Development Finance Institution (DFI) 

Development Finance Institution (DFI) 

Part of: GS Prelims and GS – III – Economy

In news

• The Union Cabinet cleared a Bill to set up a government-owned development finance institution (DFI) with initial paid-up capital of Rs 20,000 crore.

Key takeaways 

• By setting it up, Government can leverage around Rs 3 trillion from the markets in a few years to provide long-term funds to infrastructure projects and other developmental needs. 
• Besides, the government will give Rs 5,000 crore as grant to the institution. 
• The grant has been provided as tax-saving bonds.
• The amount will protect from loss if the DFI borrows from multilateral or bilateral institutions. 
• The DFI will be fully government-owned initially and will be brought down to 26% in the next few years. 
• At all times, the government will continue to hold 26% in the entity.
• The government will provide a 10-year tax exemption to funds invested in the DFI to attract long-term players such as insurance and pension funds.