Foreign exchange is a vital component of your international operations. Lawrence Titterton, Chairman of Alongside Africa, explains: “It is important for all NGOs operating in developing countries to secure good foreign exchange rates, and this is particularly relevant for small NGOs. Whilst the overall value of their transactions may be lower, the impact on local operations and on the income and expenditure account can be proportionately higher.”
The currency markets are a volatile environment, particularly when it comes to emerging market currencies. That is because in the emerging markets exchange rates are often influenced by less predictable economic and political factors. And NGOs tend to operate in some of the least stable of the emerging markets.
To ensure your efforts have maximum impact it is vital to understand the level of risk and steps required to deliver aid effectively. Whether you’re a large international NGO or a small one, the challenges will be similar.
Protecting funds against currency fluctuations
Effective currency risk management ensures that your funds are protected in the event that the currency markets move against you. It also helps your organisation budget.
Currency risk management often takes the form of forward contracts. Put in very simple terms, forward contracts are agreements between you and a financial services provider to buy or sell currency at a future point in time, at a rate agreed today.
Locking in the exchange rate will help you guarantee the funds available and ensure that donations are stretched as far as possible.
While currency risk management typically isn’t top of the agenda for NGOs, a bit of time spent on it can mean big savings in the long term, with every penny saved adding to the impact your work has on the ground.
Financial partners should be selected based on their expertise in the provision and risk management of emerging market currencies, fund distribution methods and cost efficiency, now and in the future. Ensure that they offer all the exotic currencies you require, be that the Papua New Guinean Kina or the Ghanaian Cedi.
The value a financial partner can add is not just about rates and monetary deliverables. The chosen partner should also be consistently reliable and have efficient processes in place.