Development Financial Institutions (DFIs) are specialised government or quasi-government institutions that provide long-term finance to sectors of the economy where the risk may be too high for commercial banks. Their main goal is to promote economic development, not to maximise profit.
Think of them as specialist doctors for the economy. While a commercial bank is like a general physician, a DFI is like a cardiologist or a neurologist, focusing on a specific, critical area.
National Bank for Agriculture and Rural Development (NABARD)
NABARD is the apex development bank for agriculture and rural development in India. It was established in 1982.
Key Functions of NABARD
- Refinancing: NABARD does not lend directly to farmers. Instead, it refinances institutions that do, such as commercial banks, Regional Rural Banks (RRBs), and cooperative banks, for their rural and agricultural lending.
- Rural Infrastructure Development: It provides loans to state governments and state-owned corporations to build rural infrastructure like roads, bridges, and irrigation projects through its Rural Infrastructure Development Fund (RIDF).
- Supervision: It supervises RRBs and Cooperative Banks to ensure their financial health.
- Promotion and Development: It supports various development initiatives, including microfinance and the promotion of Self-Help Groups (SHGs).
Small Industries Development Bank of India (SIDBI)
SIDBI is the principal financial institution for the promotion, financing, and development of the Micro, Small, and Medium Enterprise (MSME) sector. It was established in 1990.
Key Functions of SIDBI
- Refinancing: Similar to NABARD, SIDBI primarily provides refinance to banks and NBFCs for their loans to MSMEs.
- Direct Lending: It also provides direct loans to MSMEs in some cases.
- Venture Capital: It supports startups and new businesses in the MSME sector through venture capital funds.
- Credit Guarantee: It helps MSMEs get loans by providing credit guarantees.
Other Key DFIs
National Housing Bank (NHB)
- Role: The apex institution for housing finance in India.
- Function: It regulates and refinances housing finance companies (HFCs) and works to promote a sound and stable housing finance market.
Export-Import Bank of India (EXIM Bank)
- Role: The premier institution for financing and promoting India’s international trade.
- Function: It provides loans to exporters and importers and helps Indian companies to expand their business in overseas markets.
In summary, DFIs play a crucial role by filling the credit gaps in the economy. They provide the necessary long-term capital and support to vital sectors like agriculture, small industries, and infrastructure, which are essential for the overall development of the nation.