Would donors be alarmed if they knew how much charities spend on foreign exchange fees?

This week's guest blog helps charities think about how to be smarter with their foreign exchanges.
Curtis Noble, Head of Corporate Social Responsibility (CSR) at Charity Transfers
 
Exactly 10 years ago, the ‘Better FX’ guide attempted to tackle the common pitfalls International Non-Governmental Organisations (INGOs) faced when managing their Foreign Exchange Market (FX) exposures.  Key insights such as the importance of using more than one provider, and agreeing clear and transparent transaction costs upfront, have not widely been adopted.  At a similar time, the ‘Missing Millions’ report published by Stamp Out Poverty, outlining the potential benefits of competitive tenders and improved procurement processes, identifying potential sector-wide savings of £20-50 million.  It cites “millions do not make it to their intended destinations because charities often encounter uncompetitive rates and misleading transfer fees when purchasing local currency.  In this way, the full amount of money that ought to reach the field to save lives and improve livelihoods, is not realised.”  
 
Since then, with an increase in sector funding and only some developments in INGO finance, this potential saving has only grown.  Biased advice from commercially minded, revenue generating teams at banks and non-banks alike further amplifies the opportunity for savings within the INGO sector.  As charities are finding it increasingly difficult to fundraise, reducing foreign exchange costs is becoming even more pertinent.
 
Currency fluctuations are a significant concern for internationally operating NGOs; however, costs are rarely measured against a reliable benchmark.  Organisations often struggle to cipher through the plethora of risk mitigation strategies.  In the UK, a simple Google search for FX currency providers will result in hundreds of banks and non-bank ‘specialists’ presenting huge promises to their targeted audiences and claim distinguished variants on how best to manage individual exposures.  For INGOs, even small movements in exchange rates can hamper fundraising efforts by eroding funding value and therefore potential, longer term impact.  Concerning restricted funding, INGOs may face a depreciation in their base currency away from their budgeted level. This could mean having to dip into their unrestricted pot, an alternative that all are keen to avoid. 
 
During August, the Pound slumped to fresh 2-year lows versus the Euro and a staggering, 30-month low against the US Dollar, as political uncertainty and no-deal Brexit risks ramped up.  On top of the Bank of England stepping up warnings of an interest rate cut, Boris Johnson has suggested a no-deal Brexit outcome is still more than feasible.  Upcoming uncertainty in the foreign exchange markets now seems inevitable. 
 
INGOs thrive through collaboration and having the ability to share best practice. Unfortunately, there exists no standardised, impartial platform to improve international financial sophistication within the sector.  That’s why, as part of our Corporate Social Responsibility (CSR) offering, Charitytransfers.org has pledged to fund the first ever, sector wide, FX insight report.  INGOs can uncover the complexities FX presents through a sector specific report focused on the latest trends in international payments. 
 
Having worked with the INGO sector for 5 years, many charity clients tell me that it has never been so difficult to make long term decisions around their international operations. INGOs can lack the resources, technology and/or time needed to make these decisions easier.  International development is anchored by the need to move money across borders. By uncovering the sector wide practices, intuitions and forecasts, the FX insight report can help organisation leaders better understand how to maximise the effectiveness of their strategy. INGOs will finally have the ability to identify areas of their international financial management that potentially lack efficiencies and to compare their practices with similar peers.  One goal of an efficient finance function for INGOs must be to help ensure that the full value is realised for the funding they receive; let’s tackle this as a sector.  
 
See how your charity is performing by taking our INGO FX Insight survey here; you will later recieve tailored efficiency scores and a complimentary copy of the whitepaper.
 

Subscribe

Enjoying this article? Subscribe to our newsletter to get the next one first!