Development financial institutions

C.8] Development Financial Institutions

1. Definition and Role

1.1 Definition

• Development Financial Institutions (DFIs) are specialized financial institutions established to provide long-term financial assistance to promote economic development.
• They are typically government-owned or government-backed entities.
• DFIs focus on financing projects and activities that have long-term developmental goals rather than short-term profit.

1.2 Role of DFIs

• Promote Industrialization: Provide financial support to industries that are considered vital for national development.
• Support Infrastructure Development: Finance major infrastructure projects such as roads, bridges, power plants, and irrigation systems.
• Encourage Small and Medium Enterprises (SMEs): Offer credit and financial assistance to SMEs which are crucial for employment and economic growth.
• Foster Regional Development: Support projects in backward or underdeveloped regions to reduce regional disparities.
• Contribute to Economic Stability: Help in managing economic fluctuations by providing credit during periods of economic downturn.

1.3 Key Characteristics

• Long-term Financing: DFIs provide long-term loans and credit at concessional rates.
• Non-Profit Orientation: Their primary objective is development rather than profit.
• Government Backing: Most DFIs are backed by the government or public sector.
• Specialized Focus: They focus on specific sectors such as agriculture, industry, infrastructure, and SMEs.

1.4 Examples of DFIs in India

1.5 Key Facts for Competitive Exams

• NABARD is the apex institution for rural development in India.
• SIDBI is the primary institution supporting MSMEs in India.
• IDBI was the first DFI in India established in 1964.
• EXIM Bank is the principal institution for promoting India’s exports and imports.
• IFCI was merged with IDBI in 1993 to form IDBI Bank.
• NHB plays a crucial role in housing finance and urban development.
• DFIs are often referred to as “Development Banks” in the Indian context.

1.6 Differences Between DFIs and Commercial Banks

1.7 Important Dates

• 1964: IDBI established.
• 1988: NABARD established.
• 1990: SIDBI established.
• 1982: EXIM Bank established.
• 1989: NHB established.
• 1993: IFCI merged with IDBI.

1.8 Frequently Asked Questions (FAQs)

• Q: What is the main function of a DFI?
  A: To provide long-term financial assistance for developmental projects.

• Q: Which DFI is responsible for promoting rural development in India?
  A: NABARD

• Q: Which DFI supports MSMEs in India?
  A: SIDBI

• Q: Which DFI was the first to be established in India?
  A: IDBI (1964)

• Q: What is the role of EXIM Bank?
  A: To promote India’s exports and imports through financial assistance.

• Q: Which DFI is involved in housing finance?
  A: NHB

• Q: What is the full form of SIDBI?
  A: Small Industries Development Bank of India

• Q: Which DFI was merged with IDBI?
  A: IFCI (1993)