Becoming a client
Types of Clients
An investment vehicle raising funds from social, commercial, private or institutional investors in order to invest them in microfinance assets and/or lend to MFI’s.
A financial institution specializing in banking services for low-income groups or individuals.
A bank, non-bank financial institution, investment fund or investor that makes loans to SME’s or other SME lenders.
An SME is a “Small and Medium-sized Enterprise” that employs fewer than 300 persons and which have an annual sales not exceeding $15 million and/or an annual balance sheet total not exceeding $15 million.
Any institution or investment fund that has received funding from Development Finance Institutions such as USDFC, Findev Canada, IDB Invest, Proparco, etc.
Renewable energy projects – solar, wind, climate, etc. – in developing countries that are financed by government development institutions (DFIs) or other funds.
Projects providing public health, food security/small scale agriculture, and low cost housing in developing countries.
Why Become a Client?
Our Process
The set-up process involves three main steps:
Before engaging in a hedging transaction with MFX or any other party, an MIV (Managed Investment Vehicle) is required to enter into an agreement that establishes the relationship and commits both parties to derivative transactions. This agreement includes provisions regarding payment terms, settlements, and other procedures. Specifically for foreign exchange or currency swaps, the agreement is known as the “ISDA” (International Swap Dealers Association), which is a standardized contract developed by the organization responsible for global financial derivatives standards. The most recent version is the 2002 ISDA, consisting of three parts: the ISDA Master Agreement, the ISDA schedule, and the Credit Support Annex (CSA).
The ISDA Master Agreement encompasses standardized terms that apply to all derivative contracts, eliminating the need for much negotiation. MFX can provide assistance in understanding these terms or clarifying any questions you may have. For further discussion, please contact Anmol Chandan at anmol@mfxsolutions.com.
The ISDA schedule contains contract-specific information and terms, including conditions for unwinding trades, covenants, notification requirements, and information disclosure. MFX can offer standard terms in most areas to streamline the process of agreeing to an ISDA schedule. Below, you will find examples of the ISDA Master Agreement and an ISDA schedule for reference.
All potential clients are required to undergo an external credit rating in order to onboard as a counterparty. The rating methodology categorizes counterparties into Tier 1 through Tier 4, Tier 1 being “High Creditworthiness” and Tier 4 being “Not Creditworthy”. The ratings are usually done by Luminis or MFR (formerly Microfinanza) and are usually based on an evaluation of portfolio quality, performance, capital structure, liquidity, and treasury management. The rating process generally takes a few weeks time. If a potential client has a rating from a non-partner rating agency, there is a possibility this can be adapted to MFX’s purpose.
Depending on whether you are a MIV/Fund, MFI, or a Renewable Energy Project, there are different terms of collateral and fees.
MIV/Funds
As long as a MIV is deemed “creditworthy” (Tiers 1 – 3), there is no requirement by MFX to post collateral.
The total fee for the rating is $8,000. Annual surveillance reports are $2,500.
MFIs
MFIs are generally required to place cash collateral, regardless of rating, unless the institution has a guarantee from a rated entity that can be classified as a “Fund” (MIV).
Standard collateral terms are as follows:
- Initial Margin: 7% of notional
- Variable Margin: Mark-to-Market
- Minimum transfer amount: 1% of notional
The total fees for the rating range from $12,000 to $15,000. Annual surveillance reports are $2,000.
Renewable Energy Sector
Non “Fund” clients of MFX in the renewable energy sector are not required to have an external credit rating. However, they are required to have credit insurance (secured by MFX and charged to the client) or to post cash collateral.
If a client wants to avoid the collateral requirement, they will have to submit to a credit due-diligence form from MFX’s credit insurance partner. The lender for the project will also have to agree to provide seniority to MFX in the event of default. Credit insurance will be priced into MFX’s rate quote so the hedge cost can be compared to other options
If the client wants to post collateral, standard terms are:
- Initial Margin: 7% of notional
- Variable Margin: Mark-to-Market
- Minimum transfer amount: 1% of notional85
MFX has specific documentation requirements as part of its KYC (Know Your Customer) process, in addition to signing an ISDA agreement and obtaining a credit rating. Potential clients are requested to provide the following information:
- Most Recent Annual Report or Audited Financial Statements (3 Years If Available)
- Articles, Statutes, or Constitutional Documents
- Names, Addresses, Citizenship, and Country of Residence of Board of Directors
- Certificate of Incorporation
- Signed Corporate Authorization Identifying Authorized Signatories
- List of Shareholders Holding 10% or Greater Equity Stake
- NY Process Agent Appointment Letter (Only applicable for clients incorporated outside or in the U.S. or Europe)
- Prospectus or Placement Memorandum (For new funds)
- Most Recent Quarterly/Semi-Annual Financial Statements since Last Audited Financial Statements
- W9 for US Entities or W8-BEN for Non-US Entities
- External Credit Rating
*Clients required to post collateral for transactions with MFX must also provide a Credit Support Annex (CSA).
MFX is committed to supporting clients throughout the onboarding process. For any inquiries regarding the onboarding process, please contact pawel@mfxsolutions.com, matthew@mfxsolutions.com, or anmol@mfxsolutions.com.