Structure Of The Financial System In Mauritius Finance Essay

3.1 Introduction

This chapter focuses on the Mauritian fiscal system. An lineation of the construction of the fiscal system in Mauritius is provided followed by an overview of the fiscal services sector in Mauritius.

3.2 STRUCTURE OF THE MAURITIAN FINANCIAL SYSTEM

A fiscal system is made up of fiscal establishment, fiscal markets and fiscal instruments. The construction of the Mauritian fiscal system is classified into three constituents as shown in the diagram below.

Fiscal System

Fiscal establishments Financial Markets Financial instruments

-Banks -Money market -Deposits

-Non-bank -Foreign exchange market -Equities

-Stock market -Debentures

-Debentures & A ; rights market -Bills

-Bond market -Bonds

Mauritius has a well-developed and quite big domestic fiscal system and a emerging offshore sector. Mauritius fits into a choice group of developing states where domestic bank assets represent about 100 per centum of Gross Domestic Product ( GDP ) , and contractual nest eggs go beyond 40 per centum of GDP. The turning offshore sector is besides big comparative to GDP, but weakly integrated with the domestic economic system. The cardinal fiscal sector substructure, such as securities trading, payment and colony systems, is well-organized and modern. Entree to fiscal services is truly high, with more than one bank history per capita and widespread subdivision banking and Automated Teller Machine ( ATMs ) .

In the late 1980 ‘s and early 1990 ‘s, the Mauritanian fiscal sector was marked by the procedure of fiscal liberalisation. Market deregulating and liberalisation was of import in order to develop and revise the fiscal services sector. Market reforms were necessary for the development of the fiscal services sector which now includes an array of establishments every bit good as well-established Bankss, insurance and pension companies, stockbrokers, investing companies, non-bank deposit-taking establishments, renting companies, recognition establishments, money modifiers and foreign exchange traders.

In order to travel to the following stage in fiscal sector development, Mauritius needs to spread out its fiscal sector.

3.3 THE Banking SECTOR

The banking sector is the most critical component of the fiscal sector in Mauritius and at end-December 2009 ; it encompasses 18 Bankss engaged chiefly in conventional commercial banking activities. A to the full fledged Islamic bank has been licensed but is yet to get down operations. Banks stay the major beginning of financess for existent sector operators and the economic system at big. The connexion which exists between the existent sector and Bankss are bi-directional. The Bank of Mauritius regulates all Bankss under the Banking Act of 2004 and provides for a individual banking licence.

Table 3.1: Development OF THE BANKING STRUCTURE IN MAURITIUS

June 2000

June 2002

June 2005

June 2007

June 2009

Number of commercial Bankss

10

11

11

19

18

Number of subdivisions

145

147

159

178

195

Entire assets ( Rs Million )

109866

134677

191128

234943

303091

Number of dwellers per subdivision

8144

8230

7717

7081

6472

( Beginning: Bank of Mauritius )

Harmonizing to Table 3.1, the figure of Bankss has grown well to the last decade.Number of dwellers per subdivision has fallen which may connote better banking services

Mauritius has an oligopolistic banking construction with two Bankss intriguing a most of import portion of the market viz. the Mauritius Commercial Bank Ltd and the State Bank of Mauritius Ltd. Banks make several services to the state. Besides offering traditional banking services, they offer card-based payment services such as debit and recognition cards, give phone banking and cyberspace banking installations.

Specialized services such as tutelary services, fund disposal, structured loaning, trust territory, structured trade finance ; international portfolio direction, private client activities, investing banking, exchequer and specialized finance are besides offered by Bankss. The international Bankss propose a wide scope of worldwide banking and fiscal services to corporate, institutional and private clients..

The IMF ‘s February 2010 Article IV Consultation Report noted that the “ banking system withstood the impact of the planetary fiscal convulsion. Banks conservative concern patterns and their strong balance sheets have kept the fiscal system sound. Liquidity, capital adequateness, and profitableness of the banking system remain sound and the system appears resilientaˆ¦banks remain good capitalized. They were non keeping toxic assets and fund operations through domestic sedimentations ( two-thirds of entire liabilities ) instead than big scale inter-bank foreign adoption. A big portion ( one-third ) of entire sedimentations is held in liquid or near-liquid assets. ”

3.3.1Contribution of the banking sector to GDP

Commercial Bankss have been the most important depositary establishments and the major provider of loanable financess to the private sector. The chief property of the Mauritian banking system is that there are few Bankss with a deep concentration of banking activity in two of them. Predating to the moving ridge of liberalisation in the 1990 ‘s the activities of the banking sector were highly regulated and controlled but the commercial Bankss still played a major place in the fiscal intermediation process given the deficiency of other fiscal establishments and fiscal markets.

