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Annual Report

Expanding Local-Currency Loans in Africa

India's Rural Women

We are helping Rwanda develop a commercial swaps market.

Bakhresa Group, an agricultural company and IFC client, was eager to scale up its wheat flour production operations in Rwanda with a new mill. But it faced a challenge not uncommon to agribusinesses in emerging market countries—how best to lock in stable, long-term financing in an environment fraught with foreign-exchange risk and commodity price volatility.

Rwanda does not have a swaps market that can enable long-term lending in local currency. IFC came up with a novel way to inject additional liquidity into the food supply chain, enhance agricultural productivity, and help develop a vibrant and efficient capital market. We provided the client a long-term loan that was partially disbursed in Rwandan francs.

The solution—a swap arrangement with the Rwandan Central Bank—is unique. It allows IFC to provide loans in local currency to Bakhresa and several other enterprises. In doing so, we helped them avoid the financial risks of borrowing in foreign currencies. These swaps are financial instruments that allow IFC to exchange a stream of future local-currency cash flows for U.S. dollar cash flows, assuring stable financing for local borrowers.

The Rwanda initiative marked the first time a multilateral financial institution has entered into a long-term swap with an African central bank to provide local-currency financing—a milestone where IFC filled a void in Rwanda and helped further the development of local capital markets there.

The arrangement helps pave the way for the development of a commercial swaps market in Rwanda. It also provides a successful template as IFC works with other central banks in developing countries to fashion similar programs—for example, we recently signed a similar agreement with the Central Bank of Paraguay.

This initiative also benefits the central banks of developing countries in several ways. It allows them to work directly with cross-currency swaps. As commercial swaps markets develop in these countries, central bankers with hands-on experience with swaps will be better positioned to oversee these markets and ensure their effective functioning.

IFC extended its first local-currency loan in Africa a decade ago. We have used cross-currency swaps to finance local-currency projects in several African currencies, including Ghanaian cedis, Kenyan shillings, Moroccan dirhams, Nigerian nairas, South African rand, Tunisian dinars, Tanzanian shillings, and Zambian kwacha. IFC also provides local currency loans in Africa by issuing bonds in local currency and through structured financial products.


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