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You write: “and (2) at the same time, commercial banks should be encouraged to lend prudentially to small and medium enterprises (moral persuasion)” Yes but no one, not even the World Bank, supposed to be the prime development institution in the world, utters a word of protest when financial regulators require banks to hold higher capital requirements when lending to small and medium enterprises... which is similar to placing the heaviest “handicap” weights on the weakest horses in order for the race to be more equal. Currently, just because the regulators decided to allow the banks to lend to those who are perceived as being less risky with lower capital requirements, the small businesses and entrepreneurs, on top of the risk-adjusted higher interest rates they pay, need to pay an additional 2 percent a year only to remain competitive when accessing bank credit. http://subprimeregulations.blogspot.com/2010/07/basel-committee-makes-small-businesses.html Since it is precisely in the tuff times when we most need the tuff small businesses and entrepreneurs to get going, this all amounts to sheer lunacy.