The Pooled Finance Development Fund (PFDF) is a fund set up by the Government of India in collaboration with the World Bank. Its objective is to support and promote infrastructure development at the state and local level in India. The fund is managed by the National Bank for Agriculture and Rural Development (NABARD).
The PFDF provides long-term loans to state governments and their agencies, as well as urban local bodies (ULBs) and rural local bodies (RLBs) for infrastructure projects. The fund also provides technical assistance and capacity building support to help improve project preparation, appraisal, and implementation.
The PFDF operates on a pooled financing model, which means that resources are pooled from multiple sources, including the central government, state governments, financial institutions, and multilateral development agencies. The fund then uses these resources to provide loans to eligible entities.
Some of the key features of the PFDF include:
- Long-term financing: The PFDF provides long-term loans to eligible entities, which can be repaid over a period of up to 20 years.
- Flexible financing: The fund provides financing for a wide range of infrastructure projects, including water supply, sanitation, solid waste management, urban transport, and energy.
- Technical assistance: The PFDF provides technical assistance to help improve project preparation, appraisal, and implementation.
- Capacity building: The fund supports capacity building initiatives to help strengthen the institutional and human resource capacity of ULBs and RLBs.
Pooled Finance Development Fund scheme by GoI . Small and medium sized cities find it difficult to raise resources from the market for infrastructure projects due to lack of project structuring capabilities and creditworthiness. The Government of India has launched the Pooled Finance Development Scheme (PFDS) to enable these local bodies to bridge this gap through accessing market funds for their infrastructure projects. The scheme is meant to provide credit enhancement grants to enable local authorities to access market borrowings through Pooled Finance Municipal Bonds (PFMB) for investment in urban infrastructure projects.
For implementing Pooled Finance Mechanism, a State Pooled Finance Entity (SPFE) shall be required to be set up in each State. Each SPFE is to be primarily State designed and could either be a Trust or a Special Purpose Entity, provided that the entity is only a pass through vehicle.
The Central Government would support SPFEs through the PFDF. Of the funds made available with the Central Government for PFDF, 5% would be utilized for project development assistance. Balance 95% would be utilized for contribution to the Credit Rating Enhancement Fund (CREF) to improve the credit rating of the Municipal Bonds to investment grade.
Overall, the PFDF plays an important role in supporting infrastructure development in India, particularly at the state and local level. Its pooled financing approach helps to mobilize resources from multiple sources and provides long-term financing to eligible entities. The fund’s technical assistance and capacity building initiatives also help to improve project quality and implementation.
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- Interview with B K Sinha – The Municipal midas
- Municipal bond in India
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