TABLE OF CONTENTS

Assessment of the Mauritian Financial

System
Cover
Table of Contents
The Financial System and Mauritius
Introduction
What makes up the Financial System in Mauritius?
The role of the Financial system
The goals of the Mauritian Financial System
Regulatory bodies and Standards for a sound Financial System in
Mauritius
(Institutions: FSB, FSC, IMF)

The development of the Mauritian Financial System and its

impact on the economy over time, financial reforms and
the Financial Liberalization period
Development of the Mauritian financial system over time
(SEM, DEM and the requirements for stock exchange in Mauritius)
Mauritius Financial Repression and Liberalization
Are we better off with or without the financial system?

An evaluation of the Mauritian Financial System and

Improvements
Mauritian Financial Systems: Analysis
Mauritian Financial Markets
Mauritian Financial Intermediaries: Strength and Weakness
Improvements to be considered for the financial system of Mauritius
(Recommendations)

Conclusions
References

Assessment of the Mauritian Financial

System
Introduction
The objective of this assignment is to make an assessment of the Mauritian Financial System and
evaluate the development of the financial system in terms of performance and productive
efficiency in the post-financial liberalization period. The Mauritian financial system
demonstrated great ability to cope in the face of recent setbacks to the economy. A wide range of
financial reforms have been instituted since the 1980s which included measures such as financial
liberalization. These reforms were geared towards the liberalization of the financial system in
order to enhance efficiency in the mobilization and allocation of financial resources. Given the
importance of the banking sector in the Mauritian economy, an examination of efficiency in the
banking sector will provide useful guidance.

What makes up the Financial System in Mauritius?

Mauritius has over the last decade built itself as an advantageous, safe and trusted location for
the conduct of business. Further, it has embraced the highest standards of international practice
that have made it among the most open, competitive and low tax economies in the world.
Strategically located in the Indian Ocean at the crossroad of international investments, Mauritius
has forged a strong reputation as a premier international financial centre.
The financial system comprises of the Banking and Non-Banking sector which in turn include
financial intermediaries (Mauritius Commercial Bank, Bank of Mauritius, State Bank of
Mauritius among others), insurance companies (Sicom, Anglo Mauritius), stock exchange market
(SEM) and numerous other financial institutions. As a matter of fact, it is a field whereby capital
is being traded through the process of lending and borrowing either on a long term (bond) or
short term basis within a regulatory framework. In addition, the movement of funds from surplus
agents to deficit agents is being effected by financial intermediaries to facilitate consumption and
investment.

The Financial Sector

Non Banking

Banking

Insurance Companies
Commercial Banks
Securities
Global Business
Islamic Banks
Non Bank Financial Intermediaries

Offshore Banks

Regulated Bodies:
1. Financial Services Commission (FSC)
2. Board of Investment (BOI)

Regulated Bodies:
1. Bank of Mauritius.
2. FIU

3. Financial Intelligence Unit (FIU)

It is good to note that the International Monetary Fund, World Bank, Financial Stability Board
among others do help Mauritius to achieve financial stability.

The role of the financial system

The main functions of the financial system are:

Value Exchange: The financial system provides different modes of payment facilities
including cash, cheque, credit cards or electronic banking. These means of payments are
considered as secure, reliable and accessible to everyone.

Intermediation: Financial intermediaries take deposits from savers on a short maturity

and lends to borrowers on a long maturity.

Risk transfer: When loans are being issued, financial intermediaries have to assess the
credit worthiness of their debtors and subsequently they have to be updated about the
borrowers performances. In other words, risks and uncertainties are being priced and
allocated.

Liquidity: The financial system provides a provision of liquidity whereby households,

firms or government can easily liquidate their asset into cash without incurring any loss

in value. This provision can aid individuals to deal with unforecasted events. Moreover, if
cash at bank is greater than cash in hand, then there will be a good circular flow of
money, thereby encouraging for investment which will eventually lead to the stimulation
of economic growth

Goals of the financial system

A financial market helps to achieve the following non-comprehensive list of goals:

Saving mobilisation: obtaining funds from the savers or surplus units such as household
individuals, business firms, public sector units, central government is an important role
played by financial markets. Borrowers (bond issuer) are connected with lenders (bond
buyers) in financial markets.

National Growth: An important role played by financial market is that, they contribute to
a nation's growth by ensuring unfettered flow of surplus funds to deficit units. In other
words, financial markets help shift money from industry to industry or firm to firm based
on the supply and demand for their products.

Investment: Financial markets play a crucial role in arranging to invest funds. Both firms
and individuals can invest in companies through financial markets (e.g by buying stock)

Entrepreneurship Growth: Financial markets allow entrepreneurs (and established firms)

to access the funds needed to invest in projects or companies.

Standards for a sound financial system in Mauritius

The Financial Stability Board applied the following criteria for determining the list of key
standards for sound financial systems:

relevant and critical for a stable, robust, and well-functioning financial system (including
in light of the lessons from the recent financial crisis), in order to impart a sense of
prioritisation in implementation;

universal in their applicability, by covering areas that are important in nearly all
jurisdictions;

flexible in implementation, by being general enough to take into account different

country circumstances;

broadly endorsed - namely, that such standards should have been issued by an
internationally recognised body in the relevant area in extensive consultation with
relevant stakeholders. To satisfy this criterion, the standard should preferably undergo a
public consultation process. This criterion would also be satisfied when the standardsetting body has wide representation, or when the standard has been endorsed by
International Financial Institutions (IFIs), such as the International Monetary Fund (IMF)
and the World Bank; and

assessable by national authorities or by third parties such as IFIs.

Mauritius has been remarkably successful in achieving rapid economic growth, in diversifying
its economy, and in developing a broad-based financial system. Mauritius has a deep financial
system, dominated by a large domestic banking sector. It also has a well developed insurance and
pension sectors and a sizeable offshore financial services sector.
The banking system is profitable, well capitalized and has been generally sound except for the
recent case where Bramer Bank Ltd in Mauritius had its license revoked by the government
because of liquidity issues and within one days time the responsibility of the bank was handed
over to the State Bank of Mauritius and hence did not cause an issue to the economy which
demonstrated the ability to cope of the Mauritian Financial System.

