Recently we caught up with Brian Cox, the CEO of MFX Solutions.  MFX Solutions was launched in July 2009 as the first dedicated currency hedging facility created by and for microfinance. The company was set up by a group of microfinance industry players (lenders, investors, networks, and foundations), who came together to address two critical needs in microfinance: helping MFIs understand and measure currency risk, and making available modern hedging solutions to enable more local currency lending.

Tell us a bit about your group and whom you’re trying to serve.
MFX provides currency swaps and forwards to MIVs and MFIs.   We currently are working with 14 MIVs in Europe and the US who are investors in MFX.  We also offer free on line tools for MFI managers who want to better analyze their currency and interest rate risk.

MFX is based out of Washington DC. We serve all microfinance industry players looking to manage currency risk - MIVs looking to hedge their local currency loans to MFI and MFIs who wish to hedge their currency exposure.
On the decision support side, our free web tools are designed for MFI CFOs and Treasurers. Our Liabilities Planning Tool will help them make better funding choices and provide the analysis needed for creating a more professional asset/liability management process.

What do your clients need and how are you trying to reach them in a way that is new or innovative?
Our MIV and MFI clients need affordable hedging services geared to the special needs of microfinance.  MFX will do small size transactions at the same price as for higher denominations and we do not require collateral from our clients.  Finally many of our clients need advisory services to develop hedging strategies.

Describe some of the challenges your organization has had to face.
In many ways, we have faced a classic microfinance challenge — how to bring modern financial tools and technologies to an industry that operates on small sized transactions, with a mission to provide significant social returns?   We have overcome these challenges by working with strong partners.   In the design of our decision support tools – a large challenge is striking the balance between making them simple and easy to use, while still providing functionality for these tools to be useful to MFIs and other practitioners.

How is the current economic climate affecting your clients and your business?
The economic crisis brought home the dangers of holding currency exposure, as many MFIs lost money on their currency mismatch. Until last year, emerging market currencies were mostly stable and rising – few MFIs had been through a business cycle.  So from a demand stand point our clients now really see the importance of hedging.  On the down side, hedging has gotten more expensive in the sense that the risk spreads between EM currencies and dollar/euro rates are now higher.

What is the outlook going forward? Are you optimistic or not? Why?
The outlook going forward is positive. Microfinance by in large has come through the crisis in a fairly strong position which should mean that the trend toward higher levels of commercial investment and modernization will continue.  The past couple of years have made clear, commercial investors will not tolerate high levels of currency risk.  There is also much stronger awareness among MIVs of the need to provide local currency funding as part of their mission to provide stable funding to micro-entrepreneurs.