He urged writers to “throw away anything that is false, no matter how much he might love that page or paragraph”. In a similar vein, Malaysia’s microfinance journey has been one of trial and error, as we continuously strived to increase the social and economic impact of microfinance, sometimes working against the tide of popular thinking. This has led to a more nuanced approach to the development of microfinance over time, and an ongoing process of rethinking norms which we may take for granted today. Today, I would like to talk about three perspectives that have shaped the way we approach and implement microfinance in Malaysia. First, technology when used in a clever way, can be of great use. While technological advancements hold great promise for expanding access to financial services for the poor, we need to invest time and resources to understand the factors that affect the poor, and the suitable approach to generate income and create wealth. These insights are what will determine whether technology is central or peripheral to the inclusion agenda. Second, the tradeoffs between financial stability and inclusion requires smart management. A microfinance strategy that focuses largely or wholly on providing credit to the unserved is almost destined to fail, potentially leaving communities worse off from excessive debt burdens. Instead, implementation strategies should ensure that the provision of credit are complemented by the necessary safeguards and financial education.
At this time, given better growth prospects for emerging markets in the near-term, there could be a resurgence of strong capital flows to emerging markets once the current global crisis subsides. As large capital inflows are known to be one of the key contributing factors of many financial crises in the past, preparing the economic and financial system to effectively intermediate it and manage the associated risk to maintain financial stability, will be the first and foremost challenge for SEACEN regulators and  2  BIS Review 96/2009  policymakers. In the past, what happened was that, in response to the strong capital inflows and abundant liquidity, banks tended to relax their underwriting standards, which gave rise to the formation of asset price bubbles. Therefore, going forward, risk management of banks must continue to be strengthened and regulators must be prepared to use macro-prudential measures proactively as necessary to reduce such risk. This means credit standards and bank capital rules must remain vigilant regardless of the abundance of liquidity. Second, the issue of procyclicality has gained the attention of regulators and the banking industry for quite some time in the context of Basel II. Since then, especially at the start of this crisis when credit crunch has slowed economic activities, a number of proposals have been put forward to deal with this issue. So far, the debate remains open.