IFC has signed its first local currency transaction in Zambia, an equity investment of $2 million and a $5 million loan denominated in Zambian Kwacha to Madison Financial Services Company. IFC is implementing increasingly innovative programs and products to better serve our clients in Africa.
Local currency financing is an important tool that helps IFC better reach clients in countries targeted for more business. Using the swap market, IFC now has the capacity and regulatory approval in Africa to make local currency loans in Botswana, Ghana, Kenya, Nigeria, Tanzania, Namibia, Uganda, and Zambia. IFC can also provide loans in South African rand.
"Offering loans in local currencies helps us better serve the needs of our clients and increase our business in countries where we been less active in the past," says Thierry Tanoh, IFC Director for Africa. "These transactions also help develop local capital markets and are an important tool for promoting sustainable economic development."
Until quite recently, private sector lending in most countries in Africa was in the form of loans denominated in dollars or euros. The lack of long-term local currency financing made it difficult for large-scale projects, such as those in infrastructure, to raise financing in anything other than dollars or euros.
Clients that were able to borrow funds therefore often found themselves shouldering foreign exchange losses due to unexpected exchange rate fluctuations. Meanwhile smaller businesses that did not have the capacity to absorb such foreign exchange risk were simply left strapped for cash.
By using local swap markets and other structured finance products to offer local currency financing, IFC also helps promote the development of local capital markets in Africa.
The goal is that the development of these market mechanisms will eventually enable local financial markets to meet the financing needs of African companies.
The West African franc bond that IFC issues in December 2006 is an example of this approach. IFC was the first non-resident institution to issue a bond in the currency, which was sold entirely to funds, banks, insurance companies, and pension funds in the eight countries that use the regional currency.
By issuing a bond in a market that is dominated by government paper, IFC hopes to establish a foundation for future issuance, not only by supranationals but eventually other classes of credit-worthy borrowers in the private sector.
For more information contact:
Houtan Bassiri
Communications Officer
Johannesburg, South Africa
Tel: +27-11-731-3179
Email: hbassiri@ifc.org
