In the world of FX and payments, hedging is the go-to tool for FX brokers to secure business revenues, as well as offering solutions that meet numerous client-type needs, meaning everybody wins. Hedging is a risk-mitigation strategy used broadly that benefits a large number of different business models through various levels of sophistication, that is, until it meets the world of emerging and frontier market (or “exotic”) illiquid currencies.
If you’re an INGO, there’s a significant chance that you’re working with some of the most volatile currencies in the most high-risk jurisdictions, and whilst many Fis and banks talk a good game about why hedging is a must for the charity sector, in reality, it’s more often than not totally incompatible for a number of reasons.
It’s a cold, hard truth that a lot of those INGO exotic currencies are too risky to hedge for said banks and FIs. Whilst there’s clearly a need for it in such volatile markets, it’s somewhat ironic that risk management tools are too risky to use for the riskiest currencies. That’s why, for the most part, the charity sector just isn’t that interested in hedging. There seems to be a misconception from the finance world that the be-all and end-all for charities working overseas is to hedge their exposures and protect costs with zero appreciation for their underlying real challenges.
Hedging always seems to be the topic that the finance sector wants to talk about, not the international charity sector. Sure, a small number of sophisticated, well-resourced, hyper-funded INGOs are fortunate to have experienced treasury managers who’ve previously been FX traders or have high levels of financial qualifications. They hedge their G10 needs and, to a lesser extent, some of those more “stable” African or Middle Eastern currencies.
Go further down the income scale to the smaller, more tightly resourced INGOs and sophisticated treasury operations are a luxury. Working in smaller baskets of countries with zero need for major currencies, their priorities are different. They want safe and cost-efficient access to local currency, seamless and timely payment delivery into difficult regions, but above all, they want to know that their payment partner truly understands their mission and the pressures they face and can give them the assistance they desperately need when something goes wrong with a payment.
INGOs want guidance on due diligence, local banking knowledge, support with compliance asks, and to be connected to a wider community of INGOs all facing the same challenges as themselves. Whilst hedging does have a very small place in the world of international development and humanitarian aid delivery, when INGOs do need the help of the finance sector, hedging often comes across as a tone-deaf response.