After the general failure of the old style of Islamic investment banking following the global financial crisis, the general consensus seems to be that the future of Islamic finance’s growth and development will come from the retail sector. Growth can be expected to be seen at a retail level in mostly Muslim countries around the world. The surprising announcement that Mauritius’s central bank, The Bank of Mauritius, expects there to be an active Islamic bank in the island by the end of the first quarter of this year took observers by surprise. Like other budding financial centres around the globe Mauritius is pitching itself as a financial services hub, in Mauritius’s case one that bridges Africa with India and from there the rest of Asia.
The new banking license was issued to Deen Banking Corporation Ltd, which has subsequently been renamed Century Banking Corporation Ltd, a joint venture between the Mauritius Leasing Company Ltd and a leading Qatari bank, which is investing in the project through a Maltese company structure. The Mauritius Leasing Company, part of the British American Investment Group, has for some time offered Shari’ah compliant leasing products under an Ijarah structure. The license issued is a general banking license which allows the entity to undertake both retail and investment banking activities. It is believed that Century Banking Corporation will focus on investment banking activity primarily in Africa.
This is the first new banking license to have been issued in Mauritius since 2007 when AfrAsia Bank came into being as a boutique corporate and private bank under the leadership of Canadian CEO James Benoit.
In 2007, the Banking Act in Mauritius was amended to cater for Islamic banking activities and the Bank issued the first Islamic banking license in October 2009 to cater for the approximately 18 per cent of the 1.2 million Mauritian population that is Muslim. Building a sustainable Islamic retail banking model that is profitable to service just over 200,000 Muslims in the Indian Ocean island is a big task and one that would have been altogether impossible if it were not for the Bank of Mauritius’s plans to introduce short term liquidity instruments, according to Mr. Rundheersing Bheenick, the embattled governor of the Bank of Mauritius.
Bheenick said, ‘we granted our first Islamic banking licence in the Mauritian jurisdiction in October 2009 which was a major step in translating the vision of the Authorities to provide an alternative mode of financial intermediation, thus enhancing the options available to bank customers. We expect the bank to be operational by the end of Q1 2011.’ Generally speaking a bank in Mauritius is expected to use its new license within 12 months of receiving it. Clearly Century Banking Corporation has taken more than one year to become active but this seems not have stood in the way of its progress.
The central bank hopes not only to position Mauritius as a conventional financial hub but as a hub for Islamic finance. As Bheenick says, ‘We have taken some decisive steps forward in our quest to make Mauritius a centre of high quality Shari’ah compliant financial services’. Banks already operating in Mauritius include AfrAsia Bank, State Bank of Mauritius, Standard Chartered, HSBC and Barclays. Aside from retail lending and deposit taking the main banking activities of the island centre on trade finance, foreign exchange, custody and lending to projects.
The first Mauritian move towards embracing Islamic finance dates from its membership of the Islamic Financial Services Board in November 2007 which was followed by its membership of Kuala Lumpur-based International Islamic Liquidity Management Corporation. It is this latter membership that gives Mauritius access to Shari’ah compliant financial instruments for better liquidity management. The IILM is a multinational Islamic finance institution with 11 members other than Mauritius including Iran, Malaysia, Kuwait, Luxembourg, Nigeria, Qatar, United Arab Emirates, Sudan, Turkey, Saudi Arabia and the Islamic Cooperation for the Development of the Private Sector.
The Bank of Mauritius also entered into a Memorandum of Understanding with Bank Negara Malaysia, the central bank of Malaysia, on 7 October 2010 during the IMF/World Bank Annual Meetings 2010 in Washington DC which Mauritius hopes will help it build a more robust set of Islamic finance and banking skills of its own. Such enhanced skills will allow the Bank to sharpen its regulatory and supervisory oversight of Islamic banks in Mauritius.
Century Banking Corporation, once it starts operations, will not be the first Islamic finance institution in the island. On the Islamic finance front HSBC Mauritius opened an Islamic finance window in March 2009 although the intention of the bank was not to capitalise on what demand there was for Shari’ah compliant retail products since from 1998 the small Muslim community of the island has been served by the Al Barakah Cooperative Society Limited, an Islamic co=operative credit union, which offers various tailor-made Murabaha schemes, a Hajj savings account and Istisna’a financing. Rather HSBC’s offering has been more in the investment banking line and other restricted offshore business.
Doubtless HSBC has its eye on the prize of Africa: as Sameer Tegally from law firm Conyers Dill and Pearman told The Islamic Globe, ‘there are huge opportunities for Mauritius to play a leading role in Islamic finance in Africa’ in areas like project finance. ‘The government is rolling out the red carpet for anyone who wants to conduct Islamic finance business in Mauritius. I hope this (issuance of a new banking license) will pave the way for others to follow. There is a huge opportunity to be tapped.’
In October 2010 India’s Tata launched the Tata Indian Shariah Equity Fund through Tata Asset Management (Mauritius) Private Limited (TAMM), which is also the fund manager. According to TAMM, the offering is a diversified open-ended equity fund investing in Shari’ah compliant equity or equity-equivalent listed Indian companies. The choice of Mauritius as the fund domicile is a direct result of the central bank’s efforts to position the island as a Shari’ah compliant hub.
As indicated above, over recent years Mauritius has promoted itself as an offshore banking centre and an Islamic capital markets hub. Tata's entry into the Islamic asset management arena coincided with a visit of the Indian Prime Minister, Manmohan Singh, to Kuala Lumpur at the end of October 2010.
Just over five years ago the government of Mauritius instigated a series of sweeping economic reforms using Singapore as a model, including introducing a series of double-taxation treaties with China, India, Singapore and other countries. As a member of African trade bloc Mauritius allows access to markets on a duty-free basis and therefore became a competitive destination for businesses and investment funds. More than $50 billion of investment funds is based in Mauritius spread over 550 individual funds, several of which are Shari’ah compliant funds. Mauritius also offers structuring opportunities for Islamic Trusts, Protected Cell Companies for wealth management entities and Sukuk.
The hope would be that the Islamic finance market in Mauritius can grow from its retail roots and expand into more exotic capital markets activity since other nations around the world have already learned the expensive lesson of starting at the top and working down rather than from the bottom up. The uncertainty surrounding any such growth is more a factor of the tiny size of the Muslim population than any suggestion of lack of commitment from the players involved. What remains certain is that the unfolding of the Islamic finance market in Mauritius will be one that will be closely watched by all similarly positioned nations around the globe for the next couple of years.