We play a leading role in expanding local-currency finance in developing countries.
In most developing countries, small entrepreneurs aiming to expand their businesses confront an immediate obstacle: limited access to local-currency financing.
Local-currency bond markets tend to be small and unsophisticated. Banks are often more comfortable lending to larger, more established companies. This means that long-term local-currency finance is not readily available for small and medium enterprises, forcing them to borrow in foreign currencies in order to grow.
Recognizing the risk this presents, finance ministers and central bank governors from the Group of 20 leading advanced and developing countries called for a concerted effort to support local-currency bond markets in developing countries. Such markets, they said last year, can provide a “spare tire” in a financial crisis, tapping local investors as a powerful alternative source of finance.
That’s an area we know well. This year, we obtained approval from Ghana and eight members of the West African Monetary Union to establish local-currency bond programs that will strengthen domestic capital markets and support private sector development in countries that need it most. Our flagship Pan-African Domestic Medium-Term-Note Programme will allow us to issue more than $1 billion in Ghanaian cedis and CFA francs over the next decade.
For more than a decade, we have played a leading role in expanding the availability of local-currency finance in developing countries. We were the first to issue partial credit guarantees for domestic bond issuances in Algeria, India, Mexico, Russia, Saudi Arabia, and Thailand. We have provided financing in more than 50 currencies—more than any other multilateral development institution.
To further advance local-currency lending and bond issuance in Africa, IFC signed a master agreement with the African Development Bank to enter into cross-currency swap transactions. This allows us to benefit from each other’s local-currency bond issues, enhancing our capacity to support clients’ development projects. It is the first such swap agreement either institution has signed with another multilateral financial institution.
We also became the first multilateral institution to sign a local swap agreement with Chinese banks to provide local-currency lending. Our agreements with China Development Bank and the Export-Import Bank of China will enable us to extend long-term renminbi loans for private sector development projects.
Expanding long-term local-currency finance is a cornerstone of IFC’s strategy to strengthen capital markets in developing countries. By working with regulators and local institutions, we can promote effective capital-market regulations. It also allows us to help our clients mitigate currency risks in ways that can create jobs and expand their businesses.