Foreign Exchange Risk in

Microfinance
BlueOrchard Finance S.A.
Ann Miles
October 2006
 Foreign Exchange Risk in
Microfinance
• In October 2005 we discussed this same
issue
• Since then, we have made some significant
progress in addressing this problem for
MFIs
• We have also identified investors who may
be willing to take some FX exposure
 Foreign Exchange Risk in
Microfinance
• In April 2006 we closed BOLD (BlueOrchard
Loans for Development), our 2nd Collateralized
Debt Obligation for $99 Million
• 20% of the BOLD transaction was in local
currency for rates fixed for a period of 5 years
• The currency risk was completely hedged for the
investors with the use of swaps
• The currencies included Mexican and Colombian
pesos and Russian rubles
 Foreign Exchange Risk in
Microfinance
• In mid-2006 we arranged a FX line for forwards
and swaps for our flagship fund, the Dexia
Microcredit Fund
• Our first transaction in local currency was
completed last week for a major Latin American
MFI
• We are exploring opportunities to do same in other
countries where there are forward markets
 Foreign Exchange Risk in
Microfinance
• Other product developments underway include:
– Creation of new global fund that will fund completely
in local currency with some portion allocated for
unhedged currency positions
– Creation of a regional fund that will also display same
characteristics
– Creation of another CDO for 2007 that will have a
larger component of local currency financing