AfDB approves $25 million to boost local currency hedging in Africa

The African Development Bank (AfDB) has approved a $25 million equity investment in The Currency Exchange Fund (TCX) to strengthen access to local currency financing across Africa.

This is contained in a statement published on the bank’s website on Wednesday.

The statement noted that the Bank aims to reduce foreign exchange exposure for African borrowers, especially those in fragile states, underserved economies, and high-risk markets where conventional hedging instruments are limited or unavailable.

“The Bank’s investment will crowd in additional DFIs and private investors, reinforce Africa’s integration into global capital markets, and support sustainable growth by reducing the mismatch between the currency of debt and revenue for local borrowers,” the statement added. 

What the officials said: 

The Director of the Financial Sector Development Department at the African Development Bank Group, Ahmed Attout, said the investment would unlock more financing for MSMEs in Africa.

He said, “This investment in TCX marks an important milestone in the Bank’s effort to deepen African capital markets and address the root causes of debt distress. The Bank’s support to TCX will unlock local currency financing for MSMEs, infrastructure and many sectors across Africa.” He added: “The transaction forms part of the Bank’s broader objective to promote access to adequate financing through innovative alternative solutions.”   

On his part, TCX’s Chief Executive Officer, Ruurd Brouwer, said, “We are thrilled to welcome African Development Bank Group to TCX’s capital base, joining fellow development finance institutions, impact investors and governments that support our local currency hedging solution. It marks the start of a close partnership in protecting AfDB’s public and private sector borrowers from currency risk and promoting the development of African capital markets. We very much look forward to increasing our joint impact on the continent.” 

What you should know 

In August, AfDB announced a $5.5 billion financing framework to accelerate sustainable growth and infrastructure development across Africa, leveraging the Japan International Cooperation Agency’s (JICA) private sector investment finance as a catalyst.

Prime Minister of Japan, Shigeru Ishiba, made this known during the opening sessions of the 9th Tokyo International Conference on African Development (TICAD9), held in Yokohama, Japan.

Since its inception in 2007, TCX has hedged more than $17 billion in notional amounts, including over $4 billion across 31 African countries.

AfDB approves $25 million to boost local currency hedging in Africa   - Nairametrics