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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.

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