beneficiary bank accounts, thereby drastically reducing leakages and pilferages in social welfare schemes. thus, financial inclusion could be an instrument to provide monetary fuel for economic growth and is critical for achieving inclusive growth. further, expanding the reach of financial services to those individuals who do not currently have access would be an objective that is fully consistent with the people - centric definition of inclusive growth which attempts to bridge the various divides in an economy and society, between the rich and the poor, between the rural and urban populace, and between one region and another. an analysis of world bank development indicators implies a strong link between financial access ( measured in terms of commercial bank branches per 100, 000 adults and deposits per 1000 adults ) and economic development. empirical evidence indicates a distinct rise in income level of the countries with higher number of branches and deposits of commercial banks. higher number of bank branches per 100, 000 adults and more number of deposit accounts per 1000 adults are observed in high income countries than countries in the low and middle income categories. though the cause - effect relationship could be the subject of detailed research, the fact that there is a progressive increase in income levels of the countries as financial access increases is empirically evident. source : world development indicators 2010, world bank just as it is difficult to envisage continuing financial stability without financial inclusion, especially in the long term, it is difficult to envisage the success of policy efforts to expand the reach of financial services unless banks and other financial services providers are sound, the financial markets are functioning smoothly and financial market infrastructure is robust. a recent world bank report shows4 that nearly 60 percent of the economies experienced a contraction in real per capita income in 2009 as a result of the deepening of the global financial crisis. worldwide volume of deposits and loans shrank, with a median decrease of 12 percent in the ratio of deposit value to gross domestic product ( gdp ) and a median decrease of 15 percent in the ratio of value of loans to gdp. i have discussed how financial inclusion and financial stability need to co - exist if policy measures pursuing either objective have to achieve any degree of success. let me return now to the key question i flagged at the outset – whether financial inclusion and financial “ financial access : the state of financial inclusion through the crisis ”, consultative group to assist the poor ( cgap ) / the world bank group, 2010. bis central bankers ’ speeches stability are two sides of the same coin and mutually reinforce each

solutions and outsourcing arrangements. such financial innovations have the potential of reducing costs and thereby contributing to increasing the overall efficiency of the economy and the financial stability. they may also, through faster information dissemination and more efficient functioning of the financial markets, contribute to improving the efficiency of transmission of monetary policy. of course, financial innovations and outsourcing arrangements come with their own set of risks which could pose challenges for the overall policy framework for the pursuit of financial stability. but i will discuss this a little later. finally, financial inclusion, through careful policy orientation, may help facilitate reduction in income inequalities and, by bridging the gap between the prosperous and the poor, can foster social and political stability. financial inclusion and financial stability : working at cross purposes this is not to say that there are no risks to financial stability emanating from greater financial inclusion. one only has to recall the savings and loan crisis in the us in 1980s to appreciate that even financial institutions geared to cater to the retail investors and, thereby, to foster financial inclusion, could be a source of financial instability. the recent crisis in us subprime markets is another case in point. policy makers have often endorsed marketing to subprime borrowers as a means of financial inclusion7. with hindsight, it seems clear that such over - extension of credit has the potential to affect the quality of the credit portfolio of banks and financial institutions and could have sown the seeds of financial fragility, and ultimately of financial instability. the position may be further aggravated by regulatory or governmental forbearance which has the potential to vitiate the credit culture amongst the target group. as elucidated by prof. raghuram rajan8, “ easy credit ” as a response to bridge the gap between the haves and the have - nevers could prove to be a “ financial access and financial stability ” – paper written by p. hawkins, feasibility limited south africa for bis ( 2010 ). collard, s. and kempson, e. ( 2005 ), affordable credit : the way forward, york : joseph rowntree foundation. rajan g., raghuram ( 2010 ), fault lines : how hidden fractures still threaten the world economy. bis central bankers ’ speeches costly way of redistribution and create a fault line along the financial sector where enormous stresses could build up and lead to an instability in the system akin to the subprime crisis of recent times. our own experience