MICROCAPITAL.ORG STORY: International Finance Corporation (IFC) Assists FORUS Bank in Russia With Hedging of Currency and Interest Rate Risk

According to a press release from the International Finance Corporation (IFC), the investment arm of the World Bank, is assisting FORUS Bank, a microfinance institution (MFI) in Russia, with hedging of currency and interest rate risk [1,2,3]. Together, they have performed currency and interest rate swaps worth over USD 13 million [1].

Currency swaps involve the exchange of two amounts in different currencies and an agreement to make either fixed or floating interest rate payments to the other party, while an interest rate involves making the interest payments without swapping principal [4,5]. The parties then swap back on maturity [4,5]. The purpose of these exchanges is to prevent against adverse changes in foreign exchange or interest rates by hedging risk [4,5]. Specifically, FORUS has been hedging its exposure to the “United States dollar, euro, and Russian ruble floating interest rates” [1]. Stacie Schrader, Chairman of FORUS Bank’s Board of Directors, says that FORUS has now hedged risk on 40 percent of its liabilities [1].

The International Finance Corporation was founded by the World Bank in 1956 [2]. Russia became a shareholder and member of the organization in 1993 [6]. As of the end of 2008, the IFC invested billion into projects in Russia, and currently has a committed portfolio of USD 2.4 billion [6]. In June of 2009 Microcapital reported on the IFC’s 2008 investments in Russian Micro Small and Medium Enterprises (MSMEs) [7]. Since 1992, the IFC has also provided services to Russian firms regarding issues such as “improving production and management practices” and Russian banks regarding “[strengthening] corporate governance practices” [6].

FORUS Bank was established in 1993 [2]. It provides finance to entrepreneurs in 29 regions of Russia [2]. FORA Fund, its predecessor, was the first institution in Russia to offer a collateral-free loans [2]. FORUS now offers group loans as well as cash and settlement services, and plans to offer deposit and mortgage services in the future [2]. According to the MIX Market, the microfinance information clearinghouse, FORUS has a gross loan portfolio of over USD 53.1 million and active borrowers totaling 13,428 [8]. As of the end of 2008, they have a debt to equity ratio of 5.07, a return on assets of -2.27 percent, and a return on equity of -11.97 percent [8]. Microcapital reported in December 2006 on a USD 1 million loan from Swiss ReponsAbility Global Microfinance to FORUS Bank [9,10]

By Chris Maggio, Research Assistant

Bibliography
[1] IFC press release entitled ‘IFC Helps Regional Russian Microfinance Institution Hedge Currency, Interest Rate Risks’: http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDoc…
[2] International Finance Corporation: http://www.ifc.org/
[3] FORUS Bank: http://www.forusbank.ru/en
[4] Holden, Paul, and Sarah Holden. “Foreign Exchange Risk and Microfinance Institutions: A Discussion of the Issues.” Microfinance Gateway (2004). Web.: http://www.microfinancegateway.org/p/site/m//template.rc/1.9.28374
[5] Interest Rate Swap on Pimco: http://www.pimco.com/LeftNav/Bond+Basics/2008/Interest+Rate+Swaps+Basics…
[6] IFC in Russia: http://www.ifc.org/ifcext/eca.nsf/Content/Russia_Home
[7] MICROCAPITAL STORY: International Finance Corporation (IFC) Invests over $514m in Micro Small and Medium Enterprise (MSME) Initiatives During 2008: https://www.microcapital.org/microcapital-story-international-finance-cor…
[8] FORUS on the MIX Market: http://mixmarket.org/mfi/forus
[9] MICROCAPITAL.ORG STORY: Swiss ReponsAbility Global Microfinance Fund Loans USD 1 Million to Russian Forus Bank: https://www.microcapital.org/swiss-reponsability-global-microfinance-fund…
[10] ReponsAbility Global Microfinance Fund: https://www.credit-suisse.com/ch/privatkunden/lebensphasen/en/doc/respon…

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