The Cabinet Committee on Economic Affairs today gave its approval for setting up of Pooled Finance Development Fund (PFDF), which would enable the Urban Local Bodies (ULBs) including small and medium sized  municipalities to raise funds from the market on a sustainable basis to meet their investment needs.  PFDF will provide credit enhancement to ULBs to access market borrowings based on their credit worthiness through State level Pooled Finance Mechanism viz. a State Pooled Finance Entity (SPEF).

            An allocation of Rs.400 crore under 10^th Five Year Plan has been made for the scheme.  Of the funds 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.  75% of cost of project development for each municipality/Urban Local Bodies (ULBs) would be reimbursed by the Central Government and 25% by the State Government/Union Territory Government/ULBs.  Maximum amounts that will be disbursed to individual cities are given in the table below:

            The bonds issued under the Pooled Finance framework will be eligible for tax-free status. However, interest and dividend income earned from investments made from the Credit Rating Enhancement Fund (CREF) corpus will not be exempted from the income tax.

            There will be a State/Union Territory level “Sanctioning and Monitoring Committee” to approve proposals for accessing PFDF.  The Committee would include the following:

1.                  State Secretary of Urban Development (Chairperson)

2.                  Joint Secretary (Urban Development), M/o Urban Development, Govt. of India

3.                  Representative of the Planning Commission

4.                  Representative of the M/O Finance, Deptt. of Eco. Affairs

5.                  State Secretary of Finance or his representative

6.                  Director of Municipal Administration and/or Director of Town Panchayats

7.                  Managing Director of SPEF (Member Secretary of the Committee)

            In addition to above members, Sanctioning and Monitoring Committees may also appoint expert(s).

            The Scheme will ensure availability of resources to urban local bodies in order to improve urban infrastructure, service delivery and ultimately to achieve the goal of self-sustainability.  Ongoing programmes of both the Central and State Governments may not be adequate enough to fill the resource gap given the extent of requirement.  PFDF is one more effort to address this gap through which cities will be able to access market funds for their infrastructure projects.

            The Fund would be set up within one month.

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