POOLED FINANCE DEVELOPMENT FUND
TO IMPROVE CREDIT FLOW TO SMALL & MEDIUM TOWNS
Government is planning
to launch Pooled Finance Development Scheme to enable smaller
municipalities to look for alternative sources of funding for
their bankable infrastructure projects/schemes. This scheme is
expected to provide credit enhancement to access market borrowings
on a creditworthy basis and facilitate introduction of necessary
urban sector reform and development of Municipal Bond market.
Each state/UT will
designate either an existing state entity or create a new entity
for execution of the scheme. The Central Government would support
SPFE (State Pooled Finance Entity) through the Pooled Finance
Development Fund. A token provision of Rs. 50 lakh has been proposed
in 2003-04 and tentative allocation of Rs. 400 crore under the
10th Five Year Plan has been made for the scheme. Of
the funds available with the Central Government for PFDF 25% would
be utilized for assistance for reforming the municipalities/ULBs
so as to increase their creditworthiness and the balance 75% would
be utilized for contribution to the Debt Service Reserve Fund
(DSRF).
It may be noted
that traditionally majority of urban infrastructure projects are
financed by state governments with support from institutions like
LIC, HUDCO, etc. Now with the declining availability of state
finance and Reserve Bank of India’s endeavor to streamline lending
against state guarantees, flow of funds to infrastructure project
of Urban Local Bodies has diminished. Pooled finance scheme is
expected to address this problem.
