Mauritius - a hidden investment for Islamic Finance

Mauritius, a sm

all island situated off the East coast of Africa, is one of the world's top luxury tourism

destinations and a hidden investm

ent destination for Islamic

finance. Once a French and later a British colony, M

auritius has a hybrid legal system

combining both the civil and com

mon

law practices, governed by principles derived from

the French 'Code Napoleon' and the British com

mon law. As early

as 1941, provision was included in its law for what was originally called the M

uhamm

adan Waqf Ordinance,

which later became the W

aqf Act, enabling M

uslims to bequeath property

in perpetuity for charitable, pious or religious purposes. M

auritius, strategically located in the Indian Ocean, has built a solid reputation as a prem

ier international business hub, providing operational security and com

mercial flexibility to investors over

the past 2 decades. Mauritius ranks 20th

in the list of ease of doing business. The island has m

anaged to sell itself as African, Indian, Chinese, French and British sim

ultaneously. Its trading partners essentially are the European Union, India, China, South Africa and the United States - long trading relationships dating back to the early settlers and the post colonization era. Cape of Good Hope (Cape Town, in South Africa) and M

auritius were known to sailors as early as 1497. The M

auritian economy, historically

based on sugar production, has moved

to a far more diversified econom

y. It has expanded into textile and clothing, tourism

and more recently in financial

services to fully integrate the global econom

y.

SUKUK

By: D

r. Muniru

dd

een L

allm

aho

mo

od

ISLA

MIC

FINA

NC

E IN

MA

UR

ITIU

S:

TH

E H

IDD

EN

IN

VE

ST

ME

NT

D

ES

TIN

AT

ION

About Dr. Muniruddeen Lallm

ahomood

Dr. M

uniru

dd

een L

allm

aho

mo

od

is th

e A

ctin

g C

hie

f

Executive Officer of Century Banking Corporation Ltd,

a fully-fledged Islamic Bank in M

auritius. Among his

many educational qualifications are a Doctor in Business

Administration from

the University of South Australia and a Professional Certificate of Certified Sharia Advisor and A

ud

itor fro

m th

e A

cco

untin

g &

Aud

iting

Org

aniz

atio

n fo

r

Islamic Financial Institutions (AAOIFI). His lengthy work

experience includes Consultant in Islamic Finance at the

Central Bank of Mauritius, Auditing and M

anagement

Consultant. He is also a guest professor in Islamic

finance at Paris-Dauphine University and the University of Strasbourg.

46 w

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47

SUKUK

received the attention of the Mauritian

government. In line w

ith the government’s

Minister announced several changes

in the 2006 budget. The Banking Act 2004 w

as amended to include Islam

ic Banking Businesses. According to the G

uideline for Conducting Islamic

Banking Businesses issued by the Bank of M

auritius (BoM) in 2008, all

existing licensed banks were deem

ed

the concept of Islamic W

indows. The

Guideline also sets the requirem

ent of a Shari’ah advisor or Shari’ah supervisory

Islamic banking businesses.

The Mauritian governm

ent also recognized that given the nature and

they tended to attract more tax than

their counterparts. The overall policy approach w

as to align the tax treatment

of Islamic contracts w

ith the treatment

policy, the Finance Act of 2009 waived

the imposition of double stam

p duties in Islam

ic transactions involving real estate and m

ovable property. The same year, the

BoM becam

e a full mem

ber of the Islamic

Financial Services Board (IFSB), and the Financial Services Com

mission opted for

the Associate Mem

bership (FSC 2010). M

auritius became thus the second non-

Islamic country after Singapore to join

the IFSB. In 2011, the BoM m

ade another leap w

hen it joined the International Islam

ic Liquidity Managem

ent Corporation (IILM

C). In the same year,

the Mauritius Revenue Authority issued

a statement of practice for M

urabaha to avoid double value added taxes (VAT). M

eanwhile, new

actors, products and services started to em

erge in the market.

In 2008, the British American Insurance

launched its Islamic life Insurance

(Takaful) and the Mauritius Leasing Ltd

and services in 2009. In the same year,

HSBC Bank (Mauritius), w

hich solely

an Islamic w

indow under the w

orldwide

HSBC Amanah brand in M

ay 2009.

In March 2011, Century Banking

Corporation Ltd, a joint venture between

British American Investm

ent, a local based com

pany and Domasol, a M

alta based com

pany, began its operations as

2013). While the w

ealth managem

ent unit of the dom

estic Hong Kong and Shanghai Banking Corporation Ltd started to distribute Shari’ah G

lobal Equity Fund in the local m

arket, the Islamic W

indow

HSBC Amanah ceased operation in June

2012. M

auritius as a strategic Global Business

Centre in the Indian Ocean region w

hich com

bines the advantages of a traditional

for treaty based tax planning through its netw

ork of double taxation avoidance

vehicle for tax structuring and planning under tw

o categories of Global Business

Companies (G

BCs) license - GBC1

income tax of 15%

. However, com

panies or funds holding a Category 1 G

lobal

at a maxim

um rate of 3%

and can end up paying no incom

e tax depending on the foreign tax credit. Dividends paid by a M

auritian company are exem

pt from

tax and no capital- gains tax exists other than on sale of im

movable assets in

Mauritius. M

auritius as of today has an active double taxation agreem

ent (DTA) w

ith 41 countries.

for international investors, it could also

are only three Shari’ah global funds dom

iciled from the local jurisdiction.

Other opportunities in the sector include

the issuance of Sukuk. The island is an ideal location for setting up an SPV as the issuer in a Sukuk transaction. All SPVs w

ill be enforceable in Mauritius. In case

of dispute, the court in Mauritius w

ill give

by the parties and the parties can have recourse to the Privy Council in England w

hich is the ultimate court of appeal.

Mauritius exhibits trem

endous potential

banking center and as a bridge to Africa. The m

easures undertaken teamed w

ith the Island’s natural advantages undoubtedly position it as an attractive investm

ent

The Mauritian

economy,

historically based on sugar production, has m

oved to a far

economy. It

has expanded into textile and clothing, tourism

and m

ore recently

services to fully integrate the global econom

y

MAURITIUS HAS BEEN SUCCESSFUL IN ACHIEVING

A RAPID GRO

WTH

RATE WHICH CAN BE ATTRIBUTED TO

THE COM

PREHENSIVE ADJUSTM

ENT PROG

RAMS LAUNCHED BY THE G

OVERNM

ENT IN THE EARLY 1980s. O

VER THE PAST TWO

DECADES REAL GDP G

ROW

TH HAS AVERAG

ED ABOUT 4-6%

PER YEAR, LEADING TO

A RISE IN PER CAPITA INCO

ME. ITS G

DP GRO

WTH RATE (ANNUAL %

) WAS LAST

REPORTED AT 3.3%

IN 2012 WHILE THE “FINANCIAL AND INSURANCE

ACTIVITIES” EXPANDED BY 5.7%, HIG

HER THAN THE 5.5% G

ROW

TH PREVIO

USLY ESTIMATED (STATISTICS M

AURITIUS, MARCH 2013 ISSUE).

48 www.businessislamica.com