The International Finance Corporation and Citigroup have agreed on a 1.6 billion rand lending facility to expand local currency financing in South Africa, according to Reuters.
The deal aims to help businesses access funding in rands rather than foreign currencies, thereby reducing the risks that come with exchange rate fluctuations. In many developing economies, companies earn revenues in the local currency but often rely on debt in dollars or other hard currencies, leaving them exposed to changes in exchange rates.
The new facility will allow the IFC to extend loans in rand to private sector borrowers. It has already been used to support the Cape Water results-based bond issued by FirstRand Bank, an early example of how the funding will be deployed.
George Familiar, Vice President and Treasurer of the World Bank Group, said local currency financing has become more important as uncertainty increases in global markets. He said companies earning in domestic currency may face serious challenges when borrowing in foreign currencies, making local funding an important tool for risk management.
The agreement is based on a similar facility that IFC and Citi launched in Kenya in 2024. The familiar described the earlier deal as a test case and said the South African facility shows the model can be replicated in other markets.
According to Reuters, about 30 percent of lending from the World Bank Group's own account last fiscal year was in local currency. Over the past decade, IFC has committed more than $33 billion in local currency financing in 71 currencies, part of a broader effort to protect businesses in emerging markets from currency shocks.