflation expectations seem to have increased by about 0. 5 percentage point. the combined effects of these two factors – the decline in nominal long - term yields and the increase in inflation expectations – have brought about a decline in real interest rates by slightly less than 1 percentage point. studies for the united states and europe suggest that the effects of a downward shift of the entire yield curve – i. e., including long - term interest rates – on economic activity and prices are several times larger than those of a decline in short - term rates under conventional monetary policy. along similar lines, empirical research by our staff suggests that the effects of qqe are roughly equivalent to those arising from lowering the short - term policy rate by 2 percentage points. given how powerful monetary easing under bis central bankers ’ speeches qqe has been, it is no wonder that japan ’ s economy has been experiencing the drastic changes i mentioned. the former fed chairman, ben bernanke, is quoted to have said, “ the problem with qe is it works in practice but it doesn ’ t work in theory. ” the effectiveness of qe likely differs across economies, depending on economic conditions and financial structures, and academics have not reached a consensus on how effective qe is. however, in the case of japan, we believe that it is possible to explain how qqe works in theory, and qqe has been working as envisaged. based on this belief, the bank will continue to steadily pursue qqe to achieve the price stability target of 2 percent at the earliest possible time. it will examine both upside and downside risks to economic activity and prices, and make adjustments without hesitation if necessary. conclusion with the prospect of overcoming deflation in sight, efforts to raise the growth potential of japan ’ s economy should gather steam. the government is currently implementing various regulatory and institutional reforms as part of its growth strategy. i am aware that many have found previous proposals to raise japan ’ s growth potential disappointing. in hindsight, it is clear that there has been a lack of sufficient incentive and impetus to make change happen. firms had few incentives to grow and simply removing obstacles to growth had little effect. partly because of this, the political will

micro, small and medium enterprises development act, 2006. public policy has rightly accorded high priority to this sector in order to achieve balanced, sustainable, more equitable and inclusive growth in the country. advances extended to the mse sector are treated as priority sector advances and as per the extant reserve bank guidelines, banks are required to extend at least 60 % of their advances to the mse sector to micro enterprises. 4. an increasingly globalised world, marked by competition and innovation, is posing newer and varied challenges to the mses. because of their small size, individual mses are handicapped in achieving economies of scale in procuring equipment, raw materials, finance and consulting services. often, they are unable to identify potential markets to take advantage of market opportunities, which require large volumes, consistent quality, homogenous standards and assured supply. in today ’ s globalised economy, improvements in products, processes, technology and organizational functions such as design, logistics and marketing have become key drivers in delivering competitiveness, for the mses. 5. mses primarily rely on bank finance for a variety of purposes including purchase of land, building, plant and machinery as also for working capital, etc. availability of timely credit at reasonable rates is the need of the sector. as at the end of march 2009, the total outstanding credit provided by all scheduled commercial banks ( scbs ) to the mse sector was rs. 2, 56128 crore, constituting 11. 4 percent of the adjusted net bank credit. credit flow to msmes had therefore, doubled from rs. 1, 27, 000 crore in 2006 – 07 to rs. 2, 57, 000 crore in 2008 – 09. in 2007 – 08, credit flow to the sector was rs. 2, 13, 000 crore. in september 2009 the total outstanding credit stood at 323565 crore and in february 2010 it further increased to rs. 369866 crore. despite the global financial crisis, there was enough liquidity in the indian banking system and banks were willing to extend credit to viable projects. despite the fact that there is no dearth of credit in the system there exists a gap in perception of the lenders and sme borrowers. while the lenders felt that credit to the sector is expanding, the sme borrowers felt that the lenders are not doing enough for the smes and are catering more to the needs of the large corporate. as only 4 – 5 % msmes are