Funding of Pooled Finance Development Fund (PFDF)
As per the defined laws by the federal government, 95% is a major share of the funding that was to be given as a credit enhancement to the urban local bodies, also known as a credit rating enhancement fund CREF. It was supposed to raise the level of the municipal bonds readings, and a tiny proportion of the funding, which is about 5%, would be used for the development of the project further. In return, every average local body that displayed its creditworthiness was required to estimate the cost required for the profit and how it would be returned. The center decided to cover 75% of the charges, and the remaining, which is a small share of 25%, was assigned to the state or legislative governments. The CREF money, which was assigned was placed in the government of India bonds or various other available AA-rated bonds. These bonds were believed to be tax-free, and the federal government made only a contribution of 10% to the planned Bond.
Pooled Finance Development Fund Scheme
The Pooled Finance Development Fund (PFDF) scheme was started to initiate the facility of providing credit enhancement to the urban local bodies. The PFDF scheme gained popularity after it came into force in the year 2006. The scheme was first approved by the central government before it came into action. The main agenda of this scheme was to access the market borrowings for all the urban local bodies and then provide them with a qualified credit limit that was available based on their profile. This process was to be made available through the state-level Pool finance mechanism.
Since the mechanism was to be implemented at the state level, therefore, the name state-level pool finance mechanism was derived from the entire process of the PFDF scheme. The PFDF scheme had the following goals in mind.
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