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FSC Issues Licensing Criteria For Money Lending Licence – Financial Services



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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.

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