Currency exchange fund to reduce foreign exchange risk


A significant risk for foreign investors in developing and frontier markets is exchange rate risk, which can greatly alter a project’s rate of return. Prior to the founding of the Currency Exchange Fund (TCX) in 2007, there was no solution to local currency risk in Kenya for overseas investors. TCX was founded by a group of development finance institutions, specialised microfinance vehicles, and donors to help fund climate-related investments.


  • Growth of renewable assets in Kenya was being restricted by currency and interest rate risks, which deterred foreign investment.
  • The premium attached to financial hedging instruments is expensive, as developing market currencies are historically volatile.
  • Before TCX, foreign investors such as ResponsAbility had no hedging options to invest in local initiatives like M-KOPA, a decentralised solar solutions provider in Kenya.


  • In conjunction with the IFC, the Currency Exchange Fund (TCX) Fund provides interest rate swaps, long-term fixed cross-currency swaps, and inflation-linked cross-currency swaps to beneficiaries undertaking climate-relevant investments.
  • International investors can sign a hedging contract with TCX, which will account for any difference in loan repayments or returns from borrowers or projects in developing markets that occur due to exchange rate fluctuations.2
  • As TCX is funded by donor countries and the IFC, it can offer hedging at a lower cost to investors.

Stakeholders involved

  • IFC: Works with TCX to provide currency hedging advice and services
  • Dutch and German governments: Provided initial capital to facilitate participation of other investors in the fund
  • EBRC, AfDB, IADB: Provide ongoing financing and currency support
  • responsibility: Sustainable investment house with USD3.5 billion under management and eight offices worldwide.


Kenya-timelineResults and impact

  • More than 90% of the volumes transacted by TCX have been for providing international investors with local currency solutions.
  • Since inception, TCX has grown from its original African market to become a global currency hedging platform, with more than 54 currencies hedged and USD4 billion in development loans converted into local currencies across 2,300 trades.
  • TCX supported M-KOPA, a start-up tackling poverty and access to affordable and clean energy by providing solar power to more than 500,000 low-income households in Kenya, Tanzania, and Uganda.

Key lessons learnt

  • Establishing currency hedging mechanisms is an important step to attracting greater private and institutional infrastructure investment into developing countries, particularly when commercial hedging is unavailable or prohibitively expensive.
  • Donor support can reduce the cost of currency hedging. In the case of TCX, having countries assume some of the risk – for example the German and Dutch governments holding the first loss capital tranche – allows TCX to share some of the less risky parts of its portfolio with private investors.
  • The involvement of development finance institutions, specialised microfinance vehicles, and the IFC allows for improved macro risk-pricing tools, which can further lower the cost of hedging instruments.

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