Capital Buzz: Using derivatives to help small entrepreneurs

Remember derivatives?

Warren Buffett famously called them “financial weapons of mass destruction,” and they nearly crashed the financial system. A small District-based company, MFX Solutions, has built a business around using derivatives to help small entrepreneurs in developing countries.

MFX, founded by Brian Cox, is five years old and located on 17th Street NW.

Cox has experience in international business, which includes serving as chief operating officer of the U.S.-Russia Business Council to running a business that sold panelized housing in Africa and Eastern Europe.

The Buzz caught up with Cox, 49, as he was leaving town for two weeks to celebrate his honeymoon.

Who are these micro-entrepreneurs you are helping?

They’re very small businesses in Africa, Asia and Latin America, like a group of women with a textile business or farmers operating a small dairy processing facility.

What’s the problem?

Entrepreneurs need capital. But the microfinance funding from rich countries is in dollars, while a textile business in Kenya, for example, wants to borrow in his own currency [Kenyan shillings] to buy materials. So there’s a mismatch. It’s like having your local deli owner borrow in Kenyan shillings to buy cold cuts.

What do you do about it?

We stand in the middle and redistribute the risk. The lender gets repaid in dollars, and the borrower repays in his own currency. MFX has been able to eliminate the currency risk on about $500 million in loans over the last three years.

So what do you do with the risk?

We place it in large pools of international risk capital. It’s like shipping cargo: The most efficient way to carry a small load across the ocean is to find a big ship going the same direction.

Who is behind this?

MFX’s capital comes from the microfinance industry itself, supported by foundations. It was set up to make international development lending work better, not just to make a profit.

How did you get into this business?

I had worked for the Treasury Department and also ran a microfinance fund. I learned a lot about how currency risk can mess things up. I saw a chance to fix a basic problem that was hurting entrepreneurs.

Why start MFX in Washington?

I’ve lived here 20 years. D.C. combines the elements we needed to create a hybrid business that is half Wall Street/half international development. A lot of the funds lending internationally to the poor are here. So is the government which supports us with guarantees. We have a great pool of financially savvy internationalists to hire from.

Does Washington have people with the skills you need?

It is easier to find currency traders in New York, but harder to find people who have a conscience and want to work for something other than their own bank account. We need both. D.C. attracts people with a global outlook.

Well, you asked

The 31-year-old founder of Crooked Monkey, the Georgetown company specializing in irreverent T-shirts, has started another enterprise that just snagged tech-savvy Washington Capitals as a client.

Micha Weinblatt’s latest project, Betterific, is a digital suggestion box that allows users to share ideas on how to improve products and experiences.

Weinblatt has teamed with Jonathan Schilit, a childhood buddy, to create Betterific, whose other clients include ConAgra Foods and Arby’s, in addition to Monumental Sports & Entertainment, which is the holding company for the Capitals and NBA Wizards.

Weinblatt has stepped back from day-to-day involvement with Crooked Monkey, although he still lives on the proceeds.

Betterific recently helped the Capitals crowdsource ideas to answer the question, “How would you make the Washington Capitals experience even better?”

Answer: Win more games.

Factoid of the week

50% That’s how much more Greek yogurt Washington and Baltimore residents consume than the average U.S. yogurt consumer. To grab some of that market, Vermont-made Newman’s Own Greek yogurt, a nonprofit founded by the late movie superstar Paul Newman, is hitting the shelves at Washington’s grocery stores. The yogurt recently became available on Giant food shelves. The company is headquartered in Westport, Conn. After-tax royalties and profits from Newman’s will be reinvested in local philanthropies. Newman’s Own in the past has given proceeds to Martha’s Table and the John F. Kennedy Center for the Performing Arts education programs.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade.
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