Regulatory bodies of the Mauritian financial system

Problems in financial systems not only disrupt financial intermediation, but they can also
undermine the effectiveness of monetary policy, exacerbate economic downturns, trigger capital
flight and exchange rate pressures, and create large fiscal costs related to rescuing troubled
financial institutions. Moreover, with increasing connectivity among financial institutions and
tighter financial and trade linkages between countries, financial shocks in one jurisdiction can
rapidly spill over across financial sectors and national borders.

Therefore, resilient financial systems (which stand for the ability of financial system to cope with
setbacks in the economy) that are well-regulated and well-supervised are essential for both
domestic and international economic and financial stability.

Other regulatory bodies of the Mauritian Financial System include the Financial Services
Commission (FSC) which is a regulatory authority responsible for the regulation, supervision
and inspection of all financial services other than banking and global business in Mauritius.

FSC Mauritius aims to:

stimulate the development, equity, efficiency and transparency of financial institutions

and capital markets in Mauritius.

annihilate crime and malpractices so as to provide protection to members of the public

investing in non-banking financial products

ensure the durability and stability of the financial system in Mauritius

Key objectives of the FSC Mauritius are to:

establish precise administration of the financial services and global business activities

ensure sound conduct of business in the financial services and global business sectors;

elaborate policies which are directed to ensuring fairness, efficiency and transparency and
financial and capital markets in Mauritius;

study new avenues for development in the financial services sector, to react to new
challenges and to gain new opportunities for accomplishing economic sustainability and
job creation.

For the strategic plan 2014-2016, the FSC Mauritius has identifies four strategic themes namely:

Quality

international engagement

conduct

anticipation

Quality
Assuring quality in regulation has become an important part of the role of regulators. Quality is
the center of attention of the FSC Mauritius in pursuing to promote the highest standards in the
regulation of non-bank financial services and global business sectors. The FSC Mauritius
considers in improving the quality of financial regulation and supervision in order to strengthen
its effectiveness, efficiency, consistency and transparency.

International Engagement
In order to be internationally identified, the FSC Mauritius will pursue to engage with
stakeholders on local, regional and international levels. The strategic objectives supporting
international engagement are defined below.

Conduct
Financial regulation and supervision has three eventual objectives, which are ensuring stability
of the financial system, protecting the interest of the customers, and ensuring fairness and clarity
in financial markets. These three objectives are widely shared among major financial regulators
around the world.

Anticipation
While there is a distinct connection between financial market regulation and economic growth
which impacts on the consumer and investors, regulation remains a complex balancing act which
requires sound partnership with the industry and stakeholders. As the Mauritian IFC grows, so
does the number of complex and sophisticated products. A balancing regulation, maintenance of
consumer confidence, the efficiency of our financial markets and the global respect for our
market should be ensured.
Anticipation also relies on strong partnerships with all stakeholders as well as fairness and
transparency in dealings with the industry and consumers.

The International Monetary Fund promotes financial system soundness in member

countries through its ongoing bilateral and multilateral surveillance, the design of its
lending programs, and the provision of technical assistance.

Bilateral Surveillance refers to regular suggestions and policy advice that the IMF is
assigned to provide to all its members, in relation to their macroeconomic and financial
developments and policies. IMF introduced in 1999, the Financial Sector Assessment
Program (FSAP) to provide member countries with a suitable assessment of their financial
systems to better identify financial system strengths and weaknesses, as well as potential
sources of systemic risk. In developing and emerging market countries such as Mauritius,
they are usually conducted jointly with the World Bank, which provides a developmental
perspective.

Multilateral Surveillance introduces a multi-country or global perspective to

surveillance. Indeed, as economies and financial systems are increasingly interrelated,
many relevant issues span multiple jurisdictions and spillovers from one country or
financial system to another occur frequently.

IMF-supported programs often include measures to strengthen member countries'

financial systems. In addition to providing financial assistance, the IMF help members in
identifying and diagnosing financial system problems; designing strategies for systemic
reforms and bank restructuring; and ensuring that such strategies are consistent with, and
supported by, appropriate macroeconomic and other structural policies.

Technical assistance provided by the IMF helps member countries to implement specific
reforms to develop and strengthen their financial system.

The development of the Mauritian Financial System and its impact on the
economy over time, financial reforms and the Financial Liberalization period
We shall relate to the history of the financial system of Mauritius, its evolution and impact that it
had on the economy resulting from financial reforms which we will state. It is good to note that
there were both financial repression and financial liberalization.

The development of the financial system over time

In spite of being a relatively young and self-reliant nation, endowed specifically with
inexpensive natural resources, the Mauritian economy has flourished substantially over the past
decades. After attaining its independence in the 1968, it has transitioned from a struggling sugar
economy into a diversified domain. As a result, owing to an excessive dependence on the
agricultural-based economy, hence in 1971, the state established the manufacturing sector with
the prime quest of boosting exports and industrializing the island. Eventually, in the 1980s, a new
field emerged notably the tourism industry which led to the inflow of foreign investment and
similarly creation of jobs.
Introduction of the Stock Exchange of Mauritius
Nevertheless, in the 1990s, in order to modernize its economic structure and confront the severe
challenges of linearization and globalization, Mauritius launched the services sector particularly
the financial services sector. In fact, it was regarded as the ideal platform in terms of efficiency,
competitiveness, financial soundness and stability to further accelerate the wheels of the
economy.

