Demonstrating demand in fragile contexts.
In 2016, as Myanmar’s economy opened, the Livelihoods and Food Security Trust Fund (LIFT), a multi-donor fund supporting vulnerable populations in Myanmar, provided $25 million to enable local currency lending to microfinance institutions serving rural populations. The facility “investment phase” lasted until 2020, when it had to be suspended due to deterioration of Myanmar’s political and macroeconomic situation; however, the facility’s results provide critical evidence of massive unmet demand for subsidized hedging in fragile, strictly-regulated environments.
Myanmar’s microfinance sector faced a challenging regulatory environment: a 13% interest rate ceiling (then increased to 16%) combined with macroeconomic fragility (resulting in the local currency, the kyat, weakening) made local currency lending economically unattractive to international investors. Foreign investors would only provide USD loans, but regulations prohibited MFIs from on-lending in hard currency to their borrowers — leaving MFIs to bear the full foreign exchange risk with no hedging options available. TCX provided hedging services enabling investors to lend in local currency, while LIFT subsidized interest rates down to the 13% regulatory cap, making kyat lending viable for both investors and MFIs.
The facility supported $224 million in investments to 20 microfinance institutions from 37 international investors throughout multiple program phases. Demand significantly exceeded supply — the facility received $565 million in requests from investors. This substantial gap demonstrates that demand for affordable hedging in fragile contexts vastly exceeds current supply, and that protective hedging can maintain financial access for vulnerable populations even in highly challenging environments.