March 2, 2017–The Long-Term FX Risk Management instrument, developed and endorsed by the Global Innovation Lab for Climate Finance, aims to increase financing for low-carbon projects by providing foreign exchange and interest rate risk management instruments. TCX – the implementing partner of the instrument – recently worked with M-Kopa, a solar electricity systems provider that brings power to low-income homes without access to electricity.
M-Kopa has connected 500,000 homes in Kenya, Tanzania and Uganda to solar power and is adding nearly 500 every day. To support their ambitious plans for regional expansion, they needed additional financing. TCX partnered with MFX Solutions and responsAbility Investments AG to provide a tailored loan to support M-Kopa’s expansion plans with TCX hedging the currency risks of the financing transaction. As a result, M-Kopa was able to obtain multi-million dollar loans and strengthen its credit score.
The partnership between TCX and M-Kopa is an exciting new development for this Lab-endorsed initiative and highlights the catalytic potential of new instruments that hedge currency risks in Africa. In the majority of countries in Sub-Saharan Africa, the only viable option to obtain financing is US dollar or euro loans. However, this creates a large risk for companies with revenues in local currencies should the local currency lose value. TCX can offer hedges for almost all currencies and tenors not served by the commercial market thanks to innovative macro-risk pricing tools and patient blended capital, including a first loss capital tranche provided by the German and Dutch governments.
The Global Innovation Lab for Climate Finance identifies, develops, and pilots transformative climate finance instruments that can drive billions of dollars of private investment in climate change mitigation and adaptation in developing countries. Climate Policy Initiative serves as secretariat and analytical provider for the Lab.