The Stock Exchange of Mauritius Ltd (SEM), was incorporated in Mauritius on March 30, 1989.
The SEM operates two markets: the Official Market, the Development & Enterprise Market
(DEM).
The Official Market started its operations in 1989 with five listed companies and a market
capitalization of nearly USD 92 million. Currently, there are 40 companies listed on the Official
Market representing a market capitalization of nearly US$ 4,374.64 million as at 31 July 2007.
The listing requirements of the Official Market are:

The company must have an expected market capitalization of Rs 20 million;

Issue at least 25% of the company shares to the public.
A detailed analysis of the listing requirements for companies that want to be listed on the
stock market is available on the SEM website

Development & Enterprise Market (DEM)

Development & Enterprise Market (DEM), is a market designed for Small and Medium-sized
Enterprises (SMEs).
The DEM has been launched on 4 August 2006 and there are presently 50 companies listed on
this market with a market capitalization of nearly US$ 1,502.10 million as at 31 July 2007.
Listing requirements of the DEM are:

published financial statements for at least 1 year , which must have been prepared

according to IFRS and audited according to ISA without qualification;

a minimum market capitalisation of MRU 20 million; and
a minimum of 100 shareholders and 10% in public hands.

MARKET CAPITALISATION
It refers to the total value at market prices of the securities at issue for a company or a stock
market or sector of the stock market.SEM had a market capitalization of Rs 219,350,534,106.38
at 5 April 2015.

Mauritius Financial Repression and Liberalization

Financial repression is a term used to describe measures sometimes used by governments to
boost their coffers and/or reduce debt. These measures include the deliberate attempt to hold
down interest rates to below inflation, representing a tax on savers and a transfer of benefits from
lenders to borrowers.
Financial Liberalization is when restrictions on financial markets and financial institutions are
eliminated, or when financial innovations such as subprime mortgage loans are introduced to the
financial markets. Financial liberations and innovations are beneficial to the economy in the
long-run because they lead to more efficient financial markets promoting lending and growth;
however, as restrictions are removed and financial liberations and innovations are mismanaged,
the freedom incentives financial institutions to take unnecessary risks going on lending sprees
(credit booms) which can lead to financial meltdowns.
July 1988

Liberalisation of interest rates

June 1989

Liberalisation of Exchange rate controls

July 1991

Issue of Bank of Mauritius bills

November1991

Auctioning of bills

July 1992

Abolition of ceilings on credit to priority sectors

July 1993

Abolition of credit ceilings on non-priority sectors

Imposition of a credit-deposit ratio

February 1994

Setting up of the Secondary Market Cell at Bank of Mauritius

June 1994

Bank Rate linked with weighted average yield of Treasury Bill over preceding 12 weeks plus a margin

July 1994

Suspension of Exchange Control Act

Establishment of the Interbank Foreign Exchange Market

July 1995

Bank rate linked to overall yield on Treasury bills at most recent auction plus a margin

July 1996

Abolition of credit-deposit ratio

Imposition of 15% limit on the overall foreign exchange exposure

December 1996

Bank rate linked to overall yield on Treasury bills at most recent auction plus a margin

July 1997

Cash ratio brought down to 6% and non-cash liquid asset ratio to 0%

July 1998

Issue of 728 days Treasury bills

December 1998

December 1999

Over the Counter (OTC) sales to individuals and non-financial Institutions.

Issue of 30-day Treasury bills
Introduction of Reversed REPO Transactions
Introduction of Lombard facility

November 2000
December 2000

Introduction of Swap Transactions

Introduction of the Mauritius Automated Clearing and Settlement System

June 2001

Introduction of Stock Exchange of Mauritius Automated Trading system (SEMATS)

Automation of the Port-Louis Clearing House

February 2002

Establishment of a Primary Dealer system

December 2003

Trading of Treasury/Bank of Mauritius Bills on the Stock Exchange

The table above shows a wide range of financial reforms that have been instituted since the
1980s which included measures such as financial liberalization. These reforms were geared
towards the liberalization of the financial system in order to enhance efficiency in the
mobilization and allocation of financial resources.

The contribution of the Financial Sector in our Economy

The blossoming financial sector has maintained an expansionary trend over the last years and is
ranked as the fourth pillar of our economy. Mauritius is emerging slowly as an advanced
financial services centre in the region through its contribution in numerous organizations and its
strategic geographical location. The financial sector is performing well and its global growth is
5.7%. Subsequently, it contributed 10.3% to a GDP of $10.49bn and similarly creates
employment for 13000 people as shown by figures on the 28 th January 2014. Furthermore, the
Mauritian financial sector has been ranked 26th out of 148 economies in the Global
Competitiveness Report 2013-2014 of the World Economic Forum.

Economic Pillars (%)

Manufacturing
Commerce

17%
13%
10%
6% 7%

47%

Finance
Tourism
TIC
Others

Le dfi quotidien: Bilan de sant de lconomie: Maurice toujours pas en forme by 03 July 2014.
Recently, reports published by the Statistics Mauritius have revealed that the Mauritian financial
sector contributed 10.1% towards a GDP of $10.49 billion as illustrated in the above pie chart.

Actually, the Mauritian financial sector is playing an important role in the stability of our
economy. Providing employment, contributing to our GDP and encouraging Foreign
Development Investment are just a few examples among the various positive impact of this
financial sector in our economy.

Are we better off with or without the financial system?

In order to evaluate the significance of the financial system we must first seek out how the
economy would be if there was no financial system in Mauritius and in order to analyze whether
we are better off with or with a financial system.
Societies invented currency to facilitate economic activity. Currency means that a person can sell
something without having to receive a specific good in exchange.
Currency and payment systems allow people to travel to distant places for long periods and
enable companies to do business with other companies operating in faraway locations that is
trade at international level. Currency also means that the surplus resources (savings) of economic
agents individuals, households and companies - can be channeled to others who need
them (investment). This operation not only enables people investing their resources to earn
income in the future but also increases investment and entrepreneurship.

The financial system and the banks in it play a crucial role in the economy's use of currency.
Banks run the payment systems that enable local markets to operate and individuals and
companies to travel to distant places and act there. Without a well-structured banking system,
currency would not be able to circulate and it would also be harder to create markets for goods
and services and for people and goods to circulate. Banks are also essential as financial
intermediaries. In other words, they take the savings of people with surplus resources and make
them available to others who need them. Without this operation, people's and companies' ability
to invest would be very limited.

