Passing currency risks to the poor
Law firms are working to find a solution to a major problem for microlenders: currency risk. Twin crises – soaring food prices and a global credit contraction threaten to wreck the budget (and historically low default rate) of millions of small microloan borrowers worldwide.
Even lawyers need help. Law firms are offering help to lawyers who haven’t done pro bono work before.
Microfinance institutions lend to the poor in local currencies but repay loans in dollars or euros. If the local currency loses value against the dollar or euro, “theoretically we’re passing on currency risk to the poorest people in the planet,” says Brusewitz.
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On a larger scale Citi Microfinance, a nonprofit set up by Citigroup Inc. to support microlending institutions around the world. Drawing on lawyers in its Paris, Madrid, London, and New York offices, the firm put together an easy-to-use, multijurisdictional term sheet that reduces the due diligence work that the international banks’ nonprofit microlending units need to process commercial loans valued at $1-5 million, a typical amount for microfinance transactions. “What we were looking for was a document that would effectively work whether you had a civil law or common law system,” says Christopher Wyman, an energy and infrastructure partner.
The document allows nonprofits seeking to make loans in Africa, Latin America, or Asia to process the transactions without counsel, while knowing that the loans comply with high international standards. The process is simple enough that it’s “a bit like the bank would do if they made a consumer loan,” Wyman says. Citi Microfinance has already used the document in some 20 countries.Â
For more details visit New York Lawyer website.
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Tags: Advocacy, Anti-poverty strategies, Philanthropy