Pooled Finance Development Fund (PFDF) Scheme: The Government of India launched the Pooled Finance Development Fund (PFDF) scheme in 2006. The scheme was also introduced through state-level-pooled finance mechanism for availing market loans to ULBs based on their credit worthiness. The Pooled Finance Development Fund (PFDF) scheme provides a superior way to withdraw credit cards.
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POOLED FINANCE DEVELOPMENT FUND SCHEME (PFDF) |
(PFDF) Broad Objectives of Pooled Finance Development Fund Scheme
- Developing urban infrastructure projects
- Appropriate capacity building measures
- Bankable through financial structure of projects
- Bankable in respect of PFDF
- Definition of projects appropriate credit enhancement measures
- Satisfaction of agencies and potential investors
- Market Debt Servicing
(PFDF) Facility of Pooled Finance Development Fund Scheme
Greater facilitation of capital and financial markets for investment in critical municipal infrastructure by providing 100% credit enhancement subsidy to State Pooled Finance Institutions (SPFEs) to access capital markets on behalf of ULBs for investment in urban areas by one or more identified ULBs. There is
Schemes with appropriate credit enhancement measures and appropriate increase in existing high cost loans to local self-government bodies (gram panchayats) in cost of borrowing. It also aims to slow the development of the municipal bond market through restructuring.
For implementation of pooled finance mechanism,
A Pooled Finance Entity (SPFE) must be set up in every state. The SPFE should be primarily state designed and should either be through a trust. Or there may be special other elements, if the local bodies (gram panchayat) have only vehicular access. The basic (gram panchayat) benefit of setting up a local SPFE would be: It will enable ULBs to regularly access the bond market and leverage incremental operations. Further, efficient SPFEs can generate a fair amount of goodwill in the bond market and achieve higher levels of efficiency in operations than individual ULBs. More importantly, it will be able to hedge against a wider spectrum of activities than individual ULBs.
(PFDF) What are pooled development funds?
Government of India will support SPFE through PFDF. 10% of the funds made available will be used for project development assistance. The remaining 96% will be used to contribute to the Credit Rating Enhancement Fund (CREF) to improve the credit rating of municipal bonds to investment grade.
What is a pooled financing mechanism?
Project development cost will be fixed for each Municipality / ULB. 76% of this cost will be reimbursed by the Government of India and 26% by the State Government/UT Government/ULB. Transaction costs may also be part of this package, including the appointment of consultants, rating agencies and creation and commissioning of SPFEs. The Central Government's contribution to CREF will be 11% of the proposed amount of the bond issue or 51% of the CREF requirement for an investment grade rating as determined by the credit rating agencies, whichever is lower.
The concerned State Government/UT Government will contribute the remaining amount.
The Central Government's contribution to CREF will be one-time and upfront. In case of default, the central government will have no further recourse and the agency/institution guaranteeing the loan will be condemned. At the end of the tenure of the issued bonds, the Central and State share in CREF will remain with the State entity to further leverage the funds for infrastructure investment to Municipalities/ULBs.
The CREF will be managed by the SPFE and its accounts will be kept separate from other functions of the SPFE. Funds in CREF will be invested in notes or bonds of the Government of India or in accounts/notes/bonds of financial institutions rated at the highest category (AAA) by recognized credit rating agencies. Thus, CREF's corpus will grow over time and SPEF will be able to further invest in urban infrastructure.
Bonds issued under the Pooled Finance Framework will be eligible for tax-exempt status as per the Ministry's guidelines on tax-exempt municipal bonds, including SPFEs as eligible issuers requiring necessary amendments to the Income Tax Act by the Ministry of Finance. However, interest and dividend income from investments made out of CREF corpus will not be exempt from income tax.
PFDF will ensure availability of resources to "POOLED FINANCE DEVELOPMENT FUND SCHEME (PFDF)" Urban Local Governments to achieve the objective of urban infrastructure, service delivery and ultimately self-sustainability. The ongoing programs of the central and state governments may not be sufficient to cover the resource gap as per requirement.
What are the 2 types of pooled funds?
- 1 ) PFDF is another attempt to bridge the gap through which cities can access market funding for their infrastructure projects.
- 2 ) PFDF will be implemented as per the guidelines of Integrated Finance Development Plan.