The financial system acts as a medium to bind the work that is done for corporations to basic
essentials such as food and housing in an entirely artificial relationship. Despite an abundance of
basic essentials, individuals or entire countries can be disadvantaged of them based on the labor
or rights they are providing to corporations.
A system where banks, governments, and many other valueless institutions also stand between
individuals and basic needs and demand payment completes the creation of true wage slavery
where no worker can survive outside the system. By making work required to produce basic
essentials independent of ownership or access to them, this system also leads to gross surplus of
resources for people who do not contribute to the work value at all.
The financial system enables a very unfair distribution of resources. Wages are commonly
described as an incentive to work. We are told that no one would work if they were not paid. This
is belied by the amount of people raising their children, cleaning their homes, growing their
plants, volunteering for social work and it is belied by cultures in myriad times and places which
survived happily without a financial system.
Any for profit system is not going to have social or environmental goals as its mandate (even if it
says it does) and a wage paying system is a for profit system. If profit were removed, all
decisions would be made for social goals, prison systems would be trying to rehabilitate
prisoners or study to find why they were in violation of the law instead of just warehousing as
many as possible, medical research would be trying to improve health instead of selling
pharmaceuticals, and agriculture would be devoted to producing the most nutritious food in the
most environmentally responsible way. Removing profit would also remove a great deal of the
reason for competitiveness, secrecy and spying within organizations, along with a great deal of
the redundancy of competing companies providing identical goods and services. Removing profit
eradicates the need for ownership of knowledge and many other assets.
At a national level, the financial system allows banks, who have no need of housing, to hoard
millions of houses while the children that used to live in them sleep in the streets. At an
individual level, the equating of lifes essentials with the financial system can control life or
death, fulfillment or wasted potential, contentment or misery.

A moneyless system is unlikely to appear soon in its pure form and given the many functions that
the financial system fulfills in terms of liquidity and jobs and since running a currency free
system could lead to less people working, the financial system makes society better off as a
whole.

An evaluation of the Mauritian Financial System and

Improvements to be taken into consideration
In order to evaluate and determine the importance of the Mauritian financial system it is of
upmost importance to assess the components that it includes mainly financial markets, financial
intermediaries and institutions. We shall evaluate the position of the Mauritian financial system
and then move to the financial markets to then evaluate financial intermediaries strengths and
weaknesses, followed by the setbacks that they suffered from in the recent years. We shall then
consider the improvements that could be implemented for a better Mauritian financial system to
maintain its strength and counter or at least reduce the weaknesses that our financial system have
shown with the help of the World Bank and International Monetary Fund joint Financial System
Stability Assessment of Mauritius.

Mauritian Financial System

World Bank joint with the International Monetary Fund (IMF) prepared a Financial System
Stability Assessment. FSAPs are designed to assess the stability of the financial
system as a whole and not that of individual institutions. They have been
developed to help countries identify and remedy weaknesses in their
financial sector structure, thereby enhancing their resilience to
macroeconomic shocks and cross-border contagion.
This Report does not merely refer to the weaknesses and vulnerabilities of our financial sector. It
does also underline the strength of our financial sector and the progress that has been made in
recent years with regard to our supervisory framework.

The report dates as at December 2008 which is the latest update of FSSA and advices a
number of issues for attention:
Significant policy reforms have been undertaken since the 200203 FSAP to strengthen the
financial infrastructure, but institutional weaknesses have delayed their full implementation.
Legal and regulatory reforms in financial reporting, corporate governance, the insolvency
regime, the tax structure, and public debt management have improved corporate governance and
financial disclosure inlarge private companies and reduced distortions.
However, the authorities will need to avoid further delays in establishing key implementing
bodies, since these have limited progress in the areas of financial reporting, monetary policy, and
supervision.
Progress has been made in financial regulation and supervision, but
organizational weaknesses and legislative delays have limited its scope. The
financial reforms entail substantial legislative change, the volume of which has
strained capacity, delaying the coming into force of insurance, pensions, securities,
and sections of banking legislation. In addition, staff shortages and training needs
impede supervision by the regulatory bodiesthe Bank of Mauritius (BOM) and the
Financial Services Commission (FSC).The profitability and capitalization of the banks provide
cushions against shocks, but regulators should improve their supervision of risk management.
The short maturity structure of Mauritiuss high domestic public debt poses
significant interest rate and budgetary risks. The core issue is the need for fiscal
consolidation, but, in addition, finalization of the draft debt management strategy is
needed to provide a framework for extending the maturity structure of the debt, to
improve the planning of government borrowing, and to contribute to the deepening of
the debt market.
An analytical foundation for monetary policy will be essential for the authorities
to control inflation. While the operational aspects of the monetary policy framework
are in place, analysis of the economic relations that underpin monetary policy needs

to be advanced.
Priority should be placed on strengthening the independence, administration,
and manpower planning of the regulatory agencies and other oversight bodies.
The credibility and effectiveness of the regulatory agencies depend critically on a
sound legal and administrative basis for their independence, as well as care by the
authorities to avoid giving the appearance of interference.
Although the financial sector is well developed and access is high, there are a number of
areas where policies could assist in further strengthening the effectiveness of bank and
nonbank intermediation. Moreover, an extension of the coverage of the Credit Information
Bureau could improve access to credit by small borrowers. Finally, steps to improve government
debt management and to deepen the market for longer term securities appear warranted both to
help address debt sustainability concerns but also to improve the private sector's access to
financing.

Depreciation in the exchange rate has helped adjustment to the TOT shock, but
continued flexibility will be important to maintain competitiveness. The nominal rate is
market-determined (a managed float) and staff estimates presently suggest that the real
effective exchange rate is just above its equilibrium level, and going forward exchange rate
intervention should be limited to smoothing excess volatility.
Mauritius has a relatively large and well-developed financial system. Basic
financial sector infrastructure, such as payment, securities trading and settlement
systems, was modern and efficient, and access to financial services was high, with
more than one bank account per capita.
The financial sector was found to be generally sound and profitable, but the
dominance of a few major banks and the concentration of risks posed some systemic
risks, and inhibited competition and innovation.

After having analyzing the strength and weaknesses as mentioned by the extract of the FSSA as
at December 2008 for Mauritius prepared by the International Monetary Fund and their
suggestions and recommendations we shall now move to the Financial Markets of Mauritius.

