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In general terms, what policy has your jurisdiction adopted towards Islamic finance? Are Islamic finance products regulated differently from conventional instruments? What has been the legislative approach?

Islamic finance has seen little development in Mauritius. Islamic finance products in Mauritius are not regulated any differently from conventional instruments, and existing legislation and regulations apply. The Mauritius approach has been to ensure a level playing field for Islamic finance products and conventional instruments, and so Mauritius has proactively monitored and responded to any unequal treatment between the two by introducing remedial legislation and regulations. For example, the government remedied the adverse tax treatment of murabahah transactions to place them on a level playing field with the conventional loans facility. Despite all the efforts to provide Islamic financial services by the Mauritius government, the private sector has made sporadic development.

Mauritius’s banking system is governed, regulated and supervised by the Central Bank of Mauritius (BOM), while the non-banking sector is regulated and supervised by the Mauritius Financial Services Commission (FSC).

The government believes that Islamic finance should complement the existing products and services as an international financial centre. The emergence of Mauritius as an international platform for trade and business cannot be denied. The island combines the advantages of a traditional offshore financial centre with the capacity for treaty-based tax planning through its network of double taxation avoidance treaties. Mauritius has an active double taxation avoidance agreement with 44 countries.

Mauritius has also put in place the necessary regulatory framework for setting up international trusts and foundations. The BOM as the main regulator has over the years implemented several infrastructure projects such as the Mauritius Automated Clearing and Settlement System in 2000, the Mauritius Credit Information Bureau in 2005 and the Cheque Truncation System in 2011. In 2014, the BOM launched the implementation of the XBRL-based Reporting System. This year, BOM sees the necessity to implement a national payment switch. Additional measures have also been taken by the Mauritius government to enhance and facilitate a sustainable business environment, which has included the establishment of the Competition Commission of Mauritius in 2009 and the Mauritius International Arbitration Centre Limited with the collaboration of the London Court of International Arbitration in 2010.

Market development

How well established is Islamic finance in your jurisdiction? Are Islamic windows permitted in your jurisdiction?

The history of Islamic finance in Mauritius dates back to 1871 when, according to the case of Abou Baker Mamode Taher (Taherbagh) and Darne of L’Industrie in 1887, Muslim merchants entered into a profit-sharing partnership with settlers. In the modern age, in 1992, the first shariah-compliant investment fund was introduced in the country. The fund was well accepted by the Muslim community. It was designed specifically for Muslims, with the prime intention of avoiding riba. It did not require any marketing strategy to convince the Muslim depositors. The number of investors grew exponentially during the first year, which was reflected by an increasing amount of total deposits up to 70 million Mauritius rupees. The fund was mainly invested in properties and assets for trade. The business transactions went smoothly until the depositors started claiming back their money. The problem started when the organisation was unable to repay its short-term investment and respond to investors’ demand for early withdrawals. The funds were mobilised in properties and assets that could not be retrieved on demand. The local authority had to intervene for an investigation.

Prior to the regulatory changes, other initiatives to offer shariah-compliant products included microfinancing by Al Barakah Multi-purpose Co-operative Society Limited and ethical investment such as the Authorized Long-Term Ethical Equity Fund. Against the backdrop of global drivers of Islamic finance and the sanctions imposed after the 11 September 2001 attacks, the government responded to seize opportunities from the growing world of Islamic finance and the petro­dollar Islamic wealth in August 2007. A steering committee including, among others, the two main regulatory institutions, the BOM and the Financial Services Commission, started working on the subject. This led to the first of many legislative measures introduced by Parliament. The Banking Act 2004 was amended in 2007 to include Islamic banking business in the banks’ services. The Mauritius government recognises that, given the nature and structure of Islamic financial products, they tend to attract more tax than their counterparts. The overall policy approach was to align the tax treatment of Islamic contracts with the treatment of conventional financing contracts for a level playing field. In line with this policy, the Finance Bill 2009 included several changes and waived the imposition of double stamp duties in Islamic transactions involving real estate and moveable property. In the same year, the BOM became a full member of the Islamic Financial Services Board (IFSB), while the Financial Services Commission opted for associate membership. The country is therefore the second non-Islamic country after Singapore to join the IFSB. In 2011, the BOM made another leap to join the International Islamic Liquidity Management Corporation. In the same year, the Mauritius Revenue Authority issued a statement of practice for murabahah to avoid double value added taxes (VAT). The most unanticipated change in the law was the amendment of the Public Debt Management Act 2008. Section 3(a) of the act stipulates: ‘The Minister may enter into such agreement, sell, purchase or otherwise acquire any immovable property or any right therein, lease movable or immovable property and generally engage in such transactions and perform such activities as may be reasonably necessary for the purpose of issuing Sovereign Sukuks in Mauritius.’ It may be concluded that the most appropriate sukuk structure in the above clause to be issued is the sukuk al-ijarah.

