A SWOT Analysis of the Financial Services Industry of Mauritius.

Strengths

(1) Mauritius has well-established and fairly well developed banking and insurance sectors with a
few prominent and professionally managed domestic companies.

(2) The enviable democratic history of the country, underpinned by the rule of law formulated by
an elected legislature, and administered by an independent judiciary with the ultimate appellant
body being the Queen’s Privy Council, is a unique asset and provides essential comfort to investors
and economic operators.

(3) Commercial, civil and criminal law codes are well developed and are, by and large, based on
and inspired from the French code and English law; this has ensured clarity in, and acceptance of,
the outcome of the litigation process, which is often an essential recourse in the resolution of
complex claims.

(4) It has a strong banking regulator, the Bank of Mauritius. The payment system operates on a
real time basis (RTGS) through the Mauritius Automated Clearing and Settlement System
(MACSS) and is linked to an efficient and reliable international payment system infrastructure, i.e
SWIFT.

Weaknesses

(1) The operation of too many small players may become the source of systemic risk. In the
insurance sector, for example, the presence of some marginal, undercapitalized, illiquid and poorly
staffed companies operating at the fringe of the market, and, writing mostly motor insurance at
uneconomic terms, may be viewed as a source of risk. Most of them would not have the capital
resources to invest in technology and risk management processes to stay competitive.

(2) The dominant position of a handful of players inhibits competition and innovation. There is no
innovation in terms of products and business models. Other than the secondary securities market
developed by the Bank of Mauritius, there is barely significant secondary market trading in stocks
and shares.

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(3) The failure of three insurance companies, transacting primarily motor insurance business, in
the last decade may have shaken public confidence in the insurance sector, and, has raised
questions about the effectiveness of insurance supervision.

(4) Inadequate supply of skilled manpower having international exposure could be one of the
reasons for the observed insufficient innovation in the provision of financial services. The industry
has no institutional set-up for the continuing training and upgrading of skills of its human
resources. There is no defined policy to encourage the employment of foreign skilled manpower
in new areas such as assets securitization and financial engineering.

(5) The money and capital markets are prone to malfunctioning. Poor disclosure practices by
companies hinder the proper evaluation of business and credit risk. In the present circumstances,
there is a risk that some areas may not develop the required scope to remain in business or to have
a meaningful market presence. This leads to potential errors and inherent weaknesses in the pricing
of financial assets such as equities, insurance policies, debentures and bank loans. In addition, with
the exception of the banking sector, there is a lack of risk management culture across the financial
services industry. The end result could be a misallocation of capital that would in the long run
weaken the financial position of some financial institutions operating in Mauritius and, hence, the
entire system. A revamping of the stock market as well as the development of an active and vibrant
debt market is urgently needed.

(6) The pace of economic development of the countries forming part of the region surrounding
Mauritius is comparatively slow. These countries are not attracting significant foreign investment,
equity or debt. Hence, Mauritius is prevented from effectively playing the role of the regional
financial center to channel funds to these countries.

Opportunities

(1) Mauritius can focus at becoming a financial centre meeting specific needs of companies
worldwide. In addition, some of the domestic players can potentially become important players in
the region after some consolidation among themselves.

(2) As the population of Mauritius embraces the global trend by shifting from savers into becoming
investors, deposit-taking institutions, banks and non-banks, will lose their share of deposits. These

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deposits will flow into investment products. Therein lays both an opportunity for and a threat to
the domestic financial services industry. It would be an opportunity if the domestic financial
institutions would be innovative enough to offer investment products that would meet the needs of
domestic investors. It would be a threat if domestic consumers do not find the right investment
products in the domestic market and hence invest their savings with financial institutions operating
in foreign jurisdictions. This move from savings to investment has already started. There has
recently taken place, for instance, a net outflow of funds from Mauritius by local investors that has
affected the liquidity of the foreign exchange market, thus exposing its insufficient depth and
resilience.

(3) Fund management is one of the fastest growth segments of the financial services industry
worldwide in the context of globalization. Capital will flow to areas and countries that would
provide superior returns on capital for a given level of risks. At the same time, asset managers want
to manage funds invested in a particular market or country in or near that market or country. The
trend to shift out of saving accounts with banks into investment products will accelerate in
countries surrounding Mauritius and create opportunities if Mauritius inspires the necessary
investor confidence and has the appropriate products to offer by revamping its financial sector.