Mauritius and Financial Markets

A market in which people and entities can trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and
demand is called a financial market. Securities include stocks and bonds, and commodities
include precious metals or agricultural goods.

Capital markets which consist of:

Stock markets: which provide financing through the issuance of shares or common
stock, and enable the subsequent trading thereof.

Bond markets: which provide financing through the issuance of bonds, and enable the
subsequent trading thereof.

Commodity markets: which facilitate the trading of commodities.

Money markets: which provide short term debt financing and investment.

Derivatives markets: which provide instruments for the management of financial risk.[1]

Futures markets: which provide standardized forward contracts for trading products at
some future date; see also forward market.

Insurance markets: which facilitate the redistribution of various risks.

Foreign exchange markets: which facilitate the trading of foreign exchange.

(Source: Investopedia)

Stock Exchange of Mauritius (SEM)

Define Stock Exchange
It is a type of market where buyers and sellers of government stocks, public company shares,
carry out their necessary exchange. It is mainly a market for securities that have already been
issued.
The stock exchange operates mainly in two markets
Primary Market
Government raises capitals by
pooling saving of investors
and make productive Ventures.

Secondary Market
Securities are purchase by investors
and maintain liquidity of the system.

Evolution of SEM
SEM was incorporated in Mauritius on March 30, 1989, under the stock exchange Act 1988, as a
private limited company responsible for the operation and promotion of an efficient and
regulated securities market in Mauritius. Since October 6, 2008 SEM became a public limited
company. During the last two decades SEM witnessed a significant overhaul of its operational,
technological and regulatory frameworks which has placed it among the leading exchanges in

Africa in terms of operational excellence. SEM is today a full-fledged number of the World
Federation of Exchanges (WFE).
When started operation in 1989, SEM had only 5 companies listed on its Market and operations
was only once a week. Gradually these numbers have been increasing and now, the stock market
operates during weekdays and has 42 companies listed in the official market. Moreover, trading
in SEM has been automated with the introduction of SEMATS in 2001.
SEM can list, trade and settle equity and debt products in USD, Euro, ZAR and MUR. Local
investors account for about 60% of the daily trading activities, and foreign investors account for
the 40% remaining.

The securities traded on SEM

The main securities traded on the SEM are:
A. Ordinary and preference shares of public companies in the official list; these shares are
called equities because their value represents the holders degree of ownership of the
particular company.
B. Debentures and secured notes of public companies; the holder of these is a secured
creditor not a part owner of the company.
C. Unsecured notes and deposits; the holder of these is an unsecured creditor of the
company.
D. Bonds and inscribed stock issued by the commonwealth government, local and semi
governmental authorities and public utilities.
Equity market
In general, irrespective to type of equity market, in order to be quoted on SEM the company
concern should have at least Rs 20 m of market capitalization.
SEM compromises of 2 equity market:
1. The Official market
On this market, it is usually big companies with strong financial abilities who are listed. In
general, companies listed on this market are expected to issue at least 25% of the shares to
the public, with a minimum of 200 shareholders. Currently there are 42 companies listed in

the official market representing a market capitalization of nearly USD 7.5 billion as at 29
august 2014.
2. Development and Enterprise Market (DEM)
This type of market is ideally suited for small to medium sized companies, which are fast
growing and looking for additional sources of capital to fuel growth. In general, companies
willing to be listed in this market are expected to have a minimum number of 100
shareholders. The DEM has been launched on 4 august 2006 and there are presently 47
companies listed on this market with a market capitalization of nearly USD1.6 billion as at
29 august 2014.

Sectors listed on the stock exchange.

Bank and Insurance
Foreign
Industry

Companies listed
in the stock
exchange
Investment
Transport
Sugar
Leisure & Hotels

Roles of Stock Exchange in Mauritius

Commerce

1) Capital formation - Provide companies with the ability to raise capital to expand their
business. This leads to an increase in economic activity and therefore drives the economy.
2) Accountability - Promote good corporate governance; Encourages good corporate
practices such as financial reporting and book keeping.
3) Connecting traders - SEM also facilitate trading; Stakeholders may sell their interest to
other party.
4) Government capital raising for development project Borrow money in order to
facilitate infrastructures project.
5) Security SEM designed and implements law and regulations; intend to protect
investors from unfair advantages.
6) Barometer of the economy SEM maintain the stock indexes which are general trend of
the economy.
Bourse Africa
Define/Aim
Bourse Africa Limited (Bourse Africa), is the first global multi-stake class trade from Mauritius
that as of now offers exchanging on three business fragments viz., things, monetary forms and
values. Bourse Africa attempts to give African and International business members with a
productive business sector for danger administration, exchanging, contributing and capital
raising needs. The trade offers a state-of-the-workmanship electronic exchanging stage with
proficient clearing and settlement frameworks.
The trade, found at junction of Africa and Asia offers worldwide speculators the profit of the
Mauritian time zone that adjusts to the business timings of Asia, Africa, Europe and United
States.
The FSC role
The trade is directed by Financial Services Commission (FSC), Mauritius, the incorporated
controller for the money related administrations area other than managing an account, and
worldwide business. The FSC works inside a present day and universally perceived lawful

schema to permit, direct, screen and manage the behavior of business exercises in the nonmanaging an account monetary administrations division.
The Financial Technologies Group contribution
Bourse Africa is advertised by the Financial Technologies Group, a worldwide pioneer in setting
up and working tech-driven cutting edge trades in the developing however quickly developing
economies. These trades are supplemented by the Group's Ecosystem wanders which address
opportunities around trades in the regions of clearing, store, data distributing and installment
door, among others.
Bourse Africa and GBOT
Bourse Africa was once known as Global Board of Trade (GBOT) Ltd. Bourse Africa symbolizes
the bigger center of Financial Technologies Group towards Africa and the opportunities offered
by the African Financial and Commodities Markets.
Investment fund and intermediaries

