The Currency Exchange Fund (TCX) recently raised a total of USD 200 million in equity financing that it will use to lower the foreign-exchange risk of third-party impact investments in developing nations. TCX hedges emerging-market currencies to support investments such as loans to lenders to micro-, small and medium-sized enterprises.
One of the investors is the International Finance Corporation (IFC), a member of the World Bank Group. “IFC’s investment increases TCX’s hedging capacity, allowing us to offer more long-term hedging products…[and] to promote cross-border investment flows, reducing the gap of local-currency financing…. Especially the poorest countries that lack reserves are vulnerable to currency depreciations. Sudden devaluations, such as seen during the COVID-19 pandemic, put many households and other local entities that have borrowed in foreign currency at risk of default. Allowing them to borrow in their local currency instead increases financial resilience and, ultimately, improves the investment climate of the country,” said TCX CEO Ruurd Brouwer.
In addition to IFC, the investors this round are the EU’s European Commission; the German development bank Kreditanstalt für Wiederaufbau (KfW); and Promotion et Participation pour la Coopération Économique (PROPARCO), an affiliate of the French government’s Agence Française de Développement. The IFC investment, which totals USD 50 million, includes USD 40 million from the World Bank’s International Development Association. The sizes of the other three investments have not been released.
Since its establishment in 2007, TCX has participated in investments worth a total of USD 3.6 billion. The fund works in 95 currencies and has 22 investors. It is managed by TCX Investment Management Company, which is wholly owned by Cardano Development, a Netherlands-based institution seeking to improve financial markets and risk management in developing countries.
By Kate Finster, Research Associate
Sources and Additional Resources
IFC press release
https://pressroom.ifc.org/all/pages/PressDetail.aspx?ID=26068
TCX homepage
https://www.tcxfund.com/
TCX 2019 annual report
https://www.tcxfund.com/wp-content/uploads/2020/05/TCX-2019-Annual-Report-public.pdf
Cardano Development homepage
https://www.cardanodevelopment.com/
International Development Association homepage
https://ida.worldbank.org/
European Commission homepage
https://ec.europa.eu
Kreditanstalt für Wiederaufbau homepage
https://www.kfw.de
PROPARCO homepage
https://www.proparco.fr
Previous MicroCapital article on IFC
https://www.microcapital.org/microcapital-brief-ifc-ukraine-developing-national-financial-inclusion-strategy-to-expand-financial-access-digital-services-employment-economic-growth/
Previous MicroCapital article on TCX
https://www.microcapital.org/microcapital-brief-currency-exchange-fund-tcx-uns-livelihoods-food-security-trust-fund-lift-launch-facility-meant-fund-400k-subsidized-microloans-myanmar/
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