Institutions of developmental finance

A Development Financial institution (DFI) is defined as “an institution endorsed or supported by Government of india primarily to provide development/Project finance to one or more sectors or sub-sectors of the economy. the institution differentiates itself by a thoughtful balance between commercial norms of operation, as adopted by any financial institution like commercial bank and developmental responsibilities.

after independence the role of commercial Banking was limited to WORKING CAPITAL financing on short term basis so thrust of DFis was on long term finance to Industry and Infrastructure-2/”>INFRASTRUCTURE sector in india. india’s first financial institution was operationalised in 1948 and it set up state Financial corporations (SFC’s) at the state level after passing of the SFCs act, 1951, succeeded by the development of industrial Finance corporation of india (IFCI).

DFIs can be classified in four categories of institutions as per their functions:

National Development Banks e.g. IDBI, SIDBI, ICICI, IFCI, IRBI, IDFC
Sector specific financial institutions e.g. TFCI, EXIM Bank, NABARD, HDFC, NHB
Investment Institutions e.g. LIC, GIC and UTI
State level Institutions e.g. State Finance corporations and SIDCs

The role of DFIs was to recognize the gaps in institutions and markets in our financial sector and act as a gap-filler which was made due to incapability of Commercial Banks to finance big infrastructure projects for long term and support them to attain Growth and financial steadiness. Therefore, Govt. of India set up specialized DFIs in India to fulfil long term project financing requirements of industry and agriculture. The financial institutions in India were set up under the full control of both Central and State Governments. The Government used these institutions for the achievements in planning and development of the nation as a whole.

Specialized development financial institutions (DFIs), such as, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), National Bank for Agriculture and Rural Development (NABARD), National Housing Board (NHB) and Small Industry Development Bank of India (SIDBI), with majority ownership of the RBI were launched to meet the long-term financing needs of industry and Agriculture In India for driving growth in our economy post-independence. There have been three phases in the evolution of DFIs in India. The first phase began with Independence and spreads to 1964 when the Industrial Development Bank of India was set up. The second phase stretched from 1964 to the middle of the 1990s when the role of the DFIs grew in importance, with the funding disbursed by them amounting to 10.3 per cent of Gross Capital Formation in 1990-91 and 15.2 per cent in 1993-94. In third phase after 1993-94, the prominence of development banking declined with the decline being particularly severe after 2000-01, as Liberalization-2/”>Liberalization resulted in the exit of some firms from development banking and in a waning in the Resources mobilised by other firms.

Historical evolution of Institutions of developmental finance in india

The process started instantly after Independence, with the setting up of the Industrial Finance Corporation (IFCI) in 1948 to embark on long term term-financing for industries. State Financial Corporations (SFCs) were formed under an Act that came into effect from August 1952 to endorse state-level, small and medium-sized industries with industrial finance. In January 1955, the Industrial Credit and Investment Corporation of India (ICICI), the first development finance institution in the private sector, came to be set up, with backing and funding of the World Bank. In June 1958, the Refinance Corporation for Industry was established, which was later taken over by the Industrial Development Bank of India (IDBI). Other DFIs that were launched included the Agriculture Refinance Corporation (1963), Rural Electrification Corporation Ltd. and HUDCO. Two other major steps in institution building were the setting up of IDBI as an apex term-lending institution and the Unit Trust of India (UTI) as an investment institution, both starting operations in July 1964 as subsidiaries of the Reserve Bank of India. There were new initiatives at the level of the states as well in the 1960s. State governments setup State Industrial Development Corporations (SIDCs) to inspire industrial development in their territories.

Specialized financial institutions set up after 1974 included NABARD (1981), EXIM Bank (1982), Shipping Credit and Investment Company of India (1986), Power Finance Corporation, Indian Railway Finance Corporation (1986), Indian RENEWABLE ENERGY Development Agency (1987), Technology Development and Information Company of India, a venture fund later known as IFCI Venture Capital Funds Ltd. and ICICI Venture Funds Management Ltd. (1988), National Housing Bank (1988), the Tourism Finance Corporation of India, set up by IFCI (1989), Small Industries Development Bank of India (SIDBI), with functions relating to the micro, medium and small industries sector taken out of IDBI (1989).

