Jan Kruger, Partner and Alison Mellon, Knowledge Lawyer, at Bowmans
South Africa’s transition from JIBAR to ZARONIA has primarily focused, and continues to focus, on daily ZARONIA compounded in arrears. That remains the Market Practitioners Group’s (MPG’s) recommended approach for most financial products.
However, momentum has shifted in line with demand from the financial markets: the MPG has recently issued a request for proposals (RFP) to appoint a vendor to calculate and publish forward‑looking Term ZARONIA, with initial publication targeted for April 2026.
For corporate treasury teams and lenders, the prospect of a transparent, IOSCO‑aligned term benchmark – published alongside compounded ZARONIA – would expand choices for product design and risk management, particularly where cash flow certainty is critical.
What is Term ZARONIA?
Term ZARONIA is a forward‑looking term rate derived from ZARONIA markets, expected to reference pricing in ZARONIA derivatives. Like JIBAR, the rate would be known at the start of the interest period, giving borrowers and lenders certainty over the interest amount well before interest payment dates.
The MPG’s RFP envisages at least one‑month and three‑month tenors, with potential for six‑month and 12‑month if feasible, and daily publication with public, cost‑free access to the headline rates.
How does Term ZARONIA differ from compounded ZARONIA?
Compounded ZARONIA is calculated by compounding daily overnight ZARONIA in arrears over the interest period, typically with a short lookback period of five business days. It is built directly from actual overnight transactions, and, as a result, the final interest amount is only known near the end of the relevant interest period.
Term ZARONIA, by contrast, would be a forward‑looking rate observed at the period’s start, like the current JIBAR rates, constructed from ZARONIA derivatives markets rather than cash overnight transactions.
In practice, compounded ZARONIA optimises robustness and alignment with global RFR conventions, while Term ZARONIA optimises cash‑flow certainty and operational simplicity for products that need it.
Why is the conversation shifting now?
Through 2024, sentiment from the regulator and financial institutions towards a term rate was muted, with the transition plan emphasising compounded ZARONIA across loans, bonds and derivatives as the sole option. However, market participants have requested a move to a term rate, with which corporate treasury teams and the rest of the market are well versed. This is similar to what occurred in US markets with Term SOFR and to a lesser extent in the UK market with Term SONIA.
Since the commencement of the ZARONIA transition process, market building has progressed, including the phased ‘ZARONIA First’ initiative in derivatives and publication of fallback methodologies.
With deeper liquidity in ZARONIA derivatives emerging slowly, the MPG has moved to test feasibility by procuring a vendor to produce forward‑looking term rates. The RFP makes clear there is no guarantee of endorsement of a Term ZARONIA rate; any such rate must meet IOSCO benchmark standards, demonstrate methodological robustness, and be supported by sufficient market liquidity in ZARONIA derivatives. If these conditions are met, Term ZARONIA could be adopted for limited use cases.
What to expect next
If timelines hold, a selected vendor would begin publishing Term ZARONIA in or around the second quarter of 2026. Publication would include one‑ and three‑month tenors at a minimum, with transparent methodology and access protocols. Term ZARONIA would be published alongside compounded ZARONIA; it does not replace it.
The MPG’s current recommendation continues to favour daily compounded ZARONIA for the bulk of activity during the active transition away from JIBAR. The MPG will also clarify recommended use cases for Term ZARONIA and any limitations tied to liquidity and IOSCO alignment as the term rate develops.
Practical implications for borrowers and lenders
For corporate treasury teams, a credible Term ZARONIA could simplify interest budgeting, accruals and hedge alignment for facilities that value rate certainty at period start. For lenders, it could support product offerings in sectors where forward‑looking conventions are operationally embedded or preferred by borrowers.
That said, compounded ZARONIA remains the anchor for transition – embedded in fallbacks, aligned with global practice, and supported across cash and derivatives markets.
Initially, compounded ZARONIA will remain the default for most new issuance and repapering, with Term ZARONIA used in limited, specific use cases; however, over time both borrowers and lenders would prefer to move towards the use of Term ZARONIA.
Key takeaways
Term ZARONIA is moving from concept to construction, with the MPG’s vendor procurement underway. It promises the familiarity of a forward‑looking term benchmark while preserving the integrity of South Africa’s near risk‑free rate framework. Until the term rate is proven, endorsed and scoped, compounded ZARONIA remains centre stage.
Corporate treasury teams and lenders should plan for a dual‑track environment from 2026: compounded ZARONIA as the baseline, with Term ZARONIA as a targeted option where certainty, simplicity and client need warrant it.
Submissions by potential vendors for the RFP are due with the MPG Secretariat at MPGSecretariat@resbank.co.za by 30 November 2025.
ENDS
