Stage 3 · Choose and negotiate financing · Lesson 3 of 6
The price of money, country to country
Borrowing costs about twice as much in Antananarivo as in Port Louis, and a dollar loan does not solve that when your revenue is in ariary. This lesson has you work out what a fall in the ariary costs, then choose the currency of your debt.
The price of money in 2026
A business borrows at around 18% in Madagascar and around 9% in Mauritius
These are the orders of magnitude for bank lending to businesses, published in 2026. Under each one, the chart shows the policy rate: the price at which the central bank lends to banks.
Policy rates: published by the central banks. Lending: averages and orders of magnitude; in Mauritius, bank base rates range from 6.9 to 8.2%. Your written offer may differ.
The policy rate is not what you pay. The bank starts there and adds its own cost of funds, the risk it takes on you and its margin (the bank spread). In Madagascar, that stack takes 12.5% to around 18%.
Faced with 18%, an offer in dollars or euros at a much lower rate looks obvious. It deserves to be worked out before it is signed. That is the exercise on the next card.
Test a dollar loanYour turn
A 200,000 dollar loan, repaid out of ariary revenue
Worked example, made up for the exercise. A business that sells in ariary borrows 200,000 dollars. At the rate of 23 September 2026, about 4,380 Ar to the dollar, that is 876 million ariary. Use the slider to weaken the ariary and watch the principal to repay.
Worked example · Fall of the ariary against the dollar, over the life of the loan : -20 %
One dollar costs starting rate ÷ (1 − fall). At −20%: 4,380 ÷ 0.8 = 5,475 Ar, a dollar 25% dearer. Starting rate: about 4,380 Ar/$ on 23 September 2026. Principal only, interest excluded.
The values of the example. In your KAPEX space, this calculation runs on your own numbers.
At −20%, the principal goes from 876 to 1,095 million ariary: 219 million more. Neither the contract nor the interest rate has changed. Only the value of your currency has moved against that of your debt. Financiers call this currency exposure.
The dollar has gone up 25%, not 20%: if the ariary loses a fifth of its value, you need a quarter more of it to buy the same dollar.
Set that figure against the interest you save. On 876 million, ten points off the rate save about 88 million a year. It takes two and a half years of that saving to cover 219 million (a simplified sum, on the starting principal).
Where the gap comes from
The gap comes from the country, not from your file
A lender in ariary first has to protect itself against inflation. In Madagascar, prices rose 8.6% over a year (June 2026). This is what the lender has left once that rise is taken out.
Real rate ≈ interest rate − inflation. It is an approximation, good enough to compare two countries or two offers.
What is left after inflation is called the real rate. At about 9.4% it is still high, for two reasons that belong to the country.
The State’s risk. Banks also lend to the State by buying its bonds. As a general rule, a business does not borrow more cheaply than its own State, unless an outside guarantee is involved.
The size of the market. Few banks and little long-term savings mean few long loans. A seven-year loan in ariary is rare, and that rarity has a price.
None of this is a judgement on your project. It does weigh on your plan, though: work out the cost of debt before choosing the form of funding.
Two ways to borrow
In local currency the price is on the label; in hard currency part of it is hidden
- Higher rate, known when you sign.
- No currency risk if you are paid in that currency.
- Terms often shorter.
- Amounts limited by the size of the local market.
- Lower rate.
- Currency risk for the whole life of the loan.
- Longer terms possible.
- Often the only option above a certain amount.
Common practice among banks in the region; terms and amounts depend on each lender. The right column is the one in the currency of your revenue.
The currency ruleYour turn
Borrow in the currency you are paid in
This is the usual rule of prudence among lenders. Revenue in ariary, debt in ariary. Revenue in euros, and euro debt does not expose you: the currency coming in pays the currency going out. Walk through the tree with your own situation.
Borrow in hard currency or in ariary?
Question 1
Does part of your revenue come in hard currency (exports, tourism, contracts in dollars or euros)?
See the whole tree
Does part of your revenue come in hard currency (exports, tourism, contracts in dollars or euros)?
- Yes
Is that hard-currency revenue enough to pay the instalments of a hard-currency loan, every year?
- YesHard-currency debt is defensible, up to the level of that revenue.
- NoSplit it: in hard currency what that revenue covers, the rest in ariary.
- No
Can a local bank lend the amount and the term you need?
- YesBorrow in ariary.
- No
Can a guarantee fund, blended finance or a currency hedge carry part of the risk?
- YesBorrow in hard currency with that tool, and put the 20% fall in figures in your file.
- NoRethink the amount or the term before signing in hard currency.
A common rule of prudence, not a legal requirement. Each lender has its own policy on currency risk.
When your hard-currency revenue pays your hard-currency instalments, this is called a natural hedge: it costs nothing and needs no contract. It only works up to the amount of that revenue. For example, an exporter making 40% of turnover in euros can carry euro debt of that order, not the whole of its financing.
If you depart from the rule, say so in your file and explain why. The analyst will run the numbers anyway.
What exists to bridge the gap
Four tools that put part of the risk on someone else
They remove neither the rate gap nor the currency risk. They move them to an institution better placed to carry them.
Ask for these tools before the credit committee meets, not after it has decided. A lender brought an outside guarantee can revise its price.
In your file
One calculation, then one sentence for your file
Borrow in the currency you are paid in; if you depart from that, put a 20% fall in figures and write it down.
The currency you are asking in. If it is not the currency of your revenue, the exchange-rate question will come up at the first meeting.
It is often the term, more than the amount, that decides whether a local bank can follow you. Give a realistic term.
These fields do not say which currency you sell in. Say it in the description: that is what justifies hard-currency debt, or not.
One sentence on the currency of your revenue and the currency of your debt, following the example below.
FAQ
Is a 20% fall in the ariary realistic?
Nobody can forecast exchange rates, and we do not try. 20% is a stress scenario, not a forecast. On a loan of five years or more, test 30% too, the end of the slider.
I sell in ariary but buy in dollars. Does that change anything?
Yes. Your imported purchases already expose you to the exchange rate. Dollar debt would add a second risk in the same direction. That is one more reason to borrow in ariary, or to ask for a hedge.
The words of this lesson
Each word links to its full definition in the glossary.
- Policy rate
- The rate at which the central bank lends to banks. It is a floor: banks always lend to you at more than this.
- Real rate
- The interest rate minus the rise in prices (inflation). It is what money really costs once inflation is taken off.
- Currency exposure
- The risk of losing money if the currency of your sales falls against the currency of your debt.
- Natural hedge
- Borrowing in the currency you sell in: your sales and your debt rise and fall together, with no contract to pay for.
- Guarantee fund
- An institution that lends you nothing, but absorbs part of the bank's loss if you default.
- Blended finance
- Public or philanthropic money placed ahead of private money, to absorb the first losses.
- Interest rate
- The price you pay each year to borrow, as a percentage of the amount lent. At 15%, 1,000,000 Ar costs 150,000 Ar a year.
- Bank margin
- What the bank adds to its base rate according to the risk of your file; it is the part you can negotiate.
- Repayment schedule
- The fixed dates and amounts on which you repay the loan, for example monthly, even in difficult months.
- Credit committee
- The meeting where the funder’s senior people decide to say yes, no, or yes with conditions to your file.
From the lesson to your file
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