How offshore private lending works for South Africans

Offshore private lending means placing capital into a note denominated in a hard currency — pounds, dollars or euros — that pays a fixed rate of interest for a stated term. Your return has two moving parts: the interest the note pays, and what the rand does against that currency while you hold it.

A South African who places capital offshore is doing two things at once. The first is lending: the note pays a fixed percentage each year, agreed up front, for a term you know at the outset. The second is a currency decision: because the note is denominated in pounds, dollars or euros, its rand value moves with the exchange rate whether or not the interest rate ever changes.

That second part is why offshore notes are often described as a rand hedge. If the rand weakens over the term, the same hard-currency amount converts back to more rands. If the rand strengthens, it converts back to fewer. The interest is fixed; the currency is not.

Currencies

GBP · USD · EUR

Minimum

10,000 in the note's currency

Terms

3, 4 and 5 years

Return

Fixed for the term

Income

Annually, every 2 years, or at the end

Issued by

Quality Group, est. 1993

What shapes your return

Four things decide what an offshore note is worth to you in rands at the end, and only one of them is the interest rate.

  • The rate and the term. Fixed at the outset and stated on the note. A longer term generally carries a higher rate, because your capital is committed for longer.
  • How income is paid. A note paying annually returns cash to you along the way. A growth note holds everything to the end, so more of your capital stays working.
  • The exchange rate when you go in. This sets how many rands it takes to reach the minimum today — and it moves. The calculator above uses a recent rate and shows the date it was taken.
  • The exchange rate when you come back. The one nobody can forecast. It is the difference between a good outcome and an excellent one, and it cuts both ways.

Worked example

£10,000 placed in a five-year growth note at 16% a year, simple interest. Over five years the note earns £8,000 in interest, returning £18,000 at the end.

What that is worth in rands depends entirely on the rate the day it comes back. At the same rate you went in at, it is 1.8× your rand outlay. If the rand has weakened over those five years, more. If it has strengthened, less. The pounds are known; the rands are not.

Who offshore lending suits

It suits capital that can be committed for the full term and that you want held outside the rand. It suits someone who already understands they are making a currency decision as well as a lending one, and is comfortable with that.

It suits less well if you may need the money back before the term ends, or if you need the rand value to be predictable month to month. A fixed term means a fixed term.

Taking money offshore has its own rules. South Africans have a Single Discretionary Allowance and a Foreign Investment Allowance, and they work differently. How much money you can take offshore explains both and how they stack.

Model it, then talk it through. The calculator above gives you an indicative view. A consultant will work through your own numbers with you — what you have, what you need it to do, and whether offshore is the right half of the picture.

Find a consultant