Developing financing in local currency

PROPARCO, through its signature, provides a guarantee of solvency and facilitates resource mobilisation in local currencies by private borrowers and in doing so allows banks to develop loans with longer maturities.

Developing financing in local currency

An extremely large number of projects require financing in local currency and a long-standing constraint for donors has been their inability to lend in local currencies. This exposed their clients to exchange risks that were often difficult - or even impossible - to manage in markets that continued to lack sophistication.

Moreover, in a large number of countries local financial markets are not sufficiently developed to offer loan maturities that are long enough to finance heavy investments or infrastructure projects. PROPARCO is consequently working with support from other donors to deepen local currency markets.

PROPARCO was one of the pioneers when it developed guarantee products in local currencies back in the 1990s, first in the franc zone in Africa, then in all the countries where it is active. It was consequently the first to guarantee bond issues denominated in local currencies in Africa. In addition to guarantee activities, PROPARCO has been implementing a system for two years now by which it can develop direct loan products in local currency. PROPARCO has, indeed, been a shareholder of TCX since 2007. This multi-donor initiative, set up by the Netherlands’ FMO in 2007, allows its members to offer exotic currency swaps and therefore loans in local currency in a large number of countries. Moreover, AFD carries out bond issues in a wide range of currencies and operates directly on markets. This means PROPARCO can use resources in currencies such as the FCFA or the South African rand.

In 2008, almost 20% of the number of loans allocated by PROPARCO were made in local currency: the Tunisian dinar, CFA franc, South African rand, Kenyan shilling... This enabled PROPARCO to help strengthen and deepen local markets by tailoring its products still further to the needs of its clients.

 

Last update in August 2010