The LCF will allow IFC to provide financing in local currency for high impact projects in IDA and FCS countries where local currency solutions are underdeveloped or completely missing. This facility is targeted at clients who operate in markets in which currency hedging options are absent or very limited. This facility would be backed by IDA resources set aside to backstop the LCF so that IFC can provide various operations in local currency. The facility would act as a risk transfer vehicle for IFC operations in PSW-eligible countries only up to the designated allocation of PSW’s resources, indicated as US$400 million.
While IFC would continue to hold the credit risk of the underlying loans and investments, the main operations of the LCF would cover the following risks:
- Counterparty credit risk
- Market and credit risk
- Transfer/ Covertibility risk
- Open currency Interest rate risk.