Budget 2018/2019 priorities : embracing FinTech and Making of Mauritius a Hub for Africa

Among the other priorities of Budget 2018/2019, there is the emergence of FinTech and making Mauritius a hub for Africa, the further opening of our economy to the world and investment in our youth so that they are well armed to face future challenges. These are major challenges that require robust incentives and measures. Will the Budget provide the necessary boost? 

The date of the presentation of the next 2018/2019 Budget is now known. Prime Minister and Minister of Finance Pravind Jugnauth will unveil his economic strategies for the next fiscal year on Thursday 14 June 2018. This week, News on Sunday continues with its Budget priorities series. Among the 10 top priorities, FinTech occupies an important place as it is considered a highly emerging sector with huge potential.

Secondly, the objective of making Mauritius a financial hub in the region will certainly see major steps taken in this direction. The government also wants to further open up our economy to the world and invest in our young people so that they have a better tomorrow. All these objectives are interlinked because the achievement of one will lead to positive impact on the others.

FinTech is a field that would contribute to further opening our economy as well as unearthing exciting opportunities for budding young entrepreneurs and fresh graduates. But what is FinTech exactly about? In brief, FinTech is today what BioTech was at the beginning of this decade.

FinTech, the abbreviation for financial technology, is a broad category that refers to the innovative use of technology in the design and delivery of financial services and products. The application of FinTech cuts across multiple business segments, including lending, advice, investment management and payments. Many FinTech companies harness mobile technologies, big data and superior analytics to tailor products for various customer segments.

The proliferation of FinTech can have number of positive impacts for society, such as increased competition, a reduction in prices paid by customers and wider access to financial services among the traditionally underserved. And the evolution of FinTech is only at its infancy in Mauritius. Both start-ups and traditional finance companies are active in FinTech.

It should be noted that FinTech start-ups generally do not operate like a full-fledge bank or insurer, they tend not to be subject to the same regulations that govern more traditional players in the financial system.

Existing regulatory framework is geared towards supervising more traditional financial services providers who can be more easily categorized as banks, insurers and asset managers. However, the Financial Services Commission has recently set up a Committee on FinTech. 

Opening of the economy

Economic growth depends largely on the openness of the economy to the world. Mauritius has been advocating for greater openness since 2006 and one of the priorities of the Budget is to open up more. Note that all our sectors are not open to the same degree on the rest of the world.

There are still protected sectors shielded from foreign investment. The opening of our economy has allowed tens of billions of rupees of foreign direct investment to enter the economy. Morocco is the most cited African country as an example of success after the opening of its economy to the rest of the world.

Morocco, like other countries in North Africa, has made significant progress in a number of areas. It is a country that has chosen a liberal model with a strong external openness oriented particularly towards Western countries. In Mauritius, the property sector has been made highly accessible to foreigners.

Fintech Committee 

A Fintech and Innovation-driven Financial Services Regulatory Committee has been set up in February 2018. It comprises of the following members:

1. Lord Meghnad Desai, House of Lords, UK;
2. Lord St John of Bletso, House of Lords, UK;
3. Ms Loretta Joseph, Chair of the Australian Digital Currency and Commerce Association;
4. Mr Nishith Desai, Founder of the Nishith Desai Associates Law Firm in India;
5. Mr Yandraduth Googoolye, Governor of the Bank of Mauritius;
6. Mr Harvesh Seegolam, Chief Executive of the FSC; and
7. Mr Rajesh Sharma Ramloll S.C., Deputy Solicitor General, Attorney General’s Office, Mauritius. 

Under the chairmanship of Lord Meghnad Desai, the discussions of the Committee at its first meeting were centred on positioning Mauritius as a regional hub of sound repute in the field of Fintech Regulations by:

1. Building an open and transparent regulatory regime for Fintech in Mauritius which encourages innovation;
2. Exchanging information with other recognised regulatory authorities to contain any kind of illegitimate activities;
3. Keeping cognisance of the best technological innovations and ensuring that Mauritius is at pace with the latest technological advancements in the Fintech ecosystem; 
4. In regulating blockchain-related activities, it will take into account the use of latest technology that will prevent hacking and other kind of frauds; 
5. Recognising the potential benefits of blockchain technology on the economy and society, and encouraging its development;
6. Considering incentives to attract Fintech activities to Mauritius; and
7. Reflecting on the possibility of establishing a sovereign fund in Mauritius to provide seed capital for the development of Fintech activities in the region.

Some Fintech examples

1. Crowdfunding : Ulule, KissKissBankBank, Sponsorise.me
2. Crowdlending : Pretup, credit.fr
3. Crowdlending equity : WiSEED, Anaxago, SmartAngels
4. Neobank : Soon, N26, Compte Nickel
5. Mode of payment : PayPal, Morning, PayTop
6. Asset management : Yomoni, Advize, Fundshop  

YEP excludes ‘Below SC’

The Ministry of Labour, Industrial Relations, Employment and Training has last Friday decided that the Youth Employment Programme (YEP) will henceforth be limited to Mauritian youths holding Higher School Certificate (HSC), Diploma holders and Degree holders.

