Development Finance Institution (DFI) :-
A DFI also known as a development bank or development finance company is a financial institution that provides risk capital for economic development project on non-commercial basis.
Difference between DFI & Commercial Banks :-
Need for India to have DFIS :-
- To solve the infrastructure financial needs of the country since banks don’t have the long term funds to finance such projects.
- In india there is no DFIS to fund long term infrastructure project , establishments of DFIS will enhance debt flow towards such projects.
- DFIS could cater to the wholesale & long term financial needs of the growing economy.
- As per RBI’s discussion paper on wholesale & long term finance banks in 2017 there is a decline in the long term assets relative to total assets on the banks balance sheet.
- Provide concessional funds at a lower rate of interest.
- Social return of DFIS is quite high.
- Specialised in nature cater the need of long term finance & quicken the economical development.
Issues involved / disadvantages:-
- In emerging sector risk may be higher than the ordinary financial system & they are unable to bear the risk.
- Problem in mobilisation of resources.
- Removal of concessional rate regime.
- Problem of competitive interest rate.