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  • MFX and TCX

    The centerpiece of MFX's strategy is its partnership with the new $600+ million Currency Exchange Fund (TCX) www.tcxfund.com, an initiative of the Dutch development bank FMO and the Dutch government. TCX's mission is to offer development lenders currency hedging in developing markets where no viable commercial hedging options currently exist. However, TCX's investment and credit requirements make it unavailable to most non-governmental microfinance lenders.

    Working with TCX will allow MFX to offset its local currency exposure in the same way as an insurance company would use reinsurance. By offsetting the currency risk on its own balance sheet, MFX will be able to build a portfolio of hedges with microfinance clients while remaining a strong counterparty for the industry. Where TCX does not offer superior pricing and other market counterparties exist, MFX intends to use its investment-grade credit rating and ability to aggregate smaller transactions and get better pricing for MF lenders on hedging provided by commercial banks or other market counterparties.

    TCX Profile:

    • Sponsored by FMO with backing of Dutch government.
    • $600+ million equity from IFIs, major development lenders, and large banks. Investors include FMO, ABN Amro, EBRD, IDB, AfDB, KFW and other DFIs. Oikocredit is an investor to service its own MF portfolio.
    • Mission to take exposure in exotic currencies through cross-currency swaps and non-deliverable forwards (NDFs) on terms not provided by the market.
    • Offers hedging in most developing country currencies subject to certain risk and portfolio diversification parameters.
    • Deals only with investment (or quasi investment) grade counterparties that have at least $5M invested in TCX. Investors receive between 3 and 6 times their investment in hedging allocation (notional loan value).
    • Risk management primarily from diversification plus some active hedging. Historical modeling shows this strategy reduces market risk by 75%.
    • Pricing based on swapping local reference rate (ex: 3m T-bill) for LIBOR/EURIBOR with a small liquidity premium. Can provide much longer tenures than available in the market. Can also provide interest rate hedging to create fixed rate currency hedge, though not available in all markets or tenures.