Those holding School Certificate (SC) and below SC will no longer be eligible. This decision is a big blow to youngsters below SC who will be denied the opportunity to gain work experience under traineeship. Ironically, they are the group that needs assistance to make them employable because they lack qualifications. According to statistics, nearly 42 percent of unemployed persons are below 20 years old.

Nearly 33 percent of total unemployed persons have not reached the SC level. Observers feel employers might be reticent to employ youths who have not studied up to SC if they cannot benefit from the YEP scheme. Readers will recall that the Prime Minister recently stated that he is not satisfied with the rate of unemployment and that efforts must be made to further reduce the unemployment rate.

Yet, this decision is contrary to the objective of the government which aims to ‘invest in our youth’. Despite the communiqué, the YEP website is still showing the category of ‘Below SC’ as eligible for the programme.

Dr Bhavish Jugurnath : “An enabling legislation, better education and higher innovation”

Dr Bhavish Jugurnath, economist and financial consultant,  states that FinTech, the merger of finance and technology, has the potential to provide financial services faster, more efficiently, more conveniently, and more cheaply to everyone, including the historically underserved.

“Mauritius, considered to be a great emerging financial hub in Africa, hosts one of the best financial minds coupled with a brigade of techies. If channelled properly with some major reforms by the Government and regulators, Mauritian financial domain could grow in leaps and bounds,” says the economist.

He makes three proposals to the government for bringing ‘Acche Din’ in our local FinTech space:

Financial Innovation Act

The government should introduce a Financial Innovation Act to promote innovation in financial services, this legislation would provide a regulatory safe-space to allow companies, in conjunction with regulators, to test products in a limited launch.

This change would provide data to regulators that could be used to craft regulation for similar products, while enabling industry, consumers, and government officials to benefit from real world-experiences, similar to the so-called ‘sandbox’ approach taken by the UK.

To do this, the bill requires several government and para-statal agencies to develop internal “Financial Services Innovation Offices” and establishes procedures to fast-track approvals or rejections for Fintech products.

Financial Education for Techies 

Fintech space is going through a major high quality resource crunch. Very few engineers know about finance. Hence the workforce becomes scarce and costlier. This is another barrier for growth of Fintech companies.

Basic financial education should be made an integral part of the curriculum for engineers. Going another step forward, basic software coding should be taught to finance graduates. We should encourage cross learning for high quality and affordable work force.

Regulatory environment that enables innovation (regulatory Sandbox)

We need a regulatory environment that provides consumers with confidence while not unnecessarily restricting the opportunities for innovation. A ‘regulatory sandbox’ has the potential to encourage and support the design and delivery of new financial products and services that benefit consumers and businesses.

I believe that a ‘sandbox’ is a crucial component to assist Mauritius become a leading market for FinTech innovation in Africa. The Government needs to work on the development of a ‘regulatory Sandbox’ for Mauritian FinTech startups.

With a ‘regulatory Sandbox’, FinTech innovators can overcome regulatory uncertainty and costs that may otherwise see innovative offerings not go ahead. I believe an effective ‘Sandbox’ will enable firms to manage regulatory risks during the testing stage, reducing the cost and time to market.

At the same time, any ‘sandbox’ will need to provide for important consumer outcomes such as fit and proper checks, dispute resolution and consumer redress arrangements.

Vidur Ramdin : “Mauritius as the hottest destination for Fintech in Africa”

Vidur Ramdin, Director of Communications and Marketing at the African Solidarity Fund (ASF), says that Mauritius is a uniquely well suited location for Fintech. Mauritius growing strengths in Fintech are due to the presence of a large and technologically sophisticated customer base; good availability of business capital; a supportive regulatory approach; excellent financial services infrastructure, and its position as an African trading hub.

The Fintech industry is continuously filling the gap for which the banks cannot currently provide solutions. “FinTech is a global phenomenon which is disrupting and changing the worldwide financial landscape. The Bank of Mauritius regulates the banking sector and the Financial Services Commission regulates non-banking financial services. These institutions have been supervising the banking and financial services sectors. This has worked very well so far. Mauritius has strong financial regulations that are constantly trying to make reporting more transparent, efficient and effective,” he explains. 

Mauritius, with its sophisticated population and superior technical education, is a breeding ground for great technological talent, and resources that are cost effective. The vast majority of Africans remain unbanked and the huge movement of physical labour across Africa means this trend will continue.

Moreover, Creativity and out-of-the-box thinking has become a norm in the industry, with a cross pollination of various people coming together from different areas of expertise.

Support systems and best practices of access to networks, legal services, infrastructure, digital infrastructure and syndicated service platforms are becoming increasingly available under one roof.

“In order to bolster the thriving Fintech community in Africa, Mauritus can put in place new accelerators and incubator schemes like Techstars, Startupbootcamp, in UK, and the launch of the new Fintech industry body, Innovate Finance, which will aim to accelerate  our position in the African financial services sector,” concludes Vidur Ramdin.