Development finance institutions (DFIs) are financial institutions that provide loans, grants, and other forms of financial assistance to developing countries. DFIs can be either public or private, and they can be multilateral, bilateral, or national.

Multilateral development banks (MDBs) are DFIs that are owned by multiple countries. The World Bank Group is the largest MDB, and it includes the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). Other MDBs include the Asian Development Bank (ADB), the African Development Bank (AfDB), and the European Bank for Reconstruction and Development (EBRD).

Bilateral development agencies (BDAs) are DFIs that are owned by a single country. The United States Agency for International Development (USAID) is the largest BDA, and it provides development assistance to countries around the world. Other BDAs include the Canadian International Development Agency (CIDA), the Department for International Development (DFID) of the United Kingdom, and the Japan International Cooperation Agency (JICA).

Private sector development finance institutions (PSDFIs) are DFIs that are owned by private investors. PSDFIs provide loans, Equity, and other forms of financial assistance to private businesses in developing countries. Some of the largest PSDFIs include the International Finance Corporation (IFC), the European Investment Bank (EIB), and the CDC Group.

Development finance corporations (DFCs) are DFIs that are owned by governments. DFCs provide loans, equity, and other forms of financial assistance to private businesses in developing countries. The United States Development Finance Corporation (DFC) is the largest DFC, and it was created in 2019 by merging the Overseas Private Investment Corporation (OPIC) and the Development Credit Corporation (DCC).

Export-import banks (ExIm banks) are DFIs that are owned by governments. ExIm banks provide loans and guarantees to help businesses export their goods and Services. The Export-Import Bank of the United States (EXIM Bank) is the largest ExIm bank, and it provides financing to help American businesses compete in the global marketplace.

Investment Banks are financial institutions that help companies raise capital by issuing stocks and Bonds. Investment banks can also provide financial advice to companies. Some of the largest investment banks include Goldman Sachs, Morgan Stanley, and JPMorgan Chase.

Venture capital firms are financial institutions that provide capital to early-stage companies. Venture capital firms typically invest in companies that have the potential to grow rapidly. Some of the largest venture capital firms include Andreessen Horowitz, Sequoia Capital, and Accel Partners.

Private Equity firms are financial institutions that provide capital to companies that are not publicly traded. Private equity firms typically invest in companies that are in need of restructuring or expansion. Some of the largest private equity firms include Blackstone Group, Carlyle Group, and KKR & Co.

Microfinance institutions (MFIs) are financial institutions that provide small loans to low-income individuals and businesses. MFIs typically charge high interest rates, but they often provide the only source of credit available to these borrowers. Some of the largest MFIs include Grameen Bank, Kiva, and Accion International.

Non-governmental organizations (NGOs) are non-profit organizations that work to address social and environmental problems. NGOs can provide financial assistance, technical assistance, and advocacy services. Some of the largest NGOs include Oxfam, Save the Children, and World Vision.

Social impact investors are investors who seek to generate both financial and social returns on their investments. Social impact investors typically invest in companies and projects that have a positive impact on the Environment or Society. Some of the largest social impact investors include Acumen Fund, Bridges Ventures, and Omidyar Network.

Foundations are non-profit organizations that are funded by endowments or donations. Foundations typically provide grants to other non-profit organizations. Some of the largest foundations include the Bill & Melinda Gates Foundation, the Ford Foundation, and the Rockefeller Foundation.

Religious organizations are organizations that are based on a particular religious faith. Religious organizations can provide financial assistance, social services, and Education. Some of the largest religious organizations include the Catholic Church, the Evangelical Lutheran Church in America, and the Southern Baptist Convention.

Philanthropists are individuals who donate Money or time to charitable causes. Philanthropists can donate to individuals, organizations, or causes that they believe in. Some of the most famous philanthropists include Bill Gates, Warren Buffett, and Oprah Winfrey.

