1. FINDING SOLUTIONS TO THE
CURRENCY RISK CHALLENGE FOR
MFI’s, INVESTORS AND DONOR
AGENCIES
GLOBAL MICROCREDIT SUMMIT 2011
Valladolid, Spain
Pilar Ramirez
CONFIE Holding SL

2. LOCFUND: a response to Market Needs
Local currency funding to MFIs that offer financial
services to low-income people managing microenterprises
and do not have access to commercial banks.
400 MFIs in LAC region.
International funding for MFIs is still mainly in hard
currencies, while microcredit clients deal in local
currencies.
LAC countries have not developed efficient derivative
markets.

3. LOCAL CURRENCY LENDING APPROACH
Providing local currency denominated instruments to MFIs in the
region that are usually funded in hard currency and whose clients
deal with local currency.
Approval of loans after a rigorous due-diligence process of the MFI,
specially designed by Locfund.
Technical Support to the MFI in Asset and Liability Management and
FX Risk Management.
Very close post disbursement follow-up of the MFI.
LOCFUND manages the FX risk through currency diversification of its
portfolio and uses hedge tools when necessary and where available.

4. A SUCCESSFUL CURRENCY DIVERSIFICATION MODEL:
LOCFUND manages the foreign exchange risk through a
portfolio of assets in various local currencies. This has
generated positive results in normal times and has helped
to avoid losses during crisis periods, based on three main
elements:
1. Investment policies that ensure low concentration in a
single currency, low concentration in the structure of
each loan repayment, and low correlation among the open
positions in the different currencies that are part of its
portfolio of loans.
2. A structure of terms of each loan, where the most
important element is the application of variable rates
aiming to follow trends in the local markets.
3. Application of FX forward transactions where available (in
Perú and Colombia).

5. SUPPORTING ACTIVITIES
1. Permanent analysis of foreign currency exchange systems in each
country, ongoing analysis of volatility of exchange rates. It also
monitors the correlation of exchange rates and conducts an
ongoing analysis of macroeconomic trends in each country
related to economic policies, interest rates, foreign trade and
situation of their international reserves.
2. Simulations of the components that may affect the market interest
rates are made, and are compared to the variation of the expected
exchange rate, and other elements, in order to have an estimate of
the final return of each loan in US dollars during its maturity.
IMPORTANT FINDINGS
• When local currencies have re-evaluated vis a vis the USD, local
interest rates have decreased; the opposite effect has occurred.
• Average correlations in exchange rates among local currencies
vis a vis the USD have been consistently low.
.

6. OPERATIONS and RESULTS:
• Since its beginning in 2007, Locfund has completed 56 loan
operations in local currencies in 35 second-tier MFIs in 13
countries of LAC, for a total of the equivalent of US$45
million to date.
• Locfund currently has a portfolio of US$30.718mm in loan
operations, in 12 different currencies.
• Loans are structured based on the following factors: the
country where the loan is placed, the MFI to receive the
loan, and local market rates.
• Variable interest rates for loan operations are adjusted
every 3 months accompanying local market trends.
• Average interest rates have been declining due to an
overall improvement in risk in LAC countries, as well as a
strengthening of local currencies.

7. • Locfund shows positive FX results in three of the four
years of operations.
• Locfund’s returns for its investors have been positive
in the four years.
• Portfolio return, including FX results for year 2010 has
been 13.49%.
• 2011 is showing increased returns. ROE of 14,3% as of
June 2011.
“The resulting total return of the portfolio is
attractive for the investors and, at the same
time, the loan operations are highly
competitive in the local markets in each
country”

8. Evolution and Impact Indicators
48 Accumulated Dirsbursements
45 (Millions of USD)
42
Total Disbursements: USD 45,1 Millions
39
36 Anual Average: USD 11,2 Millions
33 Loan Operations: 56
30
27
24
21
18
15
12
9
6
3
0
Mar-08
Mar-09
Mar-10
jan-10
May-07
May-08
May-09
May-10
Oct-10
Dec-10
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Aug-10
Apr-11
Sep-07
Sep-08
Sep-09
Sep-10
Feb-11
Nov-07
Nov-09
Nov-09
Jun-10
Jun-11

9. Exposure per country
as of June 2011
104 MFIs
Costa Rica Paraguay
4,95% 7,69% approached and in
Guatemala
3,52%
different stages of
Peru
El Salvador 13,16%
negotiation
4,62%
Dominican Nicaragua
Republic 0,73%
34 Microfinance
9,71% Honduras institutions reached
3,69%
México Colombia Current portfolio
12,65% 13,08% size: USD 30,7MM
Bolivia
Argrentina Successful model for
2,66%
10,83% Ecuador small and medium
12,72%
MFIs

10. Locfund LP Impact and Developmental Objectives
USD 45 MM were allocated in 56 loan operations to 34 MFIs in 13 countries
Locfund provided 43
technical support processes
to Microfiance Institutions
focused on Assets and
Liabilities Management and
other areas.

11. Contact Information
La Paz, Bolivia:
Fernando Sánchez
fsanchez@locfund.com
Av. Sánchez Bustamante esquina Calle 15
Edificio Torre Ketal, Piso 4 Oficina 404, Calacoto
Phone: (591) - 2- 2799046 / 2-2113237
Fax: (591) - 2 - 2799290
San José de Costa Rica:
Rodolfo Quirós
rquiros@locfund.com
Centro Corporativo Plaza Roble,
Edificio El Pórtico, Piso 1, Escazú
Phone: (506) 2201-1492
Fax: (506) 2201-1414

12. Local Currency Fund