Development Finance Institutions - DFIs

By : Neha Dhyani

Updated : Mar 21, 2022, 12:56

Recently, the Government of India approved a bill to establish a Development Finance Institution (DFI) in the country. These Development Finance Institutions (DFIs) refer to the organizations owned and controlled by the Indian Government or charitable organizations to offer capital for low-capital schemes.

In addition, these Development Finance Institutions (DFIs) inhabit an intermediary place between public assistance and private investment, encouraging global capital flows.

Development Finance Institutions (DFIs) - Overview

  • The DFI (Development Finance Institutions) in India are owned and managed by the Government. These DFIs offer funds for large-scale projects and infrastructure as many leading financial institutions remain unwilling to lend funds for larger projects due to viability concerns.
  • The primary purpose of Development Finance Institutions is to finance large-scale infrastructure activities at a lower cost of borrowings given the attached government guarantees.
  • Additionally, setting up Development Financial Institutions is significant due to increasing NPAs in commercial banks and financial institutions. At present, they are incapable of funding infrastructure projects in the country.

Development Finance Institutions (DFIs)Significant Features

Some of the significant features of Development Finance Institutions (DFIs) are as follows:

  • Development Finance Institutions (DFIs) do not accept deposits from individuals. Therefore, they raise capital by borrowing from states, sovereign reserves, and insurance corporations.
  • These institutions deliver technical aid like project information, viability analyses, and consultancy assistance.
  • DFIs deliver credit enhancement facilities for infrastructure and accommodation undertakings. It also assists in enhancing debt streams towards infrastructure schemes.
  • DFIs strike a proportion between public interest via profit maximization and infrastructure and usually prioritize one over another.
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Objectives of Development Finance Institutions (DFIs)

  • The principal purpose of the Development Finance Institution (DFI) is the country's economic growth.
  • DFIs (Development Finance Institutions) do not accept deposits from individuals. They raise capital by borrowing money from governments and by trading their bonds to the common public.
  • Development Finance Institutions also deliver a guarantee to banks and other financial institutions on behalf of organizations and subscriptions to debentures, shares, and more.
  • They also deliver technical services like project reports, consultancy services, and viability studies.

Four Categories Development Finance Institution (DFI)

The four Development Finance Institution (DFI) categories are as follows:

  • National development banks (SIDBI, IDBI, ICICI, IDFC)
  • Sector-specific financial institutions (EXIM Bank, NHB, NABARD)
  • Investment institutions (GIC, LIC, UTI)
  • State-level institutions (State Finance corporations)
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FAQs on Development Finance Institutions

Q.1. What is the full form of DFI?

DFI stands for Development Finance Institution.

Q.2. Who controls the Development Finance Institutions?

The DFIs (Development Finance Institutions) in India are owned and managed by the Government. These DFIs offer funds for large-scale projects and infrastructure as many leading financial institutions remain unwilling to lend funds for larger projects due to viability concerns.

Q.3. What are the categories of Development Finance Institutions (DFIs)?

The four Development Finance Institution (DFI) categories are as follows:

  • National development banks (SIDBI, IDBI, ICICI, IDFC)
  • Sector-specific financial institutions (EXIM Bank, NHB, NABARD)
  • Investment institutions (GIC, LIC, UTI)
  • State-level institutions (State Finance corporations)

Q.4. What do we mean by Development Finance Institutions (DFIs)?

Development Finance Institutions (DFIs) refer to the organizations owned and controlled by the Indian Government or charitable organizations to offer capital for low-capital schemes.