Development Finance Institutions

What are the development finance Institutions?

The development finance institutions or development finance companies are organizations owned by the government or charitable institution to provide funds for low-capital projects or where their borrowers are unable to get it from commercial lenders.

Types of Finance provided are – Medium (1 – 5 years) and Long term ( >5 years)

This is an important topic for the IAS Exam.

Development Finance Institutions (UPSC Notes):- Download PDF Here

Objectives of Development Finance Institutions

  • The prime objective of DFI is the economic development of the country
  • These banks provide financial as well as the technical support to various sectors
  • DFIs do not accept deposits from people
  • They raise funds by borrowing funds from governments and by selling their bonds to the general public
  • It also provides a guarantee to banks on behalf of companies and subscriptions to shares, debentures, etc.
  • Underwriting enables firms to raise funds from the public. Underwriting a financial institution guarantees to purchase a certain percentage of shares of a company that is issuing IPO if it is not subscribed by the Public.
  • They also provide technical assistance like Project Report, Viability study, and consultancy services.

Some Important DFIs (Sector Specific)

Industry

IFCI – 1st DFI in India. Industrial Corporation of India was established in 1948.

ICICI – Industrial Credit and Investment Corporation of India Limited established in 1955 by an initiative of the World Bank.

  • It established its subsidiary company ICICI Bank limited in 1994.
  • In 2002, ICICI limited was merged into ICICI Bank Limited making it the first universal bank of the country.

Universal Bank – Any Financial institution performing the function of Commercial Bank + DFI

  • It was established in the private sector and is still the Only DFI in the private sector.

IDBI – Industrial Development Bank of India was set up in 1964 under RBI and was granted autonomy in 1976

  • It is responsible for ensuring adequate flow of credit to various sectors
  • It was converted into a Universal Bank in 2003

IRCI – Industrial Reconstruction Corporation of India was set up in 1971.

  • It was set up to revive weak units and provide financial & technical assistance.

SIDBI – Small Industries development bank of India was established in 1989.

  • Was established as a subsidiary of IDBI
  • It was granted autonomy in 1998

Foreign Trade

EXIM Bank – Export-Import Bank was established in January 1982 and is the apex institution in the area of foreign trade investment.

  • Provides technical assistance and loan to exporters

Agriculture Sector

NABARD – National Bank for agriculture and rural development was established in July 1982

  • It was established on the recommendation of the Shivraman Committee
  • It is the apex institution in the area of agriculture and rural sectors
  • It functions as a refinancing institution

Housing

NHB- National Housing Bank was established in 1988.

  • It is the apex institution in Housing Finance

Aspirants can also read about micro-finance at the linked article.

Development Finance Institutions (UPSC Notes):- Download PDF Here

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