The FSC and IFI

IFI or more precisely the Investment Funds & Intermediaries Cluster can be defined as a
department of the FSC which is responsible for the supervision of funds (Collective Investment
Schemes and Closed-End Funds) and their intermediaries (CIS Managers). IFI ensures adherence
to the IOSCO Principles, standards and best practices as well as good governance of the
Investment funds and Intermediaries. In addition, it promotes diversification of the market in
particular towards Africa.
Investment fund
It is a way of investing money on securities alongside other investors in order to benefits from
the inherent advantage of working as part of a group. An investment fund provides a broader
selection of investment opportunities, greater management expertise and lower investment fees

than investors might be able to obtain on their own. There are mainly 4 types of investment fund:
mutual funds, exchange traded funds, money market funds and hedge funds.
Intermediaries
Intermediaries or to better fit our topic, Financial Intermediaries are entity that acts as the
middleman between 2 parties in a Financial Transaction. Example can be: Investment Bank,
Insurance, Broker dealers, Mutual Funds and pension funds.

Collective Investment Schemes (CIS) Investment Fund

It is a type of investment scheme that involves collecting money from different investors and
then combining all the money collected to fund the investment. Investment can be on a portfolio
of securities or it can also be on other financial assets, real assets, real property or non financial
assets. CIS is similar to some extent with Mutual Fund.
Closed End Funds Investment Fund
A closed-end fund is a publicly traded investment company that raises a fixed amount of capital
through an initial public offering (IPO). The fund is then structured, listed and traded like a stock
on a stock exchange.
CIS Manager - Intermediaries
A CIS manager may carry out any of the activities related to the management of a CIS,
including:

All administrative services required by the CIS;

Provision of registrar and transfer facilities;

Distribution of the securities of the CIS;

Maintaining accounting records of the CIS;

Giving investment advice in relation to the CIS; and

Managing the portfolio of the CIS.The Table below shows some of CIS Managers and

funds licensed by the FSC under the Securities Act2005 as at 03/02/14

Collective Investment Schemes &

Closed - End Funds under
Management

CIS Managers

N
1

Anglo- Mauritius investment

Management Co. LTD

Anglo Mauritius Global Funds

Limited

MCB investment Management

Co. ltd

MCB unit trust

SICOM Financial Services ltd

SICOM unit trust

MCB capital partners ltd

Rogers assets management Ltd

MCB Equity fund ltd

Currently, no fund under
Management

It is good to note that actually in Mauritius there are at around 28 CIS Managers and around 34
CIS all regulated by the FSC.

Financial Intermediaries on Mauritius

A financial intermediary is a financial institution that connects surplus and deficit agents.

The Banking Sector

Functions of Bank
Banks are usually known as a financial intermediary. Being a well known, reputed and regulated
organization, banks have the possibility to enable a more efficient flow of money between the
deficit and the surplus agent. In fact, it stimulates a win-win situation for the borrower and the
lender. The main functions of Banks are summarized below:

http://financenmoney.in/banking-basics/
In addition, recent research has shown that stability of the banking sector in a country do have a
major impact on its economy. In fact, it is found that the banking sector stability is an important
driver of future GDP growth. (Research conducted by VOX, Research-based policy analysis and
commentary from leading economist)

The Banking sector in Mauritius

Coming to the Mauritian banking sector, the first commercial bank was set up in 1838. With
globalization and development, Mauritius today has 21 banks. However, 2 new banks are about
to enter the market. These banks are Warwyck private Bank LTD and Richemount LTD. The
actual 21 banks compromises of 6 local banks, 10 foreign owned subsidiaries, 1 joint venture and
4 foreign banks. These banks are regulated and licensed by the Bank of Mauritius (BOM). In this
way, it is the BOM itself who will authorize their operations locally and internationally.
The 21 banks are as follows:
1) ABC Banking Corporation

2) Afrasia bank Limited

3) Bank One
4) Bank of Baroda
5) Banque des Mascareignes
6) BanyanTree Bank Limited
7) Barclays Bank
8) Bramer Banking Corporation
9) Century Banking Corporation
10) Deutsche Bank
11) Development Bank of Mauritius
12) The HongKong and Shanghai Banking Corporation
13) Habib Bank Limited
14) Investec Bank
15) Mauritius Commercial Bank
16) Mauritius Post and Cooperative Bank
17) Bank International Indonesia
18) State Bank of India (SBI) Mauritius
19) Standard Bank
20) Standard Chartered Bank
21) State Bank of Mauritius

i.

Commercial Banks

Commercial Banks are financial institution that provides services, such as accepting deposits,
giving business loans and auto loans, mortgage lending, and basic investment products like
savings accounts and certificates of deposit. Its services are usually offered to the general public
and to companies.

The Mauritius Commercial Bank

The first commercial bank to operate in Mauritius was the Mauritius Commercial Bank (MCB).
MCB has over 750,000 individual and institutional customers and a staff count of more than
2,400 making it the largest and the most successful bank in Mauritius. MCB is also ranked as the
number one bank in the Indian Ocean and the50th in Africa.
The State Bank of Mauritius
Furthermore the second largest bank in Mauritius is State Bank of Mauritius (SBM). It is also the
second largest company listed on stock exchange. SBM is known to be servicing around 430,000
customers and holding 25% of the market share. SBM operates 3 branches in India and 2
branches in Madagascar. SBM is also, the second best bank in the Indian Ocean.
Barclays Bank
Barclays in Mauritius operates as a locally incorporated entity since 1 June 2013 with Barclays
PLC UK remaining the ultimate holding company. Barclays was the first bank in Mauritius to be
granted an offshore banking license and engages in banking activities in all foreign currencies. It
holds around 10-12% market share and employs more than 800 staff.

Offshore Banks
Coming to offshore bank, it is an institute where foreign banks have their branch in an offshore
financial center. That is, these are banks which are located outside of their residence of depositor.
Normally offshore banks accept deposit from other foreign banks and provide loan in
Eurocurrency.
HSBC Bank (Mauritius) Limited

HSBC was the first bank to set up an offshore banking unit in Mauritius and it was in the year
1991. Today HSBC is the largest of its kind in Mauritius.
ii.

