IFC’s Local Currency Loans are Protecting African Clients against Foreign Exchange Risk

IFC is providing local currency loans to African clients to protect them against currency fluctuations and foreign exchange risk, while helping develop local financial markets.

This past month, IFC disbursed local currency loans that will help a micro finance institution support small businesses in Ghana, finance a new wheat mill’s operations in Rwanda, and support a student loan program in Namibia.  IFC also has just committed $4 million equivalent in Kenyan shillings to Braeburn Schools, an education provider in Kenya.

“In addition to enabling clients to borrow in their local currencies and manage risks better, IFC also helps develop long-term local currency markets to benefit investors and hedgers, and works closely with regulators to share best practices on financial derivatives,” said Shanker Krishnan, IFC Deputy Treasurer, who heads IFC’s derivatives group that creates local currency solutions for clients. “IFC has extended the maturity of cross-currency hedges in many markets, including Nigeria and Zambia.”

IFC extended its first local currency loan in Africa more than 10 years ago. Initially, these loans were in South African rand. Between 1997 and 2007, IFC made 24 loans totaling over 1.4 billion rand ($200 million equivalent).  In 2007, IFC began to move into other markets in the region and has
since used cross-currency swaps to finance local currency projects in other African currencies, including Ghanaian cedi, Moroccan dirham, Nigerian naira, Rwandan franc, Tanzanian shilling, Tunisian dinar, and Zambian kwacha.

The use of derivatives is one way through which IFC provides local currency loans in Africa.  In addition, IFC issues bonds in local currency or uses structured finance products, such as partial credit guarantees and risk-sharing facilities.  Over the past decade, IFC has committed local currency loans totaling more than $800 million equivalent in 24 African countries.

This article was originally posted on Sustainable Development Africa Platform

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