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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