IFC and AfDB sign pact to expand local currency finance

IFC_FlickrThe agreement will enable IFC and AfDB to benefit from each other's local currency bond issues. (Image source: Wesleynitsckie/Flickr)International Finance Corporation (IFC) and African Development Bank (AfDB) have signed an agreement to enter into cross-currency swap transactions

The agreement will enable IFC and AfDB to collaborate and benefit from each other's local currency bond issues and enhance their local currency funding capacity to support their clients' development projects.

The deal represents the first step in an initiative for greater collaboration among multilateral institutions to accelerate local capital market development and increase local currency financing options.

"Expanding long-term currency initiatives is a cornerstone of IFC's strategy to strengthen capital markets in developing countries," said IFC vice-president and treasurer Jingdong Hua.

"Helping to establish such markets allows us to work with regulators and local institutions to ensure that capital market regulations are effective and entrepreneurs are able to grow and create jobs," Hua added.

Local-currency bond markets have provided long-term, local currency finance for projects, protecting them from foreign exchange risks. These markets have been a vital potential source of finance, particularly in the wake of the global financial crisis, when foreign capital inflows to Africa have diminished.

AfDB vice president for finance Charles Boamah said, "Promoting the development of local capital markets in Africa is paramount to successful, sustainable economic development.

"This agreement supports our African Financial Markets Initiative, which aims to further the development of domestic African capital markets, enlarge the investor base, and reduce African countries' dependence on foreign currency denominated debt."

The deal is the first ISDA Master Agreement that either institution has signed with another multilateral financial institution to facilitate local currency lending and bond issuance in Africa.

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