Threats

(1) The main threat is the inability of the industry to adapt to and embrace the globalization trend.
The existing dominant players in each segment could become complacent and satisfied with their
market positions. Satisfied with their inward-looking status quo and with no challenge from
existing foreign institutions operating in the domestic market, the dominant players could fail to
respond to the new needs of the investing public. Gradually and surely, the end result would be the
transfer of domestic savings out of Mauritius into global markets via more efficient global financial
institutions. There is evidence that this process is already at work.

(2) In this regard, there is a need to consolidate and better integrate the industry. Amongst others,
such consolidation and integration involves rethinking the regulatory framework and the number
of players. Two to three large players dominate each segment of the industry with many small
players holding the remaining 25-30 % of the market. A few major players from the domestic
market could aspire to become major players at the regional level. Domestic players will

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increasingly face competition from foreign institutions that have the advantage of both size and
global reach. It must be realized that these institutions do not need to physically have offices in
Mauritius. They can reach the customers in Mauritius through the Internet.

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8.0 Mauritius International Financial Centre
Mauritius has been consolidating its position as an International Financial Centre (IFC) in the last
years. There is now a more elaborate regulatory framework with the Financial Services
Commission (FSC) regulating non-banking financial services and the Bank of Mauritius (BOM)
regulating banking financial services. We may briefly recap the products offered by the Mauritius
IFC:
(i) The two most used entities are the companies holding a Category 1 or Category 2 Global
Business Licence (GBL) and which are governed by the Financial Services Act 2007 and the
Companies Act 2001. The Category 1 GBL Company is more sophisticated than the Category 2
GBL Company. The Category 1 GBL company is entitled to become tax resident in Mauritius and
hence access the vast network of Double Taxation Avoidance Agreements (DTAAs) ratified by
Mauritius. The company holding a Category 2 GBL will not be tax resident but is more userfriendly
and bears resemblance to the International Business Company (IBC) available in other
jurisdictions. The Category 1 GBL Company will pay corporate tax up to 3% on its corporate
profits because of a deemed tax credit which it enjoys and the Category 2 GBL Company does not
pay taxes in Mauritius as it is not tax resident.

(ii) Trusts may also be used and since Mauritius has a hybrid system of common law and civil law,
specific legislation was enacted for trusts in the form of the Trusts Act 2001. This Act defines the
responsibility of trustees, settlors, beneficiaries and also provides for protectors in the case of
discretionary trusts and for enforcers in the case of purpose trusts. Trusts are now being used more
commonly and the Trusts Act is proving to be a good piece of legislation.

(iii) Foundations were introduced by the Foundation Act 2012. The foundation which is essentially
a civil law creature is used for wealth management and succession planning. The law contains the
basics of foundations as found in other IFCs. Investors from civil law jurisdictions tend to prefer
foundations whilst those from common law jurisdictions often prefer trusts.

(iv) Collective Investment Schemes (CIS) are governed by the Securities Act 2005 and are
regulated by the FSC. The CIS often holds a Category 1 GBL and we now see more CIS companies
being incorporated to service the African continent. An interesting feature of CIS activities
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concerns their listing on the Stock Exchange of Mauritius. Mauritius encourages listing on its Stock
Exchange and this can be an interesting way for promoters to raise money or for already established
businesses, to settle in the Mauritian jurisdiction and move ahead with a CIS licence.

(v) Limited Partnerships may now be used. We finally note that following the enactment of the
Limited Partnership Act 2011, the limited partnership can hold Category 1 GBL and hence pay
up to 3% corporate tax on its profits. The law regulates the relationship between the general partner
and the limited partner. Limited partnerships are often used for private equity ventures. In
December 2003, Mauritius signed an Inter-Governmental Agreement (IGA) with the United States
of America (USA) in relation to the US Foreign Account Tax Compliance Act (FATCA). The IGA
was implemented into domestic legislation in July 2014. Mauritius was the first African
jurisdiction to become FATCA-compliant. To date, the majority of banks, management companies,
global business companies and other relevant financial institutions based in Mauritius have
registered with the US Internal Revenue Service and have put in place the requisite due diligence
and reporting systems in order to comply with the FATCA legislation. In October 2014, Mauritius
was one of the 51 jurisdictions to sign the multilateral Competent Authority Agreement for the
automatic exchange of information (CAA) developed by the Organization for Economic
Cooperation and Development (OECD). It is inspired from FATCA and is intended to create a
framework for the systematic and periodic transmission of bulk taxpayer information by the source
country to the country of residence of the taxpayer. Mauritius has committed to implement the
CAA by September 2017. The compliance of Mauritius with the FATCA legislation and the
commitment to the OECD’s CAA is an important step in further strengthening Mauritius’ position
as a sound, robust, transparent and clean IFC.

We finally note that Mauritius has a new government since the general elections of December
2014. This new government has provided for a new Ministry of Financial Services, Good
Governance and Institutional Reforms, separate from the Ministry of Finance. This shows
willingness to develop and strengthen further corporate and financial services in the country.

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9.0 The financial services sector: increasing value added to become a regional financial
center

• Financial services have expanded as a result of successful financial liberalization and

double taxation agreements.
The financial and insurance sectors make up 9 percent of GDP and employ over 13,400
people, equivalent to around 2.3 percent of the total labor force in 2013. The sector took
off when the government established an offshore financial center in 1989 that has
constantly modernized its legal and regulatory infrastructure in line with global trends. The
success of the financial center is mainly due to its growing Double Tax Agreement (DTA)
network supported by Investment Promotion and Protection Agreements. Since 1994,
Mauritius also has a well-capitalized stock exchange with foreign investors accounting for
40 percent of daily trading. Overall, offshore business represents more than half of banks’
deposit and loan books in Mauritius.

• Reforms in 2006 eliminated the distinction between offshore and onshore banking,
further supporting the development of the sector.
Until 2006, there were two separate banking regimes, offshore and onshore, with only
about ten offshore banks admitted in Mauritius. In 2006, the Banking Act was amended
such that all banks were governed by one single banking license under supervision of the
central bank. The domestic banking sector is large in relation to the size of the economy
and banks’ total assets as a percentage of GDP increased from 272 percent to 280 percent
over the past five years. Assets held by domestic-owned banks represent 42 percent of
total banking sector assets while subsidiaries and branches of foreign-owned banks held 51
percent and 7 percent of total assets, respectively. Banks dominate the allocation of credit
as they account for around 97 per cent of total credit in the country.

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• Mauritius is facing challenges due to its renegotiation of the double taxation
agreement with India.
Mauritius accounted for 42 percent (US$54 billion) of total FDI to India from 2001 to 2011.
The main concern for the sector is the request of India to revise the DTA agreement to
impose more stringent conditions and prevent companies from using the Mauritian
jurisdiction merely for tax purposes. The on-going negotiations have already created
uncertainty that has adversely affected investment flows between the two nations.64
Furthermore, companies incorporated in Mauritius will need to show that they have a
substantial presence in the country to benefit from the treaty, which will require them to
increase the types of services offered as well as the number of service providers in
Mauritius.

• Mauritius is facing challenges due to increased regulations and competition from

emerging jurisdictions.
Mauritius ranks 63rd globally in the latest Global Financial Centers Index. Future growth
drivers of the financial sector will come from the provision of higher value services but
sector development is constrained by several factors including its international positioning.
The available talent pool needs to further deepen its expertise in a range of sophisticated
financial products and services. Cross-border exposures of domestic banks remain
significant and require prudent supervision, removing existing regulatory gaps and
strengthening institutional capacity for effective regulation. Development of related
sectors, such as insurance, is constrained by limited investment opportunities in a small
domestic market and competition is largely focused on the existing business, rather than
the development of new markets. However, in pursuit of its internationalization strategy,
the stock exchange aims to gradually move from an equity-based domestic market to a
multi-product internationally oriented one. This would serve to move products listed/traded
on the stock exchange up the value-chain.

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 10.0 Financial Stability
The aftermath of the global financial crisis saw the establishment and consolidation of the
financial stability arms of regulators of banks and financial Institutions around the world.
The FSC Mauritius is mandated, pursuant to section 5(1)(e) of the FSA, “to ensure, in
collaboration with the Bank of Mauritius, the soundness and stability of the financial
system in Mauritius” . Financial stability is one of the objectives of the FSC Mauritius and
forms an important pillar of the Strategic Plan 2011 – 2013. It is also an integral part of the
Strategic Plan 2014 – 2016 under the theme ‘Anticipation’.

FSC Mauritius works closely with the Bank of Mauritius (BoM) to ensure stability of the
financial system. The Joint Coordination Committee (‘JCC’) between the FSC Mauritius
and BoM is the forum where issues of joint interest to both regulators, including financial
stability are discussed. FSC Mauritius also works with BoM for the publication of the
biannual BoM Financial Stability Report.

During the year 2013, FSC Mauritius created statistical profiles for sectors under its
supervision in order to analyse trends and identify any potential systemic risk. It also
regularly monitors reports from internationally recognised bodies such as IMF and
SwissRe to keep abreast of global trends, assess any potential threats, and identify any
useful indicator that could be replicated for sectors under supervision.

Source:
http://www.globalfinance.mu/files/20150929/Country-Report-Mauritius.pdf