TCX Fund
Innovation introduced in 2007
Institutions that have implemented the product/service: The current investors in TCX are 19 multilateral and bilateral development finance institutions and microfinance investment vehicles, as well as the Dutch, German, Swiss, British, and French governments and the European Commission.
MSMEs served: TCX’s activity currently spans over 70 currencies in Sub-Saharan Africa, Eastern Europe and Central Asia, the Middle East & North Africa, Asia, and Latin America.
Challenges
TCX generates development impact by protecting the most vulnerable from financial volatility emanating from currency risk. TCX promotes and offers currency hedging solutions that convert hard currency development financing into investments in local currency in frontier and illiquid emerging markets. TCX does not compete with commercial banks: TCX is a hedge provider in those currencies and tenors where no commercial alternatives are offered yet. By carrying the currency risk for borrowers and shifting it to private markets, TCX enhances the sustainability, transparency and efficiency of development finance. With funding from international investors, individuals, enterprises and governments in developing countries undertake activities that generate impact, such as creating jobs or producing electricity, and contribute to the realization of the UN Sustainable Development Goals. Today, almost all loans provided to these borrowers are in hard currency, which exposes them to risk that stems from fluctuations in the exchange rate. By providing crosscurrency swaps, TCX improves the financial resilience of the borrowers and ensures that development impact will be achieved, even in periods of currency volatility.Primary target
Which group does your product/service primarily target?
Risk Management
SMEs
Description of Innovation
TCX focuses on three pillars:Pillar 1: De-risking development finance through local currency solutions. TCX absorbs the currency risk of loans provided by development finance investors globally. This increases the risk-resilience of the impact generated by these investments and their corresponding contribution to the SDGs.
Pillar 2: Developing markets through risk reallocation. TCX redirects part of the currency risk it takes on its balance sheet to participants in international financial markets, contributing to market efficiency and transparency. These partnerships with development finance and commercial investors build lasting markets for local currency risk solutions.
Pillar 3: Increasing awareness through advocacy and thought-leadership TCX plays a crucial role in advocating for local currency finance by increasing awareness and understanding of currency risks. The local currency ecosystem expands through partnerships with international institutions and local parties in developing countries.
TCX focuses on providing solutions to currency risk for its investors and through commercial banks to make local currency finance available in developing countries.
Results
Impact supported by new development finance loans hedged by TCX in 2021:132000 jobs supported (56000 female jobs, 75000 male jobs), 938 million USD total value added (salaries, profites and taxes)