Mitigating Currency Risk in African Minigrid Finance

Minigrids are a key solution for expanding electricity access in remote and underserved communities across Africa, but financing these systems remains challenging. A major hurdle is the mismatch between revenues earned in local currencies and debt denominated in hard currencies such as US dollars or euros. This exposes projects to exchange-rate volatility, limited foreign-exchange availability, and liquidity constraints, all of which increase financing costs and reduce bankability.

Currency risk directly affects how projects are financed. When local currencies depreciate, debt service costs rise in real terms, weakening project financial performance. In response, financiers demand higher returns, shorter tenors, and stricter conditions, often making projects unviable without significant grant support. While tools such as hedging and local-currency lending exist, they are frequently too expensive, unavailable at required tenors, or inaccessible for small-scale minigrid projects.

Building on the experiences of countries in the Africa Minigrids Program (AMP) and beyond, this report highlights practical approaches to managing, rather than eliminating, currency risk. It includes case studies, insights from interviews with AMP countries, and analysis of existing solutions already deployed by key stakeholders. It also outlines recommendations for managing currency risk specifically formulated for AMP countries:

• Build projects financiers can actually underwrite: Improve minigrid investability through standardized contracts, credible demand forecasts, and reliable operating data that reduce uncertainty and support stronger credit assessment.
• Use targeted guarantees and first-loss support strategically: Credit enhancement and limited first-loss capital can unlock longer tenors, lower financing costs, and bring local banks and institutional investors into early-stage markets.
• Standardize and aggregate before pursuing scale finance: Standardized documentation, consistent reporting, and aggregated pipelines reduce transaction friction, improve issuer readiness, and make larger-scale financing structures viable.
• Expand the financier base when projects are investment-ready: ESG labels, ratings, and disciplined performance monitoring can attract pension funds and asset managers once portfolios demonstrate sufficient scale, track record, and reporting consistency.

The report also provides additional recommendations for development finance institutions, donors, commercial investors and banks, minigrid developers, policymakers and regulators, blended finance facilities, philanthropic actors, and related initiatives. Read more on AMP’s website.

Download this report to learn how currency risk shapes minigrid finance in Africa and the practical solutions that can unlock affordable capital and scale deployment.

Additional Contributors:
Anibal Gomez-Contreras, RMI;  Collins Dadzie, RMI; Faris Khader, UNDP ; Ije Okeke, RMI;  Oliver Wassbein, UNDP; 

The author thanks the following individuals and organizations for offering their insights and perspectives on this work: Amal Aldababseh, UNDP; Churchill Agutu Pierre-Antoine Alber, UNDP; Chinua Azubike, UNDP; InfraCredit Gift Chiwayula, Ministry of Energy (Malawi); Laurene Desclaux, UNDP; Stephen Kanusk, UNDP; Mangaliso Mohammed, UNDP; Caroline Tresise, UNDP; Gilles Vaes, InfraCo