The South Asian Association for Regional Cooperation (SAARC) Development Fund (SDF) has been officially launched here by Bhutanese Prime Minister Jigmi Y. Thinley.

The SDF which was proposed by Bhutan during the 15th SAARC summit held in Sri Lanka came into full operation after the inauguration at the opening session of 16th SAARC summit on Wednesday. The 32nd Session of SAARC Council of Ministers decided to appoint the Chief Executive Officer of SDF.

The permanent secretariat of the SDF will be based in Bhutanese capital Thimphu and serve as a regional funding mechanism.

All SAARC leaders addressing the opening of 16th summit lauded the full-fledged operation of SDF as one of the major achievements made since SAARC was formed 25 years ago.

They also hoped for effective utilization of the fund to benefit the people of the region and help to alleviate poverty as well.

"The important role of SDF is building a strong and dynamic SAARC through poverty alleviation and the promotion of economic integration among our countries," said Bhutanese Prime Minister Thinley in his inaugural speech.

The SDF is like the International Monetary Fund and Asian Development Bank which will serve as a regional funding mechanism to fund various social, economic and infrastructure projects in the region, Bhutan's official daily newspaper Kuensel reported on Thursday.

The fund has an authorized capital of special drawing rights which refers to the basket of five major currencies in the world, such as US dollar and Euro, according to Kuensel.

Meanwhile, China, an observer of SAARC, proposed to contribute 300,000 U.S. dollars to the SAARC Development Fund.

India has already contributed about 90 million U.S. dollars and other 100 million US dollars as voluntary contribution to the fund.

According to the Kuensel, Bhutan's assessed contribution to the fund is 15 million U.S. dollars, payable in five installments. Bhutan's first installment of 3 million U.S. dollars has already been offered.

The SDF charter has a provision to levy interest on borrowing by members, but the interest rates are yet to be worked out. The fund's highest governing body will consist of finance ministers of the eight member states who will meet once a year. Below them is a board of directors, with a member from each country.