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EBRD expands local currency services
$71 million investment in Currency Exchange Fund
The EBRD is responding to high demand for local currency loans and financial products in its countries of operations by investing over $71 million to become a shareholder in the Currency Exchange Fund N.V. (the “Fund”), a Netherlands based global investment fund sponsored by the Netherlands Development Finance Company (FMO).
The EBRD will use the Fund’s services to offer synthetic local currency loans to clients in some of its lesser developed countries of operations. It is expected that investors in the Fund will initially have access to a derivatives transaction volume of between 3-6 times their investment. The Fund will be strengthened by a first loss capital cushion to be provided by certain government agencies and interest earned on such funds will be set aside for use in technical assistance (such as capital market analysis) in the Fund’s countries of operation.
The EBRD has been a leader in providing real local currency finance in its region and has identified strong demand for such finance in countries where the establishment of fully developed capital markets will take time. Local currency will help domestic companies to substantially reduce the foreign currency risks of borrowing in hard currencies.
As a shareholder in the Fund the EBRD will join, among others, investors such as FMO, Kreditanstalt für Wiederaufbau/Deutsche Investitions- und Entwicklungsgesellschaft mbH (Germany), the Development Bank of Southern Africa, the African Development Bank, the French Development Agency and ProParco, Industrialiseringsfonden for Udviklingslandene (Denmark), the Norwegian Investment Fund for Developing Countries, the Belgian Investment Company for Developing Countries, Compañía Española de Financiación del Desarrollo (Spain) and Oikocredit (a microfinance fund established by the World Council of Churches).
Manfred Schepers, EBRD Vice President Finance, said that the Bank’s participation in the Fund is expected to benefit especially local entrepreneurs in the EBRD’s smaller countries of operations with less developed capital markets. “We can see a very strong pipeline of banking projects for instance in the microfinance sector for whom local currency finance should play an important role”.
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