CENTRE IS PLANNING TO SET UP A DEVELOPMENT FINANCE INSTITUTION (DFI)

The Union Government is planning to set up a Development Finance Institution (DFI) to mobilise the Rs. 111 lakh crore required for funding of the national infrastructure pipeline.

• Union Finance Minister Nirmala Sitharaman had proposed to set up DFIs for promoting infrastructure funding.

• About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with projected investment of a whopping Rs 111 lakh crore during 2020-25.

What are Development Finance Institutions (DFI)?

• A Development Finance Institution (DFI) is defined as ‘an institution promoted or assisted by Government mainly to provide development finance to one or more sectors or sub-sectors of the economy’.

• Since there is generally a lack of availability of long-term finance for infrastructure and industry, finance for agriculture and small and medium enterprises (SME) development and financial products for certain sections of the people, the DFI plays significant role in financing such sectors.

• The role of development finance is to identify the gaps in institutions and markets in a country’s financial sector and act as a ‘gap-filler’.

• DFIs were established mainly to cater to the demand for long-term finance by the industrial sector.

• DFIs can be broadly categorised as All-India or State / regional level institutions depending on their geographical coverage of operation.

• Functionally, All-India institutions can be classified as :
  1. term-lending institutions (IFCI Ltd., IDBI, IDFC Ltd., IIBI Ltd.) extending long-term finance to different industrial sectors,
  2. refinancing institutions (NABARD, SIDBI, NHB) extending refinance to banking as well as non-banking intermediaries for finance to agriculture, SSIs and housing sector, respectively.
  3. sector-specific / specialised institutions (EXIM Bank, TFCI Ltd., REC Ltd., HUDCO Ltd., IREDA Ltd., PFC Ltd., IRFC Ltd.), and
  4. investment institutions (LIC, UTI, GIC, IFCI Venture Capital Funds Ltd., ICICI Venture Funds Management Co Ltd.). State / regional level institutions are various SFCs, SIDCs and NEDFi Ltd.

(Source: RBI)