How NGOs can save money on FX

Foreign exchange can represent a huge part of a nongovernmental organization’s financing or banking costs. There are numerous ways to make savings here, but many smaller and midsize organizations, in particular, are not getting the best deal. “One of the main ways that banks make money out of you as an NGO is on foreign exchange,” said Tim Boyes-Watson, director at Mango, which trains NGOs on financial management. “It’s hard to see if they’re making more money than they should be on the FX rates you’re getting.” To choose the best provider — or to get a better deal from your current bank or broker — ask yourself the following 10 questions: 1. Would a broker be better? Using a specialist broker can help you cut costs, especially for large transactions, advised Boyes-Watson. “You’re probably losing money if you’re relying on your only bank to do all your FX work.” “People just assume the bank will give you the best exchange rate,” agreed Dougal Freeman, chief financial officer at the Global Alliance for Improved Nutrition. Although your bank may offer a perfectly adequate service for mainstream currencies, its ability to handle “exotic” or emerging market currencies, as well as its knowledge of exchange control legislation, may be weak, he said. Before you enter a transaction therefore, quiz your bank about its experience in the countries and currencies in which you operate and the cheapest way of achieving your goals. If they can’t offer you a seamless solution, work with someone else, for example a broker. 2. Can I trade all the currencies I need? Check whether your bank or broker offers every single currency you require. “The last thing you want is that you’ve chosen someone and find out they can’t do everything so you have to go and top up with another firm,” said Beverley Gwadera, head of business development (charities) at FX broker Ebury. Compared with Ebury, which trades 140 currencies and specializes in so-called exotic or emerging market currencies, some European banks only offer G-10 currency pairs, she noted. 3. Do they offer multicurrency accounts? One way NGOs often lose money with FX is through making more transactions than necessary and being charged accordingly. Holding multicurrency accounts will help avoid double charging, said Mohsin Baluch, CFO at peace-building charity International Alert, which learned the hard way but earlier than many. Until seven or eight years ago, it operated just one bank account in British sterling. This meant that all incoming funds in U.S. dollars or euros were initially converted into pounds. Then, because most of the organization’s programs operate in U.S. dollars, the money would have to be converted again for use on the ground. 4. Can I make multicurrency payments? Look for a provider that allows you to make multicurrency payments. While most banks or brokers require NGOs to make individual trades for different currencies each time they pay their salaries or other fixed costs, “if they were payrolling people in 129 different countries, we could do that in one file,” said Gwadera. This saves valuable time, especially for smaller charities without a dedicated finance team. 5. Can I control my currency risk? Charities that want to protect themselves against the risk of unfavorable currency moves should ensure their provider allows them to forward buy, said Gwadera, noting how “some banks and brokers will spot trade currency but they won’t hedge it.” Buying a forward gives charities more certainty in terms of what they will be able to deliver on the ground with their fixed budget. Remember, however, that futures are derivatives that can also expose you to more risk, or at the very least missed opportunity, if the currency does not move as you expected. Next, find out what size deposit or “margin” the provider will require for a future. Banks typically charge 5 percent or more, which can be difficult to absorb for charities that do not receive funds upfront. 6. Can I track market movements? Request an account that gives you access to a foreign exchange trading platform, advised Baluch. This will allow you to stay on top of real-time changes in FX rates, he said. “I’m not an expert and I don’t have time to be tracking exchange rates every second, but [it gives us] some sort of idea that we are not way off the market,” he said. 7. How reputable are they? As with many NGOs, International Alert is currently looking into switching some or all of its FX business to a broker, but is concerned at the amount of due diligence required to choose a reputable firm — a challenge that many organizations face. “I probably get approached several times a month,” said Freeman at GAIN. However, “it’s quite easy to spot who’s just trying to sell a quick trick.” Bond, a U.K. membership body for organizations working in international development, is approached by numerous brokers offering preferential rates to its members. “Establishing the exact credentials of a foreign exchange broker is very difficult,” said Michael Wright, director of communications and membership. In the case of startup brokers in particular, find out which NGOs they’ve worked with before and ask those organizations about their experience, he said. Also make sure that they are regulated by the U.K.’s Financial Conduct Authority, licensed by HM Revenue and Customs and registered with the Information Commissioner’s Office, Gwadera said. “That’s the absolute minimum,” she stressed. And if your charity is part of an umbrella or membership organization such as the Charity Finance Group, check whether the bank or broker you are considering is endorsed by that group or has a strong relationship with it. 8. Are they a specialist? Look for a bank or broker with dealers that speak the sector’s language, said Gwadera, who before joining Ebury worked at CAF Bank. “We talk about program delivery and mitigating risk and delivering against a budget,” she said. 9. How much advice can they give me? Another benefit of using a broker is the advice they can offer. Ebury recently saved one big NGO client 14,000 pounds ($21,900) on a single trade compared with the price its bank quoted, Gwadera said. This was partly because the broker’s rate worked out cheaper, but also because its dealer advised the client that imminent comments by the governor of the Bank of England could have a big impact on the currency it wanted to convert and that they should wait until later in the day before executing the trade. For a similar reason — although online platforms are a useful gauge of price moves, and can work well for bigger charities with a large treasury function — smaller charities should always opt for a telephone dealer service, if available. As well as help navigating the market, dealers may be flexible about tweaking spreads if you have been offered a price elsewhere — something a computer can’t do — Gwadera said. 10. How high are their fees? Finally, price is important in FX, but it’s also about execution and delivery, said Wright. “So don’t be charmed by the best rate.” NGOs should look at the whole cost of a transaction in terms of rate and fees for transfer, as well as the ease of access and how best to execute, said Richard Stacey, senior relationship manager at NatWest parent Royal Bank of Scotland Group. “How good is the bank if a payment is delayed?” Have any tips on securing FX savings for NGOs? Let us know by leaving a comment below. Check out more funding trends analyses online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.