Pooled Finance Development Fund Scheme is launched by PFDF for offering credit facilities to the Urban Local Bodies in India.
It helps the smaller municipalities get funds from alternative sources for development and infrastructure projects.
The Ministry of Urban Development introduced the Pooled Finance Development Fund (PFDF) Scheme in 2006 to extend credit facilities to Urban Local Bodies (ULBs) in the country.
The Pooled Finance Development Fund Scheme is aimed at helping smaller municipalities receive funds from alternative sources towards development of infrastructure projects. Under the scheme, ULBs can access enhanced credit facilities in the market on the basis of their creditworthiness.
Some of the objectives of the scheme are as follows:
To achieve proper implementation of the Pooled Finance Development Scheme (PFDF), a State Pooled Finance Entity (SPFE) has to be established in all states. The center extends support to SPFE via the Pooled Finance Development Fund.
Around 5% funds for PFDF will be used for project development while the remaining 95% should be used for Credit Rating Enhancement Fund (CREF) to boost the ratings of municipal bonds.
The cost of development of a project for each ULB has to be analyzed (75% will be reimbursed by the centre and 25% by union territory/state governments). It is important to note that the central government will contribute 10% of the proposed bond issue or 50% of CREF, whichever is less.
The accounts of Credit Rating Enhancement Fund are managed by the State Pooled Finance Entity. The CREF funds are invested in bonds of various financial institutions rated AAA or Government of India bonds.
It is important to note that the bonds issued as per the pooled finance development scheme are tax-free. All the same, the dividend income and interest earned from CREF is not tax exempt.
The State Pooled Finance entities have the following objectives
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