Section 10(15)(viii) of the Income-tax Act has been duly amended under the Finance Act, 2007, brought into force on 11.05.2007, to provide exemption in respect of interest on bonds issued by State Consolidated Financial Institutions specified by the Central Government by notification in the Official Gazette, and substituted "State Consolidated Financial Institutions". "Finance component" is defined therein, as established by the Central Government in accordance with the guidelines of the Pooled Finance Development Scheme notified in the Ministry of Urban Development. Guidelines for issuance of tax free pooled finance, to implement the scheme
Development bonds have been issued on 8.6.2007. On 22.1.2007 and 7.3.2007 the matter has been pursued at Chief Secretary and Chief Minister level to expedite setting up of SPFEs in States/UTs. It is as follows.
State Pooled Finance Entity
- Andhra Pradesh,
- Karnataka,
- Nagaland,
- Orissa,
- Rajasthan,
- Tamil Nadu,
- Kerala
- Assam
These 8 states have set up their "State Pooled Finance Entity" to implement the scheme in their states.
Goa, the smallest state of the country, has indicated that it is not feasible to set up an SPFE in the state. Designated SPFE of Tamil Nadu received from Water and Sanitation Pooled Fund Rs. The first proposal to issue tax free Finance Development Bonds worth Rs.45.00 crore has been notified by the Revenue Department in the Official Gazette dated 15.1.2008. .
Why invest in pooled funds?
CREF's contribution towards project development cost issued on 14.2.08 Rs. 4.50 crore and Rs. The proposal involved issuing 1.16 crores. In 2008-2009, no expenditure was incurred on the budgetary provision of Rs.20.00 crore as no proposal was received during the year.
A budgetary provision of Rs 0.01 crore was made for this scheme in 2009-2010 and any expenditure was under consideration as a proposal was received in November 09. In 2010-2011, for the scheme Rs. A budgetary provision of ` 0.02 crore was made and an expenditure of ` 4.50 crore was incurred. To issue tax free
Pooled Municipal Debt Obligation
Bonds worth 83.20 crore were notified as the second phase under Pooled Finance Development Fund scheme (PFDF) by Consolidated Fund for Water and Sanitation, Tamil Nadu for 6 Underground Sewerage Schemes (UGSS) and one water supply project to be implemented in seven urban local bodies.
What does it mean when funds are pooled?
Revenue Department who was fully subscribed on 14.7.2010-2011. In 2011-2012, a budgetary provision of ` 0.02 crore has been made for the scheme. However, in 2011-2012, no proposal was received, so the expenditure could not be spent. In 2012-2013, a budgetary provision of ` 0.02 crore was made and no expenditure was incurred as no proposal was received.
An outlay of ` 2500 crore has been proposed for the twelfth plan. Due to market factors beyond the control of ULBs as well as demand and supply side constraints for ULBs, the scheme has received lukewarm response.
What is the main difference between pooled funds and mutual funds?
An Executive Session on Development of India's Municipal Bond Market: Challenges to Overcome was organized on 29 July 2008-2009 at New Delhi under the Chairmanship of Secretary, Ministry of Urban Development. Representatives from state governments, RBI, LIC, private sector / institutional investors and international development partners attended the session. To remove the bottlenecks in the development of India's municipal bond market, the following issues have been raised with the authorities such as IRDA, RBI and the Ministry of Finance:
POOLED FINANCE DEVELOPMENT FUND (PFDF) SCHEME PDF DOWNLOAD
- Expanding the category of "approved investments" to include municipalities. Investment grade or senior bonds. "POOLED FINANCE DEVELOPMENT FUND (PFDF) SCHEME"
- Municipal bonds will be classified in the 'hold to maturity' category rather than the 'mark-to-market' category. "POOLED FINANCE DEVELOPMENT FUND (PFDF) SCHEME"
- Specify Municipal Bonds under the 'Priority Sector' category for investment/lending purposes. "POOLED FINANCE DEVELOPMENT FUND (PFDF) SCHEME"
- To review the 8% cap on interest rate for tax-exempt municipal bonds and instead prescribe benchmark market rate linked to SBI-PLR as an absolute percentage."POOLED FINANCE DEVELOPMENT FUND (PFDF) SCHEME"
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