Figure 1: Contribution Of Banks to GDP

( Data beginning: BOM one-year studies )

The chart above demonstrates the positive nexus between GDP and commercial Bankss ‘ claims on private sector. Commercial Bankss are still used although in an indirect manner to put to death policies of the authorities.

3.4 THE STOCK EXCHANGE OF MAURITIUS

The Stock Exchange of Mauritius Ltd ( SEM ) was incorporated in Mauritius on March 30, 1989A under the Stock Exchange Act 1988, as a private limited company responsible for the operation and indorsement of an efficient and regulated securities market in Mauritius.A Since October 6th, 2008, the SEM has become a public company, and over the old ages the Exchange has witnessed a important inspection and repair of its operational, regulative and proficient model to reflect the ever-changing criterions of the stock market environment worldwide.

SEM is today a member of the World Federation of Exchanges ( WFE ) and one of the taking Exchanges in Africa. In 1997 major invention and technological alteration took topographic point ; the cardinal depositary system ( CDS ) was implemented. The system brought approximately liquidness, efficient glade and colony of trades and besides, decrease of intrinsic hazards.

The SEM operates two markets: theA Official Market and theA Development & A ; Enterprise Market ( DEM ) . The Official Market started its operations in 1989 with five listed companies and a market capitalisation of about USD 92 million. Presently, there are 37 companies listed on the Official Market stand foring a market capitalisation of about US $ 5,484.30 million as at 30 November 2010. The DEM was launched on 4 August 2006 and there are soon 50 companies listed on this market with a market capitalisation of about US $ 1,801.48 million as at 30 November 2010.

TABLE3.2: MAIN STOCK MARKET HIGHLIGHTS

Year

1989

1993

1997

2001

2005

2007

2008

2009

No of listed COs ( equities ) ( terminal of period )

6

29

42

40

41

41

40

40

No of listed COs including unsecured bonds

6

30

46

46

42

41

40

40

Market capitalisation ( terminal of period ) Rs Million

1.4

14.9

36.9

32.1

80.0

173.0

109.3

151.2

Semdex

117.34

302.6

391.12

340.92

804.0

1852.2

1182.7

1160.8

Semtri

118.95

375.5

557.28

626.75

1951

4868.6

3233.7

4712.7

Sem-7

74.65

175.4

477.4

267

360.7

Annual Turnover Rs Million

14.3

691.6

2996

3292

4547

11825.5

11405

10473

P/E ratio

6.56

13.64

12.86

5.91

7.98

13.26

6.17

10.74

Dividend yield %

5.42

3.09

3.62

8.30

4.64

2.8

5.14

3.5

Weekly frequence

1

2

3.5^

5

5

5

5

5

( Beginning: Stock market of Mauritius fact book 2009 )

As can be noted from the above chart, the figure of listed company rose from 6 to 40 in the 20-year period. The per centum alteration in market capitalisation rose continuously but it declined in 2008 due to the planetary fiscal crisis. The SEMDEX, which is the all-share monetary value index, reached its all clip high in 2007. The public presentation of the local stock market was on mean satisfactory despite the international economic environment prevailing. This was due to the stableness in the economic system and attractive investing chances.

3.4.1Contribution of SEM to GDP

The figure below shows the part of stock exchange of market in footings of market capitalisation and turnover as a ratio of GDP. Market capitalisation to GDP was approximately 4.32 % in 1989 and it increased increasingly until 1998 this indicates the efficiency of the stock exchange of Mauritius since its launching. In 1999 and 2001, the ratio fell harshly to 24.33 % . From 2002 onwards, it increased and reached 74.93 % in 2007. There was a utmost autumn in 2008 due to the planetary fiscal crisis but it started mounting up in 2009. Market capitalisation is expected to increase quickly in the close hereafter and develop as the chief subscriber to economic growing.

