Development financial institutions

C.8] Development Financial Institutions

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.

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.

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.

Name of DFI	Established	Key Focus Area
IDBI	1964	Industrial Development
NABARD	1988	Rural Development, Agriculture
SIDBI	1990	Small Industries, MSMEs
EXIM Bank	1982	Export and Import Financing
IFCI	1959	Industrial Finance (now merged with IDBI)
NHB	1989	Housing Finance
PNB	1913	Commercial Banking (also acts as DFI in certain roles)

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.

Feature	DFI	Commercial Bank
Primary Objective	Development	Profit
Loan Tenure	Long-term	Short to Medium-term
Interest Rates	Concessional	Market-based
Focus Area	Infrastructure, SMEs, Rural Development	General Banking Services
Government Backing	Yes	No (in most cases)

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)