Islamic banks

Moreover, Islamic banking refers to banking system which is based on the principles of the
Islamic law in other word the shariah law and guided by the Islamic economics. Two basic
Islamic law principles considered are that profit and loss should be share and secondly there
should be no collection and payment of interest. It is prohibited to collect interest under Islamic
law.
Habib Bank Limited.
Globally Habib Bank Limited is present in 25 countries. It has around 1500 branches around the
world. It started its operation in Mauritius in 1964 and actually has 5 branches.

The Bank of Mauritius

A brief history
The Bank of Mauritius was built in September 1967 as the Central Bank of the country. It was
demonstrated on the Bank of England and was, basically, set up with the help of senior officers
of the Bank of England.
Objectives of the Bank
According to the Bank of Mauritius Act 1966 (as amended) sets out the reasons of the Bank
which are to safeguard the internal and external value of the currency of Mauritius and its
internal convertibility and to direct its policy towards achieving monetary conditions
conducive to strengthening the economic activity and prosperity of Mauritius.
The Bank has been set up as the power which is in charge of the definition and execution of
financial strategy steady with stable value conditions. It likewise has obligation regarding
shielding the soundness and reinforcing of the money related arrangement of Mauritius.

Functions

The functions of BOM are:

Formulation and interpretation of the monetary policy

Issuer of currency

Banker to the government and to banks

Provider of an efficient payment, settlements and clearing system

Management of the public debts

Management of foreign exchange reserves

Regulator and supervisor of banks

Advisor of the Government on financial matters

BOM as a regulator
In a free enterprise economy with changed money related framework, central bank supervision of
business managing an account establishments is imperative. Commercial banks in Mauritius are
managed and regulated by the Bank of Mauritius under the Banking Act 1988 which supplanted
the 1971 Act in January 1989 with a perspective to fortifying and modernizing the administrative
and supervisory framework and additionally to accommodating the legitimate structure for the
stronghold and operations of offshore banks domiciled in Mauritius. The fundamental
destinations of the Banking Act are to keep up a sound saving money framework in Mauritius
and to ensure the premiums of investors.

The Importance of BOM

Moreover, commercial banks, in the same way as some other private undertaking, are profit
maximizes. In the quest for profit making, they may get to be less mindful and take more serious
hazard in their loaning operations. This may jeopardize the security of investors' cash. From the
supervisory edge, a standout amongst the most essential concerns of the Bank of Mauritius is
accordingly to guarantee the support of a sound commercial banking system. It incorporates the
following principles of prudential regulation and supervision of banks:

Licensing of Banks

Capital Adequacy

Quality of Management

Liquidity control

Concentration of Risks

Role of External Auditors

On-site Examinations

Off-site Surveillance

Control of Advertisements

Confidentiality of Information

Identity of Customers

The Non Banking Sector

Definition

Non banking sector are financial institutions that provide banking services, but do not hold a
banking license or is not supervised by a national or international banking regulatory agency.
Non Banking Sectors are not allowed taking deposits from the public.

Nonetheless, all

operations of these institutions are still covered under banking regulations.

Non Banking

Financial Institutions (NBFIs) facilitate bank-related financial services, such as investment, risk
pooling, contractual savings, and market brokering. The NBFIs include a formal stock
exchange, a score of insurance companies, several pension funds, house finance and leasing
companies, non-bank deposit-taking entities, foreign exchange dealers, money-changers and
thousands of global business companies engaging in global market financial business, ranging
from acting as simple sources of invested assets to active managers of international funds and
trust business.
Contribution to an economy
Alan Greenspan, an American economist has identified the role of NBFIs in strengthening an
economy, as they provide "many ways of transforming an economy's savings into capital
investment [which] act as backup facilities should the primary form of intermediation fail."
Some Non Banking Financial Institutions:

Assets Management

Actuarial Services

Payment intermediaries services

Credit rating agencies

Pension Fund Administration

Representative Office

Registrar and transfer agents

Treasury Management

Custodian (Non-CIS)

Credit Finance

CIM Finance Ltd

Distribution of financial products

Finlease Company Limited

Other financial business activity

Pension Scheme Management

SICOM Financial Services Ltd

Mauritian Eagle Leasing Company Limited

Mauritius Housing Company Ltd

Roles of the Non Banking sector in the financial system:

Supplement banks by providing the infrastructure to allocate surplus resources to

individuals and companies with deficits.

While banks may offer a set of financial services as a packaged deal, NBFIs unbundle
and tailor these services to meet the needs of specific clients.

Additionally, individual NBFIs may specialize in one particular sector and develop an
informational advantage.

NBFIs provide competition within the financial services industry.

The Non Banking Sector in Mauritius

Mauritius is now known as a reputable financial sector in the south west of the Indian Ocean, and
this has been possible especially because of our powerful and rapidly growing non banking
sector. In fact, since mid 80s the financial activities have experienced a gradual shift away from
the dominance of banks and insurance companies. A number of other non-bank financial
institutions have emerged to play a vital role.
Actually, the Non Banking sector is mostly constituted of insurance companies, stock markets,
global businesses, and some non bank financial intermediaries.

i.

Insurance and Pensions

 Insurance
The situation in Mauritius
The insurance sector in Mauritius is known to be a relatively well developed one for a small
island like ours. Latest figures shows that insurance, reinsurance and pensions have contributed
3% to our GDP and this figure is expected to grow as this sector is expanding with a growth rate
of 5% which is the highest compared to the last 3 years (Source: Statistics- FSC).
Functions
The basic operation of insurance companies relate to the evaluation of risk and the spreading of
risk between individuals and institutions wishing to protect against it. Activities may be divided
into two broad categories:
1. General business involves the provision of insurance against specific risks such as theft,
fire and accident. The insurance policy holder pays a predetermined premium covering a
fixed period of time, and in return may make a claim for compensation against the
insurance company if a loss is incurred within the terms of the policy.
2. Long-term business relates to the provision of life assurance policies, which pay a capital
sum on the death of the person whose life is insured, and the operation of long term
savings schemes, which may involve an element of life cover should the person named in
the policy die before the policy matures.

