WASHINGTON, July 7 — MFX Solutions Inc. (MFX), a new company dedicated to managing global currency risk in the microfinance industry, today announced the launch of its operations. MFX will, for the first time, be making modern hedging instruments accessible to microfinance lenders in developing markets where they need it most. MFX has secured $13 million from 17 investors in its first round of financing, with Omidyar Network providing a commitment of $9.3 million.
MFX’s mission is to help microfinance institutions (MFIs) and investors (MIVs) analyze, quantify and reduce currency risk, removing a key impediment to the growth of the sector. It directly addresses the disparity problem MFIs face when they borrow in dollars or euros and lend in a different local currency. MFX solves this problem by providing microfinance lenders access to sophisticated hedging instruments and free, web-based risk management tools tailored to the microfinance business model. By offsetting lender’s risk and thereby lowering their costs, MFX will unlock hundreds of millions of dollars in local currency loans to under-served markets. Reducing currency risk can help the industry move to a more sustainable growth model.
“Currency risk is a growing threat to microfinance institutions and investors in every part of the world,” said Gary Mulhair of Global Partnerships. “Recent changes in the global economy further underscore the need for an independent organization like MFX to help reduce currency risk and increase the overall security of the sector.”
The initial investors in MFX are a group of US and European microfinance funds, networks, and foundations that have pooled resources to make modern currency risk management tools available to the industry. In addition to the investment by Omidyar Network, Triodos-Doen and Hivos-Triodos Fund of the Netherlands have invested $1.5 million, and ACCION International has invested $1.25 million. Incofin CVSO of Belgium and Calmeadow Foundation of Canada contributed $500,000 and $320,000 respectively. Additional investors include: Calvert Foundation, Global Partnerships, ADA (Luxembourg), Grameen Foundation, Blue Orchard (Switzerland), Mecene/Africap, Microcredit Enterprises, Grassroots Capital, Unitus and Developing World Markets. Start up grant funding for MFX totaling $575,000 has been provided by The Ford Foundation, The Currency Exchange Fund (TCX), The Dutch Development Bank FMO and USAID.
Frank Streppel of Triodos-Doen and Hivos-Triodos Fund said, “MFIs in developing countries often have to accept hard currency loans to finance their activities due to lack of local currency loans. This exposes them to significant risks from currency fluctuation; risk that in many cases is passed on to the microfinance client. Our investment in MFX allows us to offer more loans in local currency, which in the end significantly reduces the burden on the micro-entrepreneur.”
Monica Brand, Director of ACCION International’s Frontier Investments, added, “Getting microfinance to scale isn’t just about efficiency, it’s about reducing vulnerability at the base of the pyramid. ACCION feels strongly that helping to catalyze MFX will simultaneously spur healthy industry growth and lessen the burdens faced by the poor.
Serving Clients and the Industry
To benefit the microfinance industry, MFX will create education programs designed to help MFI managers analyze the risks they face from a changing economic environment. This includes the development of easy-to-use web-based tools, free to the industry at large, that allow MFIs to stress test their balance sheets under different economic scenarios. Tools will be deployed through a variety of training platforms in partnership with other microfinance organizations.