Microfinance, macro risk
Thursday, January 30, 2014
When it comes to international loans from development finance institutions or investment funds issued to microfinance institutions (MFIs), the typical currency used is the US dollar or euro. As MFIs hold foreign currency loans, they face the risk of devaluation of their local currency. To minimize that risk, MFIs lend to their customers in foreign currency loans or by indexing microloans to the foreign currency exchange rate.