becoming a client

Why Become a Client?

MFX has a unique business model designed to make hedging easy and accessible for impact investors.

Impact Investment  Hedging Needs MFX Value Proposition
Flexible Transaction Sizes MFX can hedge amounts as low as 100K or as large as $50M on a level playing field for smaller clients.
Diverse Product Mix MFX offers currency forwards, cross currency swaps and option products geared to the needs of impact investors
Frontier Markets MFX can provide hedging in almost all emerging and developing country currencies including most African currencies
No Collateral No collateral required for fund clients and clients hedging DFI loans
Affordable and transparent pricing No management fees. Transparent spread (50bps) over MFX’s own hedging cost
Flexible transactions MFX provides non-deliverable swaps – settled in USD or Euros on a net basis -as well as deliverables which help the client manage transfer costs.
Consulting/TA MFX provides free education to clients in defining a hedging strategy, setting up hedging operations and managing the legal and documentation process.  MFX can also provide comprehensive portfolio risk management for funds carrying currency exposure

MFX is the impact sectors’ only dedicated currency hedging facility.

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 the Overseas Private Investment Corporation (OPIC).

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.

MFX is the impact sectors’ only dedicated currency hedging facility.

Our Process

Whether or not your institution has experience with hedging products, MFX can help make hedging understandable and straightforward to implement. MFX uses standard derivatives contracts and our team will guide you through the steps needed to establish a hedging relationship and then help you develop a hedging strategy that meets your needs.

The set-up process involves three main steps:

Step 1

ISDA Process

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Step 2

Credit evaluation.

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Step 3

Know Your Customer Process

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We do require other corporate documents in order to become a client, known as our KYC process, but once the basic contractual framework is in place we work with our clients to identify the best options for managing currency risk and then provide pricing and guidance through the deal process. We also provide advice on hedge accounting and other ways to make hedging easier to implement.

Before an MIV can engage in a hedging transaction with MFX (or anyone else), both parties must enter into an agreement which defines the relationship and commits both parties to derivative transactions undertaken between them. The agreement also contains the procedures and rules regarding payment terms and settlements. The agreement governing foreign exchange or currency swaps is known as the “ISDA”, which is a standardized contract named for the organization that established global financial derivatives standards more than 20 years ago – the International Swap Dealers Association. The most recent version is the 2002 ISDA. The agreement comes in three parts: the ISDA Master Agreement, the ISDA schedule, and the Credit Support Annex (CSA).

The ISDA Master Agreement contains standardized terms that hold for all derivative contracts and thus does not need to be negotiated. MFX can help to familiarize you with these standard terms. Please contact Anmol Chandan to discuss this further.

The ISDA schedule sets the terms and information that are unique to the contract such as specific conditions for unwinding trades, particular covenants, notification, information disclosure, etc. MFX can provide standard terms in most areas to help simplify the process for agreeing to an ISDA schedule.

See below for examples of the ISDA Master agreement and an ISDA schedule.

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 $7,000. Annual surveillance reports are $2,000.

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:

  1. Initial Margin: 7% of notional
  2. Variable Margin: Mark-to-Market
  3. 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:

  1. Initial Margin: 7% of notional
  2. Variable Margin: Mark-to-Market
  3. Minimum transfer amount: 1% of notional

In addition to signing an ISDA agreement and receiving a credit rating, MFX has additional documentation requirements as part of their KYC process. Potential clients would need to provide the following information:

  1. Most Recent Annual Report or Audited Financial Statements (3 Years If Available)
  2. Articles, Statutes, or Constitutional Documents
  3. Board of Directors Names, Addresses, Citizenship, and Country of Residence
  4. Certificate of Incorporation
  5. Signed Corporate Authorization Identifying Individuals Authorized to Sign or Transact
  6. Listing of Shareholders holding 10% or greater equity stake in the institution
  7. NY Process Agent Appointment Letter (Only required if clients are not incorporated in the U.S. or Europe.)
  8. Prospectus or Placement Memorandum, If a New Fund
  9. Most Recent Quarterly/Semi-Annual Financial Statements since last Audited Financial Statements
  10. W9 for US Entities or W8-BEN for Non US Entities
  11. External Credit Rating. Please find information attached for Luminis.

Potential clients that are required to post collateral in order to transact with MFX must also provide a Credit Support Annex (CSA).

MFX takes an active role in onboarding new clients by providing support through every step of the process. Please reach out to patricia@mfxsolutions.comjessica@mfxsolutions.com, or anmol@mfxsolutions.com  with any questions concerning the onboarding process.

See Documentation examples below: 

MFX is the impact sectors’ only dedicated currency hedging facility.

how can we help you?

Contact us at the MFX office or submit a business inquiry online.

“Our partnership with MFX is critical to how we do business.   Microfinance Institutions need funding in their own currencies in order to grow safely.   Thanks to MFX we are able to meet their needs while effectively managing our risk.”

Incofin
Head of Risk Management , Incofin, Belgium