## Loans from Financial Institutions

Financial institutions provide long-term project finance that commercial banks traditionally did not offer. They evaluate viability, offer longer tenures, and sometimes include technical assistance.

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### National Financial Institutions

Institution	Year	Key Note
IFCI – Industrial Finance Corporation of India	1948	Converted into a public company
SFCs – State Financial Corporations	1951	State-level lending bodies for SSI
NIDC – National Industrial Development Corp.	1954	Industrial development focus
ICICI – Industrial Credit & Investment Corp.	1955	Converted into a bank and privatized
LIC – Life Insurance Corporation of India	1956	Long-term funds via insurance premiums
IDBI – Industrial Development Bank of India	1964	Apex development bank; converted into a bank
UTI – Unit Trust of India	1964	Mutual fund/trust-based investor
IRBI – Industrial Reconstruction Bank of India	1971	Focus on rehabilitation of sick industries

> Chronological memory: 1948 → 1951 → 1954 → 1955 → 1956 → 1964 (IDBI & UTI) → 1971

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### International Financial Institutions

Institution	Year	Purpose
World Bank / IBRD	1944	Long-term project loans, infrastructure in developing countries
IFC – International Finance Corporation	1956	Promotes private sector investment in developing countries
ADB – Asian Development Bank	1966	Regional development across Asia

IBRD = International Bank for Reconstruction and Development
IFC = International Finance Corporation
ADB = Asian Development Bank

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### How Financial Institutions Differ from Commercial Banks

Aspect	Financial Institutions	Commercial Banks
Tenure of Finance	Long-term (5–20 years)	Short to medium term
Evaluation	Project viability + technical appraisal	Creditworthiness of borrower
Primary Role	Development finance	Commercial lending

Worked example

### Example 1

A startup textile unit in Rajasthan needs ₹5 crore to set up a factory. It approaches the State Financial Corporation (SFC) — a National Financial Institution set up in 1951 — which provides long-term project finance that a commercial bank might not offer for such a new, unproven unit.

### Example 2

An Indian infrastructure firm needs $50 million for a road project. It applies to the World Bank (IBRD, est. 1944), which provides long-term project loans at concessional rates for such infrastructure — something domestic banks cannot match in tenure or size.

### Example 3

A private sector firm in an Asian developing country seeks funds to expand operations without government guarantee. It approaches the IFC (International Finance Corporation, est. 1956), the World Bank arm specifically designed to finance the private sector in developing countries.

⚠️ Common exam mistakes

Confusing IDBI and IFCI — IFCI (1948) was the first development finance institution; IDBI (1964) came later and became the apex institution before converting to a bank.
Confusing IFC with IFCI — IFC (International Finance Corporation) is an international institution promoting private sector investment globally; IFCI (Industrial Finance Corporation of India) is an Indian national institution.
Stating ICICI is still a development finance institution — it converted into a commercial bank and was privatized.
Forgetting the year of World Bank (1944) — it was set up at the Bretton Woods Conference, same year as IMF.

Reference:

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Loans from Financial Institutions — National and International

Worked example

⚠️ Common exam mistakes