MFX Solutions Incorporated, a company based in Washington, DC, that provides currency hedging solutions for microfinance institutions (MFIs) and microfinance investment vehicles (MIVs), today published a study on currency risk exposure. The study, entitled “Risky Business: An Empirical Analysis of Foreign Exchange Risk Exposure in Microfinance,” analyzes financial data from 2008 from approximately 300 MFIs worldwide to evaluate the extent of foreign currency risk exposure in the industry. The paper also offers recommendations on how to mitigate this risk.
The study finds the industry’s total foreign currency risk exposure to be at least USD 6 billion, with more than half of MFIs holding more risk on their books than MFX considers secure. The study also reports that approximately 40 percent of MFIs make loans denominated in a currency other than the currency that is local to their borrowers and explains how currency movements affect MFIs. According to Brian Cox, CEO of MFX, “We hope that it will help spur efforts to move the industry increasingly toward a local-currency lending model.” The Netherlands Development Finance Company (FMO), a public-private partnership, funded the study.
By Julie Moksim, Research Associate
About MFX Solutions Incorporated (MFX): MFX is a company based in Washington, DC, that provides currency hedging solutions and analytical tools for microfinance institutions (MFIs) and microfinance investment vehicles (MIVs). MFX is an initiative of lenders, investors, raters and foundations that include ACCION International, Calvert Foundation and MicroRate. The organization was founded in 2008 and has a USD 20 million guarantee from the Overseas Private Investment Corporation, an agency of the United States government that promotes international economic development. Commercial investors generally accept this guarantee in lieu of collateral or a formal rating. Since MFX does not require collateral from its clients, all potential clients must undergo a credit evaluation.
About Netherlands Development Finance Company (FMO): Founded by both the Dutch government and the private sector in 1970, the FMO aims to encourage development by promoting entrepreneurship in developing economies. FMO has an investment portfolio of EUR 5.04 billion (the equivalent of USD 6.5 billion) as of 2009. Headquartered in the Netherlands, FMO operates in Africa, Asia, Eastern Europe, and Latin America.
Source:
MFX Solutions Incorporated Press Release: “MFX Published Microfinance Industry’s First Study Measuring FX Risk Exposure”, information provided by MFX Solutions to MicroCapital
MFX Solutions Incorporated: “Risky Business: An Empirical Analysis of Foreign Exchange Risk Exposure in Microfinance”, http://www.mfxsolutions.com/wp-content/uploads/2010/10/MFX_Risky-Business_2011.pdf
MFX Solutions Education Center: http://www.mfxsolutions.com/education-center/
MicroCapital’s Microfinance Universe Profile: MFX Solutions Incorporated
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=MFX+Solutions+LLC+%28MFX%29
MicroCapital’s Microfinance Universe Profile: Netherlands Development Finance Company (FMO)
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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