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MDB/DFI local currency lending serves as a vital buffer against debt distress for developing market borrowers. However, it constitutes a small portion of development finance. While MDBs strive to increase local currency lending, they often rely on mainstream currencies, primarily the dollar, for fundraising. This leads to local borrowers facing additional costs due to currency fluctuations. Providing locally denominated loans seems straightforward, yet it’s often more expensive than dollar or euro loans due to higher interest rates and complex structures. Such conditions make MDB offerings less accessible, especially for sovereign borrowers. To enhance local currency financing, experts propose several strategies. Reforming MDB risk management frameworks is essential to address perceived exchange rate risks. Successful examples like TCX and the African, Caribbean and Pacific Investment Facility demonstrate that currency risks can be managed effectively. Additionally, diversifying local currency hedging sources could lower costs. Scaling up and subsidising TCX could also improve local currency lending capabilities by increasing hedge sizes and reducing costs through additional capital and concessional financing. ?? Subscribers can access more of Uxolo data here: https://lnkd.in/eMnU4-qH ?? If you are not a subscriber, you can explore Uxolo's subscription options here: https://lnkd.in/eUMwdn-a #DevelopmentFinance #DFI #CurrencyRisk #SustainableFinance #EconomicDevelopment #GreenFinance Source: #UxoloIntelligence

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