Types
The Mauritian insurance sector is regulated by the Mauritius Financial sector (FSC) under the
Act 2005. Local insurance business is classified into:

Long term insurance business (life); and

General insurance business (non-life)

The Insurance Market

The insurance business is largely private owned and is dominated by a few players which include
some re-insurance companies and a few captive companies which essentially insure the risks of
their parent companies. The insurance sector of Mauritius is mainly influenced by companies
like BAI (45% of Market share), SICOM and the Swan group among others.
Pensions
Beside our national pension which is provided by the government, individuals have the right to
go for a private pension provision. The majorities of these provisions are catered through defined
benefit (DB) and defined contribution (DC) schemes established by private companies to provide
pensions for their employees. The money from the pension is derived from a lifelong saving by
the individual through a scheme. In general, they are insurance companies who provide these
pensions.
As from 1 November 2012, the Private Pension Schemes Act 2012 ('PPSA') has come into force.
The PPSA provides for a comprehensive and modern regulatory and supervisory framework for
the operation of private pension schemes. The FSC shall ensure that private pension schemes
comply with provisions of the PPSA with a view to maintaining a fair, safe, stable and efficient
private pension industry in Mauritius
The Mauritius Financial System comprises of several management companies and some
institutions which form part of our government entities.

Name of Institution

Objectives

Financial Services Commission (FSC)

Regulates and licenses global business and

financial services other than banking.

Board of Investment (BOI)

Promotes and
investment.

Bank of Mauritius(BOM)

Licenses, supervises and regulates the banking

sector.

Financial Intelligence Unit (FIU)

Receives, analyses and disseminates financial

disclosures in respect of suspicious transactions.

Mauritius Revenue Authority (MRA)

Administers tax policies, collects and accounts

for all revenues arising under the revenue laws.

facilitates

foreign

direct

Management companies in our financial market still find ways to profit by creating and selling
new derivatives, even if these deliver no benefits to the market and may actually lead the system
towards trouble. Complexity also helps financial institutions to hide the risks they create.
The basic complexity of the market allows for the completion of deals that would never get
signed in a world of full transparency and understanding. Unfortunately, according to traditional
financial theory, we assume that individual consumers have perfect knowledge of the market and
make only rational decisions, ignore this point, blinding itself to a huge source of systemic risk.
A major case of suspected Ponzi Scheme just occurred recently in the case of the ex-Brammer
Bank and BAI Insurance company (45% of the market share) this was because also due to the
capital requirement inadequacy and supervision which had been predicted during the FSSA of
2008 but which the FSC perhaps omitted to look at from the extract we can read :
The banking system is highly concentrated, and its core (the largest, dominant banks)
would appear to be fairly robust to credit and liquidity shocks. However, smaller banks would be
challenged to meet the regulatory capital requirement in the event of stress. Against this
background, there is a need to increase supervisory capacity to evaluate risks, including by
reviewing bank data more frequently and by undertaking stress tests or else this could adversely
affect confidence and Mauritius reputation as a financial center. The diagram below shoes the
capital Adequacy in Mauritius for September 2010- 2014 .
Capital Adequacy
The banking sector maintained adequate - albeit increasing - capital levels during the period
under review, although differences remained among banks in terms of their individual capital
adequacy ratio (CAR). The CAR for the banking sector stood at 17.1 per cent as at endSeptember 2014 compared with 16.4 per cent a year ago. In line with regulatory requirements,
banks have duly shifted from Basel II to a phasing in of Basel III capital framework.
Accordingly, changes have been brought in the estimated CARs due to the computation
methodology of banks capital base, coupled with the implementation of macro prudential

measures mainly in terms of revised risk weights amounted to Rs111.8 billion as at end
September 2014, with the ratio of Common Equity Tier 1(CET1) capital to total risk weighted
assets being computed at 13.7 per cent. From the ownership perspective, branches of foreign
owned banks maintained the highest Tier 1 capital ratio with an average of 23.9 per cent,
followed by the subsidiaries of foreign-owned banks, at 16.7 per cent. Domestic-owned banks
continued to post lower Tier 1 capital ratio at 13.7 per cent, although an improvement has been
noted due to compliance towards meeting the Basel III targets (Chart 4.5).applicable to the
construction sector. The capital base of the banking sector

The root of this scandal is the presence of a Ponzi scheme for an amount greater than Rs 25
billion, trapping 23,000 people and putting 160,000 policy holders at risk, noted Mauritius
Prime Minister Anerood Jugnauth. However with the intervention of the government the
Brammer bank was given to the National Commercial Bank while the BAI was handed over to
PricewaterhouseCoopers Ltd which once again showed the resilience of the Mauritian financial
system. We shall now look at the recommendations of the IMF,WB and the budget 2015 that the
Minister of Finance has announced in favour of the Mauritian Financial System

Government policies concerning financial system

As the financial system of Mauritius constitute an extremely essential part of the island's
economy and have gigantic potential for development and occupation creation, changes must
conveyed to reinforce this framework. The government will need to work with different partners
in the economy to bring the best out of this system. The framework must be strengthened to give
budgetary administrations to the individuals who need them.
For the 2015 financial plan, the Mauritian government has reported some key changes that will
improve the Mauritian financial system. Above all else, Government will position the Stock
Exchange of Mauritius as an appealing capital-raising stage for global and African centered
money related items. Moreover, endeavors will likewise be made to advance the advancement of
riches administration, resource administration and position Mauritius as an inside for private
positions, exchanging of bonds and other budgetary instruments.
Besides, multinationals will be urged to set up their local base camp in Mauritius with all the
more back office exercises. This will uphold the money related framework. Financial specialists
will likewise be urged to make utilization of the Mauritian locale for their ventures into and out
of Africa.

Furthermore the Minister of Finance in Mauritius Vishnu Lutchmeenaraidoo has announced in

the budget of 2015 that entrepreneurs who will be creating new firms will now be exempted from
corporate taxes for 8 years and loans will be provided to them at low interest rates with no
personal guarantee

Conclusion

References