Global Perspectives | Fall 2008
 

Foreign Exchange

Microentrepreneur Ana María Rivera posing in front of the stove where she cooks tortillas and other food items for her community

During a GP PartnerTrip to Nicaragua last year, when inflation there was nearly 17 percent, Ana María Rivera, a client of ProMujer Nicaragua, one of GP’s microfinance partners, explained the challenges of running her tortilla business.

As her costs rapidly increased, she was faced with some tough choices. Should she raise her prices to cover the higher costs, even though she knew her customers in her very poor neighborhood could not afford to pay? Should she greatly reduce the quality of the product she offered and charge the same price, but risk losing unhappy customers? Or should she continue to offer what she believed to be the best tortillas around at about the same price—and risk losing her business all together if the economic situation did not improve soon?

Economic instability in developing countries can be a big challenge for microbusinesses like Ana María’s—and for the microfinance institutions (MFIs) that provide entrepreneurs like her with the small loans they need to sustain and grow their businesses.

For many MFIs, local currency devaluation is one of their greatest financial challenges. Because MFIs often are not able to access sufficient local funds to support their growth, borrowing more readily available hard currencies like the U.S. dollar or euros can be the only viable option open to them for raising needed capital. However, loans to the poor populations they serve must be made in local currency. If the local currency drops in value, paying back foreign loans becomes more expensive.

In this situation, MFIs have pressure to pass on the costs needed to manage foreign exchange to their borrowers in the form of higher interest rates, which makes microloans less affordable.

To help solve this conundrum for our MFI partners and the microfinance industry overall, GP has joined forces with several other leading organizations in the microfinance industry to address this issue.

According to GP’s chief investment officer, Gary Mulhair, who co-chaired the initial planning committee, many in the microfinance industry have wrestled with the foreign exchange risk challenge. “Separately we tried various solutions, but they were all expensive ‘one-offs.’ So, we decided to work together.”

The committee’s efforts have resulted in the creation of a new organization called Micro FX Solutions (MFX) that is scheduled to open its doors in late 2008. MFX will help MFIs and microfinance investors understand, quantify and reduce currency risk.

MFX will partner with The Currency Exchange Fund (TCX), a new $600 million fund backed by the Dutch government. As a partner with TCX, MFX will be able to offer hedging products in the local currencies where MFIs are most exposed while safely managing MFX’s own risk.

MFX is expected to start off with the capacity to make $40 to $60 million available to microfinance investors like GP. As one of the leading organizers of the effort, GP will use this facility to reduce the foreign exchange risk for MFIs receiving loans from our next microfinance fund.

Global Partnerships is proud to have been an early leader in the creation of MFX. In supporting the creation and launch of this agency, GP has helped engineer an effective solution to what has been a significant challenge to supporting the growth and stability of our microfinance partners.

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From the President

Whether you are talking about the climate, the economy or the political landscape, the operative word today is change. We all have our own associations with the word change. For me it’s a positive association. I see change as a chance to learn and grow. One of the reasons I was drawn to working with Global Partnerships (GP) is GP’s track record of identifying the opportunities created by the changes within the microfinance industry and leveraging those opportunities to have a greater impact on mission—to reach more people living in poverty, including those underserved by conventional microlending.

Since its inception, Global Partnerships has pioneered innovative solutions to expand our impact and help more people progress out of poverty. In 2004 we changed strategies for funding our MFI partners and increased the number of borrowers reached from 57,000 in 2005 to more than 600,000 as of June 2008.

Today, we are continuing our tradition of bringing strategic and creative changes to the microfinance marketplace by playing a leadership role in addressing the issue of foreign currency risk (see Foreign Exchange on page 1). By effectively managing the risk associated with lending in foreign currency, GP will expand its impact by partnering with new MFIs in more countries, reaching thousands more families throughout Latin America.

We live in a dynamic world. And while GP’s strategies have evolved and developed over the years, our commitment and dedication remains unchanged. I invite you to continue on this journey with us as we strive to help more people, leave no one behind and make a real difference in the lives of those we serve.

Sincerely,

Rick Beckett

President and CEO

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FUNDAHMICRO: A Microfinance Organization Built to Last

Founded in 2000 as a nonprofit organization, FUNDAHMICRO operates throughout Honduras including rural areas and suburban communities where previously access to microfinance had been limited or nonexistent. Their efforts to reach underserved populations have been met with great success. Today, FUNDAHMICRO has nearly 12,000 clients, 84 percent of whom are women.

Last year the organization launched a new program to allow clients to receive low-cost medical services. Living and working in rural communities, FUNDAHMICRO has made it both convenient and affordable for clients and their families to receive general exams, medications and even x-rays. With exams costing as little as US$1, this benefit has helped improve the lives of FUNDAHMICRO clients, ensuring their health and well-being.

FUNDAHMICRO client María Argentina Osorto will be speaking at this year’s Business of Hope Luncheon on Tuesday, October 28. For an opportunity to learn more about GP’s partnership with this microfinance institution or the upcoming luncheon event, please visit www.GlobalPartnerships.org.

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Travel with Global Partnerships

Applications are now being accepted for Global Partnerships’ PartnerTrip to Guatemala, November 16-23, 2008. To learn more about this trip, future GP travels or to check out our Travelogue, go to our PartnerTrip page.

	“I thought watching the communal bank process was very valuable in understanding how it works. You could describe how it works and I would have a general understanding. But watching it in action was fabulous.” ~ Dick Footh Bolivia, Spring 2008
“I was simply overwhelmed by the level of engagement and commitment that we saw in all of the members of the communal association. Truly inspiring!” ~ Eddie Poplawski Nicaragua, Fall 2007
	“I learned so much about Honduras and how the issues of poverty are being addressed. I also had an opportunity to see some of the tourist sights. When I returned home, I felt I had really seen a country from all sides and met some wonderful people along the way.” ~ Penny Lewis Honduras, Spring 2005
“It was fascinating to see microcredit in action and the empowerment of the communal bank members. I really enjoyed the time we had to ask questions and have dialogue.” ~ Chris Moxon Bolivia, Spring 2008
	“Meeting the clients themselves was most important for me, and hearing from them what their loans have meant for them and their families.” ~ Bill Hayden Honduras, Spring 2006
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