The development finance institutions or development finance companies are organizations owned by the government or charitable institution to provide funds for low-capital projects or where their borrowers are unable to get it from commercial lenders.Development finance institutions (DFIs) occupy an intermediary space between public aid and private investment, facilitating international capital flows.
Types of Finance provided are –
- Medium (1 – 5 years) and
- Long term ( >5 years).
This is an important topic for the IAS Exam.
The candidates can read relevant information from the links provided below:
| Insurance Regulatory and Development Authority | Non-Banking Financial Institutions |
| Reserve Bank of India | Capital Markets – Importance, Features, and Structure |
| Economic Contagion/Financial Contagion | SIDBI – Small Industries Development Bank of India |
Development Finance Institutions (UPSC Notes):- Download PDF Here
Objectives of Development Finance Institutions
- The prime objective of DFI is the economic development of the country
- These banks provide financial as well as the technical support to various sectors
- DFIs do not accept deposits from people
- They raise funds by borrowing funds from governments and by selling their bonds to the general public
- It also provides a guarantee to banks on behalf of companies and subscriptions to shares, debentures, etc.
- Underwriting enables firms to raise funds from the public. Underwriting a financial institution guarantees to purchase a certain percentage of shares of a company that is issuing IPO if it is not subscribed by the Public.
- They also provide technical assistance like Project Report, Viability study, and consultancy services.
Some Important DFIs (Sector Specific)
Industry
IFCI – 1st DFI in India. Industrial Corporation of India was established in 1948.
ICICI – Industrial Credit and Investment Corporation of India Limited established in 1955 by an initiative of the World Bank.
- It established its subsidiary company ICICI Bank limited in 1994.
- In 2002, ICICI limited was merged into ICICI Bank Limited making it the first universal bank of the country.
Universal Bank – Any Financial institution performing the function of Commercial Bank + DFI
- It was established in the private sector and is still the Only DFI in the private sector.
IDBI – Industrial Development Bank of India was set up in 1964 under RBI and was granted autonomy in 1976
- It is responsible for ensuring adequate flow of credit to various sectors
- It was converted into a Universal Bank in 2003
IRCI – Industrial Reconstruction Corporation of India was set up in 1971.
- It was set up to revive weak units and provide financial & technical assistance.
SIDBI – Small Industries development bank of India was established in 1989.
- Was established as a subsidiary of IDBI
- It was granted autonomy in 1998
Aspirants should begin their preparation by solving UPSC Previous Year Question Papers now!!To complement your preparation for the upcoming exam, check the following links:
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Foreign Trade
EXIM Bank – Export-Import Bank was established in January 1982 and is the apex institution in the area of foreign trade investment.
- Provides technical assistance and loan to exporters
Agriculture Sector
NABARD – National Bank for agriculture and rural development was established in July 1982
- It was established on the recommendation of the Shivraman Committee
- It is the apex institution in the area of agriculture and rural sectors
- It functions as a refinancing institution
Housing
NHB- National Housing Bank was established in 1988.
- It is the apex institution in Housing Finance
Aspirants can also read about micro-finance at the linked article.
Frequently Asked Questions about Development Financial Institutions
Q1
What are the Development Financial Institutions in India?
India had set up extremely successful DFIs such as Industrial Finance Corporation of India (IFCI) in 1948, Industrial Development Bank of India (IDBI) in 1964 and Industrial Credit and Investment Corporation of India (ICICI) in 1955. IFCI and IDBI were fully-owned Government of India (GoI) enterprises.
Q2
What are the 4 types of financial institutions?
The major categories of financial institutions include central banks, retail and commercial banks, internet banks, credit unions, savings, and loans associations, investment banks, investment companies, brokerage firms, insurance companies, and mortgage companies.
Development Finance Institutions (UPSC Notes):- Download PDF Here
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FAQs
DFIs provide loans, grants, equity investments, and other financial instruments to stimulate sustainable economic growth, create jobs, and improve social outcomes.
What are the DFIs financial institutions? ›
DFIs – development finance institutions – are government-backed institutions which invest in private sector projects in low- and middle-income countries.
What are the development finance institutions? ›
The development finance institutions or development finance companies are organizations owned by the government or charitable institution to provide funds for low-capital projects or where their borrowers are unable to get it from commercial lenders. Development finance institutions (DFIs) occupy an intermediary space ...
What are the DFI organizations? ›
DFIs include multilateral development banks, national development banks, bilateral development banks, microfinance institutions, community development financial institution and revolving loan funds.
What are the 5 types of financial institutions? ›
Types of financial institutions include:
- Banks.
- Credit unions.
- Community development financial institutions.
- Utilities.
- Government lenders.
- Specialized lenders.
The major categories of financial institutions are central banks, retail and commercial banks, credit unions, savings and loan associations, investment banks and companies, brokerage firms, insurance companies, and mortgage companies. Federal Reserve System.
What is the purpose of the development finance institutions? ›
Institutions like the World Bank were created to fund the rebuilding of vital infrastructure and services across efforts of war-torn European countries. Since then, development finance has evolved into what it is today: Funding projects that improve the quality of life and well-being of people in developing countries.
What is the difference between development bank and DFI? ›
Abstract: The term " development finance institutions " (DFI) encompasses no only government development banks, but also nongovernmental micro-finance organizations, that match grants to attempt to promote community development, decentralization of power, and local empowerment.
Is the IMF a development finance institution? ›
Driving Economic Growth: The Role of Development Finance Institutions is a 1.5-day course that analyzes the actors and tools that shape economic growth in developing countries, from the perspective of both agencies and banks and the recipient countries affected by their policies. Development finance institutions like ...
Is the IFC a DFI? ›
The IFC is the largest Development Finance Institution (DFI) making up c. 38% of global DFI investments and it is the only multilateral DFI with a global reach.
DFI Account Number – DFI stands for Depository Financial Institution (recipient's bank.)
What is the largest DFI? ›
The International Finance Corporation is the largest among all the DFIs with a total portfolio of over US$ 50 billion.
What does DFI stand for? ›
DFI's stands for Development Finance Institutions. Economic development of the country is the main objective of DFI. You can read about the Development Finance Institutions (DFI) – Objectives, Sector Specific DFI in the given link.
What are the three largest financial institutions? ›
Summary of the Largest Banks in the U.S.
| Ranking | Bank | Headquarters |
|---|
| 1 | JPMorgan Chase | New York, NY |
| 2 | Bank of America | Charlotte, North Carolina |
| 3 | Wells Fargo | San Francisco, California |
| 4 | Citibank | New York, New York |
6 more rowsMar 27, 2024
Banks are financial institutions that are licensed to provide loan products and receive deposits; non-banking institutions cannot do this. Financial services include insurance, the facilitation of payments, wealth management, and retirement planning.
Is Wells Fargo a financial institution? ›
It is a systemically important financial institution according to the Financial Stability Board, and is considered one of the "Big Four Banks" in the United States, alongside JPMorgan Chase, Bank of America, and Citigroup. Wells Fargo Bank, N.A.
Is IFC a DFI? ›
IFC is the only DFI or blended finance implementer taking this step to date.
Are DFIs institutional investors? ›
1. Development finance institutions (DFIs) invest in the private sector to create jobs, deliver impact and generate a financial return. DFIs are usually majority-owned by national governments (bilateral DFIs) or international organisations (multilateral DFIs) such as the World Bank.
Is CDC a DFI? ›
CDC is the UK's development finance institution (DFI). It invests in viable private businesses in poorer developing countries to contribute to economic growth that benefits the poor. CDC is the oldest in a set of bilateral, regional and multilateral DFIs, known as the wider 'DFI architecture'.