Figure 2: Contribution of Stock exchange of Mauritius to GDP

( Data beginnings: the stock market of Mauritius Ltd fact book 2009 )

Employee turnover to market capitalisation ratio was merely 0.97 % in 1989 but though it increased bit by bit over old ages, it fell in 2002 but rose once more in 2003 and was at it highest in 2008.

Last, turnover/GDP ratio is a step of trading relation to the size of the economic system. It equals the value of traded portions on the stock market as portion of GDP. This comparative step was really small in 1989. It is a slow subscriber to GDP because boulder clay 2009 it contributed approximately 3.78 % to GDP. This may reflect low liquidness in the market that can make deterrences to hanker tally investings since illiquid markets do non supply a ready issue options for investors.

3.5 THE OFFSHORE SECTOR

Mauritius ‘ seaward fiscal centre has grown rapidly since its beginning in 1988, but remains little compared to the more accepted legal powers. The Global Businesss are licensed and supervised by the Financial Services Commission ( FSC ) . Global concerns are attracted to Mauritius by a really low revenue enhancement environment supported by modern business-friendly statute law for planetary concern, 26 dual revenue enhancement turning away pacts, capital flows and exchange convertibility, policies prefering unfastened trade, comparatively low rewards, good telecommunications, a multilingual work force, and location.

The reported turnover from Management Companies ( MCs ) grew by 30.1 % over the old twelvemonth, amounting to a sum of USD 118,183,149, as shown in Table 3.3.

TABLE3.3: Summary of fiscal consequences of Management companies

( 2004-2008 )

2004

2005

2006

2007

2008

Employee turnover ( thousand USD )

39,940

48,646

64,302

90,845

118,183

PBT ( thousand USD )

12,214

21,042

28,328

38,479

48,167

( Beginning: BOM )

During the period under reappraisal, the sum reported Net income before Tax ( PBT ) generated by MCs recorded a 25.2 % addition over the old twelvemonth, to make USD 48,166,667. The 10 taking MCs accounted for 64.9 % of the entire turnover.

The sector does non presently represent a systemic hazard for the domestic economic system, while it does pretense reputational hazards associated with money laundering or the funding of terrorist act. The governments are cognizant of these hazards, and are taking stairss to relieve them. The governments have announced their purpose to use a phased integrating of the onshore and offshore sectors, with the aim of eventually holding a individual fiscal centre that provide to both domestic and planetary concern.

However, the hereafter of this sector is really considerable and is believed to play a prima function in our fiscal sector and besides contribute significantly to GDP.

3.6 THE INSURANCE SECTOR

The Mauritanian insurance sector includes one of the nucleus of the Non banking fiscal establishment ( NBFIs ) and it has been identified by the authorities as an country of high growing potency and with a high capacity of doing a of import part to the economic system.

The insurance industry in Mauritius is regulated and supervised by the Financial Services Commission ( FSC ) . As at 30 June 2009, 18 active insurance companies were in operation and one insurance company was in a overspill state of affairs. In add-on, Shariah ‘ compliant insurance merchandises have been introduced in the market.

Insurance concern is divided into 2 chief categories, viz. :

Long term Insurance Business, and

General Insurance Business

Long Term Insurance concern is defined as intending life confidence concern, pensions concern, and lasting wellness insurance concern.

General Insurance concern comprises the undermentioned categories: fire, motor, personal accident, conveyance, assorted, and any other category non reffered to in the definition of Long Term Insurance concern.

Figure 3: Entire assets of Insurance Sector

Assetss of the insurance sector which totaled Rs 65,021 million in 2008 grew by 5.4 per cent compared to growing rates of 21.6 per cent and 20.3 per cent in 2007 and 2006, severally.

Entire assets of the insurance sector, as a per centum of GDP stood at 25.9 per cent, in June 2008 compared to 28.2 per cent, a twelvemonth earlier. Gross insurance premium totaled Rs 13,826 million in 2008 compared to Rs 11,647 million in 2007, stand foring a growing of 18.7 per cent.

Growth in gross insurance premium was determined by enlargement in both long-run concern and general concern with the latter being stronger. The insurance industry is concentrated with more than 80 per cent of the gross insurance premium created by three insurance companies in the long-run concern while in the general concern line six insurance companies hold the mass of the market portion.

The industry which had posted a positive public presentation in 2008 was comparatively integral throughout the crisis as most insurance companies remained solvent. Looking further on, the awaited betterment in economic activity is expected to increase activity in the insurance industry and maintain the profitableness of that sector.

