FinDev Canada, US DFC, Proparco and AXA XL announced they are providing an innovative financing solution to MFX Currency Risk Solutions (MFX) to enhance its liquidity and help position it for its next phase of growth. MFX is a socially-oriented company that supports impact investing in emerging and developing countries by providing hedging products that mitigate currency exchange risk.
FinDev Canada will provide financing of up to US$ 50 million in parallel to an existing US$ 100 million guarantee issued by US DFC. The financing includes an innovative US$ 45 million collateral facility, of which US$ 30 million will be insured by the AXA XL Group of companies, a group of leading private sector insurance companies. MFX’s solvency and liquidity will be further bolstered by a direct equity investment from Proparco of US$ 7 million. Proparco will become MFX’s second largest shareholder.
MFX supports an underserved segment of the development finance industry, helping to address a fundamental barrier to local development: the burden of currency risk management. Created in 2009, MFX helps impact investors and recipients of development financing, such as microfinance institutions, to efficiently hedge their currency risk. Since inception, MFX has worked with international financial institutions to hedge more than US$ 4.5 billion in loans to micro and small businesses in developing countries, covering more than 55 currencies.
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MFX now offers a diverse product mix designed to make currency hedging more efficient and accessible to impact investors across many sectors – including renewable energy, agriculture, health, and housing. MFX also offers training and advisory services to enable investors and other industry stakeholders to better understand currency risk, define hedging strategies and develop comprehensive currency risk management approaches.
“We are proud to be part of this ground-breaking partnership between development finance institutions and private insurance to support MFX, a unique entity that plays a vital role in providing currency hedging services not commonly available in many markets,” said Paulo Martelli, VP and Chief Investment Officer of FinDev Canada. “This transaction supports our goal to strengthen local markets by promoting a greater diversity of financial service providers as well as increased access to finance for those underserved, such as microenterprises, small and medium-sized businesses and women entrepreneurs.”
”This transaction is a landmark for the impact investment industry,” said Brian Cox, CEO of MFX. “FinDev Canada and Proparco’s support will allow MFX to serve the highest growth impact sectors like clean energy and housing that increasingly have a need to lend in local currency. The addition of AXA XL to share risk alongside FinDev Canada and DFC means for the first-time private insurance will be deployed to support local currency impact lending.”
“DFC welcomes this new collaboration from FinDev Canada, Proparco, and AXA XL in support of MFX alongside DFC’s existing loan guaranty, expanding the financing and financial tools available to help boost MFX’s critical mission,” said Jim Polan, VP of DFC’s Office of Development Credit. “MFX is advancing development impact in emerging markets around the world by providing financing for small businesses in local currencies, promoting access to finance among underbanked communities.”
“As one of the world’s largest insurers, AXA XL believes our purpose is ‘to act for human progress by protecting what matters,'” explained Jeff Abramson, Underwriting Manager for Special Risks in AXA XL’s Political Risk and Credit Group. “That’s why we’re excited to be part of this pioneering transaction, partnering with FinDev Canada to enhance MFX’s ability to fulfill its mission and catalyze impactful investments in emerging and developing markets.”
“Proparco is proud to join the shareholders of MFX and to team up with FinDev Canada, US DFC and AXA XL to support MFX’s critical role in the local currency financing chain. MFX’s unique proposition is essential to increase local currency funding to local financial institutions, in particular microfinance institutions, thus benefiting countless micro-entrepreneurs in emerging and developing countries”, said Guillaume Barberousse, Head of Proparco’s Banks and Financial Markets Division.
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Local market development
MFX provides impact investors or recipients of development finance with the ability to hedge local currencies with little or no collateral. Collateral requirements can tie up funds otherwise available for development finance. The loan to MFX is expected to lead to a greater flow of international capital into critical sectors of national economies in emerging and developing markets.
Women’s economic empowerment
MFX was created to address a critical need in the microfinance space. Microfinance investment vehicles and microfinance institutions (MFIs) represent a large proportion of its clientele. Many of these MFIs serve a majority of, or sometimes exclusively, women by providing access to financial services, especially microenterprise loans. As such, their currency hedging products have a significant indirect impact on women’s economic empowerment.
Development Finance Institutions and COVID-19
FinDev Canada has a mandate to support companies that have a presence in the areas most affected by the COVID-19 pandemic. Investments will help guarantee that developing markets continue to have liquidity, providing important support for the recovery of the economic and social consequences of this crisis.
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