The vision of Ghanim Saad Al Saad Group, Qatar (GSSG) and British American Investment Group (BAI) Mauritius was “To be the leading provider of Islamic finance and wealth management services in Mauritius”. For the island, 2020 has seen its fair share of major historic events such as the COVID-19 pandemic, lockdowns, EU blacklist, oil spills and dead dolphins.
Review of 2020
First of all, it should be acknowledged that Mauritius, with a 17% Muslim population, was among the first non-Muslim states to have amended its regulatory framework to accommodate Islamic finance (see Figure1).
The decision to complement the conventional financial system with Islamic finance in 2006 was due to political will and was most welcome and as a result, the industry witnessed new Islamic finance operators in the market; Takaful was launched in 2009 and Mauritius Leasing later in 2010. Both were subsidiaries of the defunct British American Insurance Group, and CBC, the first Islamic licensed bank in Mauritius and a joint venture between GSSG and BAI Group, began its investment banking business in March 2011.
Although all licensed banks in Mauritius are deemed to offer Islamic windows, only HSBC (Mauritius) operated a window solely for its offshore clients in 2009 and Habib Bank has had its Islamic window services since 2014. However, HSBC shut down its Islamic window services in 2013 and Habib Bank offers only a current account through its Islamic window.
As it is evident from the global financial crisis, Islamic finance has proven to be resilient because of the nature of its products and instruments. What then could have been the main reasons for the fall of CBC in August 2020? In my personal view, the business model was not the right one as CBC was undercapitalized to run as an investment banking business. The situation deteriorated when BAI Group was put under special administration in 2015.
Furthermore, in 2016, the annual license fee was increased from MUR1 million (US$24,295.4) to a minimum of MUR3 million (US$72,886.3). However, the most significant change was the minimum capital requirement (MCR). In 2017, the MCR was increased from MUR200 million (US$4.86 million) to MUR400 million (US$9.72 million). For existing licensed banks, the increase was transitional — MUR300 million (US$7.29 million) by June 2018 and MUR400 million by June 2019.
As of June 2014, CBC had accumulated losses amounting to more than half of the initial capital invested and the GSSG was required to buy out the defunct BAI Group for the sum of MUR288 million (US$7 million). MUR107 million (US$2.6 million) was immediately paid and later MUR127 million (US$3.09 million) was paid to the special administrator after negotiations in 2016. However, it was unable to meet the MCR deadlines both in 2018 and 2019.
In addition, it is not clear why the proposed management buyout in 2020 could not be completed and this was the main reason how it came about that the CBC license was revoked in August 2020. Although the new business plan proposed was to transform the ‘boutique’ investment bank into a retail bank, meeting the MCR and the accumulated losses were the main obstacles to building trust and running the business.
Sadly, the revocation of the CBC license attracted the press, which contributed to negative publicity on the Islamic finance industry. The press’s focus was mainly on the bid by former Goldman Sachs Southeast Asia chairman Tim Leissner’s application in 2016 to buy the bank which was not acceded by the Bank of Mauritius (BoM) and CBC being allegedly connected with the 1MDB scandal. Rather, the focus should have been on the existing clients who have opted for interest-free transactions and who are now forced to engage in interest-based transactions.
Preview of 2021
While the setting-up and running of an Islamic bank in Mauritius is becoming more expensive, the rise of big data and artificial intelligence can help Islamic finance to reduce its operational costs in the long run. The Finance (Miscellaneous Provision) Bill 2020 now allows for Islamic digital banks, which could be an opportunity for established overseas digital Islamic banks to widen their operations. The 2020/2021 budget also provides for the introduction of new enhanced financial products such as digital currencies, insurance wrappers, variable capital companies and Sukuk. An inaugural Sukuk issuance could be the game-changer for the Islamic finance industry in Mauritius.
Mauritius with a friendly Islamic finance regulatory framework has significant potential for the industry, which could be either to start with a finance company or for overseas Islamic banks to incorporate a branch. Furthermore, being the bridge to Africa, the potential of Islamic finance is considered significant business avenues for its financial center. The future of Islamic finance in Mauritius is now in the hands of the policymakers and industry players.
Dr Aleem Ramankhan is the managing partner of Barnes Associates. He can be contacted at [email protected]