Development Financial Institution: Development Financial Institution(DFI) is an institution that provides finances for the development projects on a non-commercial basis means which may or may not meet commercial return standards. Development Financial Institutions(DFIs) facilitate international capital flows by being an intermediary space between public help and private investment. DFIs play a very crucial role in the development as they provide funds to the private sector for doing investments and this helps the private companies to make investments. In this article, we have discussed in detail the Development Financial Institutes(DFIs) which will be helpful for the candidates.
What is a Development Financial Institution?
A Development Financial Institution(DFI) is an institution that has an important role in providing risk capital to the public and private sectors for investments. The owner of the Development Financial Institutions is the Government or Charitable Institution. DFIs are also known as a Development Bank or Development Finance Company(DFC). The finance provided to the private companies is invested especially in the countries where there is much restrictions on the market. The types of Finances provided are:
- Medium(1-5 years)
- Long Term(More than 5 years)
Objectives of Development Financial Institution(DFI)
The main objectives of Development Financial Institutions are:
- The main focus of Development Financial Institute is to boost the economy of the country. The DFIs provide funds for the low capital projects or where their borrowers are unable to get it from commercial lenders.
- DFIs deliver financial support to various sectors in the form of higher risk loans, equity positions, and guarantees. The guarantee to banks are provided on behalf of companies and subscriptions to shares, debentures, etc.
- DFIs do not accept deposits from people instead they raise funds. The funds raised are borrowed from governments, insurance companies, pension funds, and sovereign funds.
- Through Underwriting funds can be raised from the public. Underwriting a financial institution guarantees ensures that a certain percentage of shares of a company that is issuing IPO will be purchased if it is not subscribed by the Public.
- Technical assistance like Project Report, Viability study, and consultancy services are also provided by the Development Financial Institute.
Categories of Development Financial Institutions(DFIs)
Development Financial Institutions(DFIs) are further classified into different parts which are as follows:
- National Development Banks- National Development Banks include IDBI, SIDBI, ICICI, etc.
- Sector-Specific Financial Institutions- Exim Bank, NABARD, NHB, etc. are the part of Sector Specific Financial Institutions.
- Investment Institutions-Investment Institutions are LIC, GIC, UTI, etc.
- State-Level Institutions- SFCs and SIDCs come under the category of State Level Institutions.
Important Development Financial Institutions(DFI)
Some of the important Development Financial Institutions are listed below:
Industrial Finance Corporation of India(IFCI) is the first Development Financial Institution of India. IFCI was established in 1948.
Industrial Credit and Investment Corporation of India (ICICI) Limited was an initiative of the World Bank and was established in the year 1955. ICICI Bank, the subsidiary company of ICICI Limited was established in 1994. In 2002, ICICI Limited got merged into ICICI Bank Limited and became the first universal bank of India. This became a Financial institution that performed dual function both of a Commercial Bank as well as Development Financial Institute. It still remains the only DFI in the private sector.
Industrial Development Bank of India(IDBI) was established in 1964 under the Reserve Bank of India(RBI) and autonomy was granted in 1976. It was made a Universal Bank in 2003. IDBI is responsible for maintaining adequate credit flow to various sectors.
Industrial Reconstruction Corporation of India(IRCI) was established in 1971. IRCI was made to overcome the weak units and provide financial as well as technical assistance.
Small Industries Development Bank of India(SIDBI) was established in 1989. SIDBI was the subsidiary of IDBI. The autonomy was granted to SIDBI in 1998.
Export-Import Bank was set up in January, 1982. The main purpose to establish Exim Bank was to provide technical assistance and loan to exports.
On the recommendation of Shivraman Committee National Bank for Agriculture and Rural Development(NABARD) was set up in July, 1982. NABARD worked as a refinancing institution. In the area of agriculture and rural sectors NABARD acts as the topmost institute.
In 1988 National Housing Bank(NHB) was formed. National Housing Bank was established to finance housing projects.
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FAQs: Development Financial Institution(DFI)
Q.1 What is a Development Financial Institution(DFI)?
Ans. Development Financial Institution(DFI) is an institution that provides risk capital for the development projects on a non-commercial basis.
Q.2 What are the main objectives of Development Financial Institutions(DFI)?
Ans. The main objectives of Development Financial Institutions(DFI) are discussed in the article above.
Q.3 What are the types of Finances provided by the Development Financial Institution(DFI)?
Ans. Two types of finances are provided by the DFIs: Medium(for1-5 Years), and Long Term(for more than 5 years).
Q.4 What are some of the important Development Financial Institutions(DFI)?
Ans. Some important Development Financial Institutions are ICICI, IDBI, NHB, NABARD, SIDBI, etc.
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