Following the announcement of the Government on peer-to-peer lending and funding in the 2017-2018 Budget, the Mauritian Financial Services Commission ("Commission") has issued draft rules on 10 November 2017 to regulate the peer-to-peer lending sector – as sector which has grown rapidly in other countries.
In the region, Kenya and Africa are leading in the peer-to-peer business lending market. According to a study conducted by the University of Cambridge, within Africa, South Africa had the largest number online alternative finance platforms, with $15 million raised in 2015 (The Africa and Middle East Alternative Finance Benchmarking Report, February, 2017). The study found that the lack of bespoke regulatory regimes and specific alternative finance policy developments is affecting the growth of the alternative finance industry in Africa.
The draft Financial Services (Peer-to-Peer Lending Rules) 2017 ("draft Rules")
Borrower and lender – a borrower must be a resident in Mauritius; however, there is no residency requirement for the lender. The draft rules impose limits on the amounts which can be lent by the lender in a given period.
Restrictions on amounts – Hence, a lender, who is a legal person, cannot lend more than MUR 500,000 (approx. GBP 11,000) in any 12 months' period. A lender, who is a natural person, cannot lend an amount in excess of 10 per cent of his income or a maximum of MUR 300,000 (approx. GBP 6,600), whichever is lower, in any 12 months' period.
P2P operator – the Peer-to-Peer operator will be licensed by the Financial Services Commission. An individual will not be able to act as a P2P operator. The P2P operator must be a body corporate established in Mauritius comprising of at least 3 directors, one whom must be a resident and independent director in Mauritius. Unless approved by the Commission, a P2P operator cannot have a bank as a shareholder.
Obligations of a P2P operator – the Peer-to-Peer operator must publish the following information on its website:
- details of how the P2P lending will operate
- measures to prevent money laundering and combatting terrorist financing
- security measures to ensure data protection
- dispute resolution mechanism.
The draft Rules also require warning statements to be mentioned on the website, namely (i) stating that the P2P lending does not tantamount to bank deposits or credits in Mauritius and therefore statutory compensation in case of loss will not apply, and (ii) the Commission does not vouch for the correctness of information published on the P2P lending platform.
The P2P operator must also publish a comprehensive description of the borrower's project on the P2P platform and if available, their latest financial statements. Where financial projections are published, they must comply with the Guidelines for Advertising and Marketing of Financial Products, issued by the Commission in 2014.
Due diligence and creditworthiness of borrowers
Before a borrower is admitted on the P2P lending platform, the P2P operator must, as a minimum, take reasonable steps to:
- the identity of the borrowers
- ascertain the fitness and propriety of the officers and controllers of the borrowers
- ensure the financial standing of the borrowers
- verify the soundness of the borrowers' projects
Establishment of an escrow account
The draft Rules provide that the P2P operator must establish an escrow account with a licensed financial institution in Mauritius. The purpose of such escrow account will be to facilitate the transfer of funds between lenders and borrowers on the P2P platform.
In addition to any obligations which a P2P operator may have under the Captive Insurance Act, Insurance Act, Private Pension Schemes Act, Protected Cell Companies Act, Securities Act, Securities (Central Depository, Clearing and Settlement) Act and Trusts Act, the P2P operator will also have to submit quarterly reports to the Commission on:
- list of lenders and borrowers
- amounts of funds transacted on the P2P platform
- credit score of borrowers
- default amount by borrowers
You can access the draft Financial Services (Peer-to-Peer Lending Rules) 2017 by clicking here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.