TCX Fund a Cardano Development group company has for the first time ever, completed a crowdfunding campaign to fund a local-currency loan. The transaction concerns a EUR 200,000 loan, denominated in Ghanaian cedis, from the Dutch crowdfunding platform Lendahand to the solar developer REDAVIA. The loan proceeds will be used by REDAVIA to fund the rollout of solar farms for its corporate customers in Ghana. This local-currency deal is made possible by a partnership between Lendahand and the hedge provider TCX, with financial backing from KfW on behalf of the German Federal Ministry for the Environment,Nature Conservation and Nuclear Safety (BMU) and its International Climate Initiative (IKI).
Platforms like Lendahand allow retail investors to invest in loans to businesses in frontier markets. They lend to businesses for which it is difficult to access funding. Since platforms are lean and can raise funding quickly, they are flexible and responsive. That, and the interest from the public to invest, has made crowdfunding an important alternative source of development finance. Normally, the loans that platforms provide are in euro (or USD) because retail investors cannot be expected to take risk on exotic, frontier-market currencies. However, with a loan in euros, it is the borrower that takes the exchange-rate risk. Because frontier-market currencies tend to depreciate against the euro (or USD), often heavily and always unpredictably, the size of interest and principal payments in local-currency terms is uncertain.
Borrowers need to carefully consider and manage that risk. The market solution for this issue – who bears the currency risk? – is to lend in local currency and hedge the risk with a bank or, in the most difficult markets, with TCX. That solution is commonly used by institutional lenders but has never been made available to retail platforms. TCX, Lendahand and KfW/BMU are now cooperating to change that. The bespoke hedging structure developed by TCX with BMU funding and Lendahand as developing partner, allows the platform to offer a local-currency product to its borrower while still offering its investors a euro return.
Ruurd Brouwer/CEO TCX: “It is the mission of TCX to eliminate currency risk from development finance. It is important, especially for the businesses that platforms lend to, that platforms have access to the same hedging solutions as ‘normal’ lenders do. It has been great to work with Lendahand on this project. Like us, they were determined to make it happen. We hope to be doing many more deals with them, and eventually, with similar platforms globally.”
Koen The/CEO Lendahand: “Lendahand fights against poverty through impact investing. We are delighted that we can now offer local-currency loans to our clients. Many of our customers are small businesses with only local-currency revenues. It is our aim to provide sustainable loans to our customers and this new product allows us to service more businesses who have difficulty getting