3.7 NON-BANKING DEPOSIT TAKING INSTITUTIONS ( NBDTI )

The Non-Bank Deposit Taking sector which comprised 13 operators in June 2009, experienced a singular 22.4 per cent growing in entire assets in 2008 compared to 10.7 per cent growing a twelvemonth before, although, in the first one-fourth of 2009 entire assets grew by 2.9 per cent against an 8.0 per cent addition in the attendant period in 2008. This is likely to hold resulted from the lag in some cardinal sectors of the economic system.

NBDTIs recorded credit/deposit ratio in surplus of 100 per cent to some extent because of the addition in ain financess to follow with the statutory minimal capital of Rs 200 million that was implemented in 2008. Part of the support spread was met by adoptions from Bankss. Credit granted was channeled to all economic sectors with more than 65 per cent allocated to the personal and building sectors. These two sectors besides held the largest portion in entire NPLs in the NBDTI section. The ratio of non-performing assets rose from 7.3 per cent in June 2008 to 8.3 per cent in March 2009 chiefly on history of growing of NPLs in installations granted to operators in the building sector.

3.8 OTHER FINANCIAL INSTITUTIONS

The staying establishments such as Cash Dealers, Investment Dealers, Asset Management Companies, Factoring Companies and Registrar and Transfer agents which provide fiscal services are of relatively little significance in the fiscal sector, in footings of size but they have a function to play in doing the fiscal sector complete.

3.9 FINANCIAL DEVELOPMENT IN MAURITIUS

In this subdivision we will see whether there has been fiscal development in Mauritius. To mensurate fiscal development we use four placeholders: the ratios of pecuniary sum ( M2 ) , private sector sedimentation ( BNK ) , market capitalisation ( MKT CAP ) and value traded on stock market ( VTD ) .

Some surveies Demetriades and Hussein ( 1996 ) have stressed that recognition to private sector may be a better placeholder for fiscal development. The usage of recognition to private sector is based on the premise, as noted by Levine ( 2005 ) , that “ fiscal systems that allocate more recognition to private houses are more occupied in exercising corporate control, researching houses, mobilising nest eggs, supplying hazard direction services and easing minutess than fiscal systems that merely funnel recognition to the authorities or province owned endeavors. ”

Given the laterality of the banking sector in Mauritius, bank-based steps of fiscal development are more appropriate when analysing informations from developing states because their stock markets tend to hold low activity and the majority of private economy and adoption ( in the formal market ) takes topographic point in the banking sector. Therefore, as argued in Baliamoune-Lutz ( 2003 ) , fiscal development in developing states tends to focus on on the development of money and fiscal intermediation non the development of capital markets which is more prevailing in developed states. But in the last decennary, the stock market has been a major portion of the fiscal system.

A survey by Nowbutsing ( 2010 ) found that stock market development is an of import ingredient for growing in Mauritius. Thus the stock market can besides be used to mensurate the extent of fiscal development in Mauritius. We can research the effects of two facets of stock market development as indicated by entire market capitalisation and value traded on stock market ( combination of size and liquidness ) .

TABLE3.4: Indexs of Financial development

Year

M2/GDP

BNK/GDP

MKT CAP/GDP

VTD/GDP

1999

0.5785

0.8041

0.3861

0.00079

2001

0.5894

0.7966

0.2433

0.00105

2003

0.5618

0.8342

0.3255

0.00107

2005

0.6259

0.9157

0.4318

0.00147

2007

0.6170

1.0161

0.7349

0.00109

2009

0.6657

1.0804

0.5510

0.00082

[ Beginning: BOM, SEM Fact book 2009. ]

The indexs of fiscal development calculated in the tabular array above indicate that fiscal deepening has taken topographic point in Mauritius. They besides indicate that banking development has taken topographic point in Mauritius even after the constitution of the stock market.

3.91 Effectss of the planetary fiscal crisis on the fiscal sector of Mauritius.

The Mauritius fiscal system is a bank-based 1 as Bankss represent about 70 % of the entire assets. Although the crisis started in 2008, Mauritius experienced a lagged consequence and started to confront important effects. In early 2009, harmonizing to the Financial Stability study of bank of Mauritius, the fiscal crisis did non hold important direct impact on the Mauritanian Banking Sector because it does non hold any direct exposure to toxic debt that has affected planetary fiscal markets.