Development Finance and Economic Security

Global Partnerships Invests in New Currency Hedge Firm

Published on The Seattle Times "The Business of Giving" blog: July 7, 2009
By Kristi Heim

The Seattle non-profit Global Partnerships has dollars to invest, but the microfinance institutions (MFIs) it's trying to help need money in local currencies. In the case of Honduras, it's easy to see why that gap is dangerous.

Global Partnerships has made several loans to organizations in Honduras, in dollars, and those organizations in turn lend money to poor entrepreneurs in local currency, the lempira. The ongoing political crisis has pushed an already weak Honduran currency to the edge of a major depreciation. In that case, the local organization will have to pay back possibly twice as many lempira as it borrowed, and pass the costs on to its borrowers.

"There hasn't been a credible mechanism to be able to hedge our loans so that the risk of depreciation is not absorbed by the poor borrowers this is supposed to be helping," said Gary Mulhair, chief investment officer at Global Partnerships.

Soon there may be a new solution to the risk of such currency fluctuations in the microfinance industry. Global Partnerships is helping to back a new company called MFX Solutions....

The Ford Foundation, The Currency Exchange Fund (TCX), The Dutch Development Bank FMO and USAID all contributed grant funding for MFX.

Read the complete article »