South Africa: Navigating Jibar to Zaronia Transition in Financial Markets

You can also listen to this podcast on iono.fm here . SIMON BROWN : Im chatting now with Yushavia Ramlall, COO at Intengo Market. Yushavia, appreciate the early morning. Jibar [Johannesburg Interbank Average Rate] is being replaced by Zaronia [South African Rand Overnight Index Average]. Ive had a number of conversations over many years. This has been a process that is happening, but were now getting to the end point. December 31st is the key. But people hear ‘Jibar is being replaced by Zaronia’ and assume its just a rate change. You made the argument that it is actually something bigger. Well, lets start with what is actually changing. What is the core difference here? YUSHAVIA RAMLALL : Good morning, Simon. Thank you very much for having me. Yes, we are finally here and, very simply put, under Jibar it was a forward-looking rate. So you really knew your rates up front. With Zaronia, you now have a backward-looking rate, and your overnight rate needs to be collected, it needs to be compounded daily. What this means is that your final interest rate is only known much later in the process. So from a treasury and a finance perspective, now your forecasting and your accruals need to account for estimates. And from a liquidity perspective theres a lot less certainty at the beginning of a period – I think, more importantly, conventions that need to be applied consistently and daily rate ingestion. Read: The conversion from Jibar to Zaronia how and why Zaronia initiative launched to lessen Jibar reliance So under, for example, [for] a three-month Jibar-linked contract, you would have four data points across a 12-month period, and youve now got 365 in that same period. So it is quite significant. SIMON BROWN : I hadnt thought of that, of course. Id got the forward versus backward looking. But in in a note you put out you talk around the ‘spreadsheet trap’. For the typical treasury department, what does it look like right now – and theyre going to have to make some fairly significant changes to processes and systems. YUSHAVIA RAMLALL : You hit the nail right on the head. I think thats the crux of what Ive been trying to get at. Under Jibar, treasury teams have managed perfectly fine for all of these years and thats not really the issue here. Its just that under Zaronia, theres a lot more pressure thats being placed on operating processes. So, as I said, when you go from knowing something up front to now knowing something a couple of days before an interest payment, you really need to be sure of the operating discipline behind your calculations. What may have worked before may not necessarily work going forward. Just on the spreadsheet trap, spreadsheets are definitely not the enemy. Most finance professionals use spreadsheets. I certainly use spreadsheets on a daily basis. Its more around do you really want to have a major funding obligation rely on an uncontrolled or potentially ungoverned spreadsheet with one persons institutional knowledge? How certain are you around the controls and the calculations behind that spreadsheet? Read: The spreadsheet trap: Why Zaronia is really a governance challenge SIMON BROWN : I get you and its around process. To be clear, love me a spreadsheet as well. Many of these institutions, organisations, have processes. But I like your point there around the weak spot might be that its one individual. It comes back to the point that process, systems, those sorts of things need to be very much in place and more with Zaronia. As you mentioned, 365 data points instead of four. YUSHAVIA RAMLALL : One-hundred percent. And I think that is probably the most important point in the article that I wrote. Naturally people view Zaronia as this benchmark reform project, and then you focus on the interest rate and the methodology and the calculation. But if you step back, finance and treasury teams have been calculating interest very capably for the entire span. So I think the more interesting question that Zaronia intro