What are “DFIs or Development Finance Institutions”?

What is the News?

The Union Cabinet has approved a bill to set up a DFI (Development Finance Institution). It will be called National Bank for Financing Infrastructure and Development (NaBFID).

Click Here to Read about NaBFID

About DFIs:

• The development finance institutions(DFI) are usually owned by the government or public institutions. DFIs provide funds for infrastructure and large-scale projects. Large Scale banks are often not interested in lending for such projects due to viability issues.
• The prime objective of DFI is the economic development of the country via financing infrastructure activities.
• Their cost of borrowings also reduces because of the attached government guarantees.
• Setting up of DFI is important due to rising NPAs in commercial banks. At present, they are unable to finance infrastructure projects in India.

Key Features of DFIs Development Finance Institution :

• Funding: DFIs do not accept deposits from people. Thus, they raise funds by borrowing from governments, insurance companies, and sovereign funds.
• Functions: They provide technical assistance like project report, viability study, and consultancy services.
• DFIs provide credit enhancement for infrastructure and housing projects. It also helps in improving debt flows towards infrastructure projects.
• DFIs strike a balance between public good via infrastructure and profit maximization. It often prioritizes the former over the latter.

DFIs Development Finance Institution in India:

• The first DFI in India was the Industrial Financial Corporation of India (IFC) that was launched in 1948. IDBI, UTI, NABARD, EXIM Bank, SIDBI, NHB, IIFCL are the other major DFIs.
• Later, several of them were converted into banks like ICICI Bank, IDBI Bank etc.

DFI categories: DFIs in India are classified into four categories of institutions as per their functions:

• National Development Banks e.g IDBI, SIDBI, ICICI, IDFC
• Sector specific financial institutions e.g. EXIM Bank, NABARD, NHB
• Investment institutions e.g LIC, GIC, UTI
• State level institutions e.g. state Finance corporations.

Source: The Hindu