UDB Currency Risk-Sharing Facility Instrument Design Report

The Uganda Development Bank (UDB) has developed a Currency Risk-Sharing Facility (CRSF) to mitigate the foreign exchange (FX) risks associated with borrowing in hard currencies (USD/EUR) and lending in Ugandan shillings (UGX) for climate projects. The CRSF employs a layered risk-sharing approach, combining a partial hedge (e.g., currency swaps) with a tail-risk FX guarantee to protect against severe UGX depreciation beyond a dynamic threshold. Financial modeling indicates that the CRSF offers a more affordable and stable funding cost (average 9.82%) compared to full hedging (10.96%) or unhedged exposure (average 8.39% but highly volatile). The instrument is designed to be replicable for other public development banks in emerging markets and developing economies facing similar currency mismatches.

• The CRSF is designed to distribute currency risk among three parties: a traditional or development-oriented FX hedge provider, the Uganda Development Bank, and a guarantor (such as a donor or development finance institution) who covers high depreciations.
• The instrument utilizes a 'collar' structure where UDB is protected against extreme depreciation but must share gains with the guarantor if the Ugandan shilling appreciates beyond a predefined threshold.
• Financial modeling shows the CRSF provides a middle-ground funding cost of 9.82% on average, which is more stable than an unhedged position (range of -5.52% to 20.12%) and cheaper than full hedging (fixed at 10.96%).
• Historical analysis suggests that severe depreciations exceeding the proposed 5% threshold are relatively rare in Uganda, occurring on average once every seven years, and that a guarantor would have been profitable in most years since 2000, except for deals started in 2007 and 2009.
• Legal analysis concludes that because the instrument is symmetric (reciprocal payments for both appreciation and depreciation), it would likely be treated as a derivative rather than a guarantee in a strict legal sense, suggesting the use of an ISDA Master Agreement.
• The CRSF is intended to be replicable for other public development banks in emerging markets and developing economies, provided there is institutional buy-in, suitable regulatory conditions, and access to concessional foreign-currency credit lines.

APA

Peres, T., & Yahmed, Z. B. (2026). UDB Currency Risk-Sharing Facility Instrument Design Report. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/UDB-Currency-Risk-Sharing-Facility.pdf

Chicago

Peres, Taarika, and Zeineb Ben Yahmed. UDB Currency Risk-Sharing Facility Instrument Design Report. Climate Policy Initiative, 2026. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/UDB-Currency-Risk-Sharing-Facility.pdf.

Wikipedia

{{cite report |last1=Peres |first1=Taarika |last2=Yahmed |first2=Zeineb Ben |title=UDB Currency Risk-Sharing Facility Instrument Design Report |publisher=Climate Policy Initiative |date=2026 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/UDB-Currency-Risk-Sharing-Facility.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{peres2026udb, author = {Peres, Taarika and Yahmed, Zeineb Ben}, title = {{UDB Currency Risk-Sharing Facility Instrument Design Report}}, institution = {Climate Policy Initiative}, year = {2026}, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/UDB-Currency-Risk-Sharing-Facility.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }