In 2020, money lending activity, which was previously regulated by the Bank of Mauritius, came under the purview of the Financial Services Commission (FSC). A new section 14A was included in the Financial Services Act 2007 (FSA) which, inter alia, provides that a person, not being a bank, who lends money as a business must hold a money lending licence.
There are some persons who are exempt from the requirement to apply for a money lending licence and these include:
- any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business not having as its primary object the lending of money, in the course of which and for the purposes of which it lends money;
- any body corporate, incorporated or expressly empowered, or any other person expressly empowered by any other enactment to lend money; and
- any organisation whose operations are of an international character and which is approved by the Minister of Financial Services, Good Governance and Institutional Reforms.
Money lending as a licensed activity has had an anecdotal past. It was first regulated under the Money Lenders Act 1960 which governed money lending activities in Mauritius by organisations not specifically licensed as Mauritian banks under the Banking Act 2004.
The Money Lenders Act was abolished on 21 December 2013, and various revisions were made to the Banking Act 2004 in 2015 and the licensing regime for both banks and money lenders was consolidated in the same Act. The final shift has been from the Banking Act 2004 to the FSA denoting a marked change in the regulatory regime.
During this time, no non-bank money lender was licensed. The debt market remained dominated by local and international banks as part of their banking business and raised funds primarily through deposit-taking and borrowing from other financial institutions, leading to a more or less uniform cost of capital across the market.
The business of private lending was in a bit of a vacuum. There was piece-meal legislation that governed the activity of raising debt and giving out loans. Activities such credit finance, leasing and crowdfunding fall under financial business activities and a licence under section 14 of the FSA is required to perform any of these activities, whereas structured finance may be conducted only by a protected cell company that is incorporated under the Protected Cell Company Act 1999.
The lack of an overall law governing lending (as an activity distinct from banking) meant that Mauritius was not attractive to credit funds and other forms of small and medium enterprise (SME) lending.
A growing number of expanding businesses in Africa are in need of funding and, despite the various avenues for raising money, the structural mismatch between the supply and demand for capital has been a recurrent problem in the African investment ecosystem. This lack of funding options has caused private debt to become a popular investment class and it is anticipated that access to credit will be essential to improving the performance of African businesses as the total amount of capital available rises and the investment ecosystem develops.
The FSC, being the new regulator for money lenders, has published the licensing criteria applicable for a money lending licence and is accepting applications for money lending licences.
An applicant for a money lending licence must maintain a minimum stated unimpaired capital of the higher of MUR 30 million (or an equivalent amount) or 5% of its total liabilities or such other amount as may be determined by the FSC. The applicant must provide information relating to its activity to the FSC which includes:
- details on the operations/process flow for the money lending activity, including but not limited to the following: client on-boarding/risk profiling, credit assessment/rating, approval and documentation and disbursement;
- indication on any financing limit;
- indication of the interest rate to be charged and the basis on which the interest rate is calculated;
- details on applicable fees for providing the services;
- details on collateral to be provided in relation to money lending; and
- details on the repayment period of money lent.
Furthermore, the applicant must provide its business plan, constitution, internal procedures and compliance manual, AML policy, risk management policy and disaster recovery and business continuity plan to the FSC as supporting documents for the application.
Interest income derived by money lenders will be subject to an income tax exemption of 80% if certain substance requirements are met. These are: carrying out 'Core Income Generating Activities' in Mauritius; employing directly or indirectly an adequate number of suitably qualified persons to conduct the core income generating activities; and incurring a minimum expenditure proportionate to the level of activities of the money lender.
The 'Core Income Generating Activities' requirement for interest income (which has been provided by the OECD and has been replicated in Mauritius and various other jurisdictions) includes 'agreeing funding terms, setting out the terms and duration of any financing, monitoring and revising any agreements and managing any risks'.
For many years Mauritius has been known as an ideal location for routing primarily equity investments while its debt market has remained underserved. It is hoped that the new money lending licence will bring credibility and add impetus to private lending by attracting global players to structure debt funds and debt instruments to bridge the finance gap in the African and global finance market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.