Bank approves $25 million to bolster local currency hedging initiatives across Africa
The African Development Bank (AfDB) has made a strategic investment of $25 million in The Currency Exchange Fund (TCX), a move aimed at strengthening access to local currency financing across Africa.
This investment is part of the Bank's broader objective to promote access to adequate financing through innovative alternative solutions. According to the Director of the Financial Sector Development Department at the African Development Bank Group, Ahmed Attout, this investment will unlock more financing for Micro, Small, and Medium Enterprises (MSMEs) in Africa.
The focus of this investment is on borrowers in fragile states, underserved economies, and high-risk markets where conventional hedging instruments are limited or unavailable. TCX has already hedged over $17 billion in notional amounts, including over $4 billion across 31 African countries.
The investment by the African Development Bank Group aims to unlock local currency financing for various sectors across Africa. It is expected to protect AfDB's public and private sector borrowers from currency risk, thereby reducing the mismatch between the currency of debt and revenue for local borrowers, and supporting sustainable growth.
In August, the AfDB announced a $5.5 billion financing framework to accelerate sustainable growth and infrastructure development across Africa. This investment in TCX is a significant milestone in deepening African capital markets, reinforcing Africa's integration into global capital markets, and addressing the root causes of debt distress in Africa.
The AfDB's investment is expected to crowd in additional Development Finance Institutions (DFIs) and private investors, making it easier for African businesses to access the financing they need to grow and thrive. TCX's Chief Executive Officer, Ruurd Brouwer, expressed excitement about the investment, stating it marks the start of a close partnership.
The AfDB finances TCX's development to mitigate currency risk in African markets. By using the $25 million deposit, TCX can provide currency hedging products, which helps increase access to credit for small and medium-sized enterprises in Africa. The investment is intended to promote the development of African capital markets, protect borrowers from currency risk, and support sustainable growth by reducing foreign exchange exposure for African borrowers.
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