To avoid risks from exchange-rate volatility, companies with revenues in local currency should generally borrow in the same currency. By matching the currency denomination of assets and liabilities, companies can concentrate on their core business rather than worry about how unstable exchange rates will affect profitability.
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IFC provides local currency debt financing in four ways:
- Loans from IFC denominated in local currency;
- Risk management swaps that allow clients to hedge existing or new foreign currency–denominated liabilities back into local currency;
- Credit enhancement structures that allow clients to borrow in local currency from other sources; and
- Credit lines from local financial institutions.
IFC has also made local currency financing a priority to help develop local capital markets. Companies that receive financing in the same currency as their revenues are more creditworthy clients for IFC.