Individuals can also provide development finance by donating money or time to charitable causes. Individuals can also invest in social impact businesses or donate to microfinance institutions.

What are the different types of institutions of developmental finance?

There are many different types of institutions of developmental finance, but some of the most common include:

Development banks: These are banks that provide loans and other financial assistance to developing countries.
Multilateral development banks: These are banks that are owned by multiple countries and provide financial assistance to developing countries.
Bilateral development agencies: These are government agencies that provide financial assistance to developing countries.
Private foundations: These are foundations that provide financial assistance to developing countries.
Non-governmental organizations (NGOs): These are organizations that provide financial assistance to developing countries.

What are the benefits of institutions of developmental finance?

There are many benefits to institutions of developmental finance. Some of the most common benefits include:

They can provide much-needed financial assistance to developing countries.
They can help to promote economic growth and development in developing countries.
They can help to reduce POVERTY in developing countries.
They can help to improve the Quality Of Life in developing countries.

What are the challenges of institutions of developmental finance?

There are also some challenges associated with institutions of developmental finance. Some of the most common challenges include:

They can be bureaucratic and slow to respond to the needs of developing countries.
They can be subject to political interference.
They can be inefficient and wasteful.
They can be corrupt.

What is the future of institutions of developmental finance?

The future of institutions of developmental finance is uncertain. Some experts believe that they will continue to play an important role in promoting economic growth and development in developing countries. Others believe that they will become less important as developing countries become more developed.

Which of the following is not a type of financial institution?
(A) Commercial bank
(B) Development bank
(C) Investment bank
(D) Insurance company
Which of the following is the main function of a commercial bank?
(A) To provide loans to businesses and individuals
(B) To invest in stocks and bonds
(C) To insure against financial losses
(D) To manage pension funds
Which of the following is the main function of a development bank?
(A) To provide loans to businesses and individuals
(B) To invest in stocks and bonds
(C) To insure against financial losses
(D) To provide financial assistance to developing countries
Which of the following is the main function of an investment bank?
(A) To provide loans to businesses and individuals
(B) To invest in stocks and bonds
(C) To insure against financial losses
(D) To help companies raise money by issuing stocks and bonds
Which of the following is the main function of an insurance company?
(A) To provide loans to businesses and individuals
(B) To invest in stocks and bonds
(C) To insure against financial losses
(D) To manage pension funds
Which of the following is the main difference between a commercial bank and a development bank?
(A) Commercial banks provide loans to businesses and individuals, while development banks provide financial assistance to developing countries.
(B) Commercial banks invest in stocks and bonds, while development banks do not.
(C) Commercial banks insure against financial losses, while development banks do not.
(D) Commercial banks are for-profit institutions, while development banks are not-for-profit institutions.
Which of the following is the main difference between an investment bank and a commercial bank?
(A) Investment banks help companies raise money by issuing stocks and bonds, while commercial banks provide loans to businesses and individuals.
(B) Investment banks invest in stocks and bonds, while commercial banks do not.
(C) Investment banks insure against financial losses, while commercial banks do not.
(D) Investment banks are for-profit institutions, while commercial banks are not-for-profit institutions.
Which of the following is the main difference between an insurance company and a commercial bank?
(A) Insurance companies provide loans to businesses and individuals, while commercial banks do not.
(B) Insurance companies invest in stocks and bonds, while commercial banks do not.
(C) Insurance companies insure against financial losses, while commercial banks do not.
(D) Insurance companies are for-profit institutions, while commercial banks are not-for-profit institutions.
Which of the following is the main reason why financial institutions are important?
(A) They provide loans to businesses and individuals, which helps to stimulate the economy.
(B) They invest in stocks and bonds, which helps to raise money for companies and governments.
(C) They insure against financial losses, which helps to protect people and businesses from financial hardship.
(D) All of the above.
Which of the following is the main risk associated with financial institutions?
(A) They are susceptible to financial crises, which can have a devastating impact on the economy.
(B) They are often involved in fraudulent activities, which can harm investors and consumers.
(C) They are subject to government regulation, which can stifle innovation and competition.
(D) All of the above.