Meanwhile, new actors, products and services started to emerge in the market. In 2008, the British American Investment launched its Islamic life insurance (takaful) and Mauritius Leasing Ltd offered ijarah within its line of products and services in 2009. HSBC Bank (Mauritius), which solely operates as an offshore bank, launched an Islamic window under the worldwide HSBC Amanah brand in May 2009. In 2011, Century Banking Corporation, a joint venture between British American Investment, a locally based company, and Domasol, a Malta-based company, began its operations as the first Islamic investment bank in March 2011. While the wealth management unit of the domestic Hongkong and Shanghai Banking Corporation Ltd started to distribute the Shariah Global Equity Fund in the local market (HSBC 2012), the Islamic window HSBC Amanah ceased operation in June 2012. To further drive the Islamic finance industry in Mauritius, the BOM hosted the 11th Islamic Financial Services Summit in May 2014. In the same month, Habib Bank Ltd announced its Islamic window operation alongside its existing banking business. Although every licensed bank is deemed to offer Islamic banking services through window operation, the BOM revised Habib Bank Ltd’s banking licence, which provides a note for Islamic window.


What is the main legislation relevant to Islamic banking, capital markets and insurance?

Since 2007 there has been a series of changes in the laws of Mauritius and initiatives to promote the island as an International Financial Centre with Islamic financial products. In the wake of the amendments brought to the Banking Act 2004 for the introduction of Islamic finance in Mauritius, in June 2008 the BOM published the Guideline for Institutions Conducting Islamic Banking Business (the Guideline). The Guideline, which is applicable to both fully fledged Islamic banks and window operations, sets out the broad parameters within which Islamic banking business is to be conducted in Mauritius. There is no specific Islamic legislation addressing Islamic capital markets and takaful, which are subject to general finance laws (in particular the Securities Act 2005, Insurance Act 2005, the Captive Insurance Act 2015 and relevant rules and regulations enacted under the said laws). Islamic finance transactions are subject to the same tax treatment that applies to their corresponding conventional instruments. Certain changes have been made to the laws; for example, the Registration Duty Act and Stamp Duty Act now waive the levy of multiple payments of duties on financing movable and immovable assets under the Islamic finance mode. The Income Tax Act equates interests with effective return of Islamic financing arrangements. Amendments to the laws have also removed restrictions on purchase and sale of immovable property and on investment in undertakings or joint ventures.

Insofar as accounting standards and financial reporting are concerned, the Islamic finance institutions are required to take cognisance of the set of standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions. Concerning risk management, the Bank of Mauritius requires that appropriate risk management processes be put in place and that the investment strategy of the Islamic finance institution gives due consideration to the risk profile of the financial instrument. Transparency and disclosure of material information are further principles that the Islamic financial institution must abide by.


Principal authorities

Which are the principal authorities charged with the oversight of banking, capital markets and insurance products?

The banking sector is regulated by the BOM, whereas capital markets, global business companies (offshore) and insurance sectors are regulated by the Financial Services Commission (FSC). As an attempt to make the island more competitive and a friendly financial sector, the Banking Act 2004 was amended whereby investment banking business will not fall under the category of ‘banks’ anymore, but will instead be regulated solely by the FSC.


Identify any notable guidance, policy statements or regulations issued by the regulators or other authorities specifically relevant to Islamic finance.

At present, only the BOM has issued specific guidelines in respect of Islamic finance in the form of the Guideline, and the Mauritius Revenue Authority issued a statement of practice for murabahah to avoid VAT. Islamic banks are allowed to adopt the AAOIIF Accounting Standards.

Central authority

Is there a central authority responsible for ensuring that transactions or products are shariah-compliant? Are IFIs required to set up shariah supervisory boards? May third parties, related parties or fund sponsors provide supervisory board services or must the board be internal?

As per the Guideline, it was initially allowed as an interim measure for all Islamic banking institutions (IBIs) to have a common shariah advisory board (SAB) of at least three members. The set-up of the common SAB was under the responsibility of the Mauritius Bankers Association, which was not formally established. An IBI has also the alternative to appoint a shariah adviser with experience in shariah advisory practice. The Guideline is silent on parties who are eligible to provide SAB services to the IBI as long as they meet the eligibility criteria and receive the prior approval of the BOM. The two Islamic financial institutions, Century Banking Corporation Ltd and Habib Bank Ltd have opted for shariah advisers.

Up until now there has been no central authority responsible for ensuring that transactions or products are shariah-compliant in Mauritius. Although the Guideline provides for an honorary shariah adviser, the BOM does not intend to undertake any ex ante review of the financial products to be offered by an IBI for the conformity of these products with shariah principles, as laid down by article 19 of the Guideline.

Board approval

Do members of an institution’s shariah supervisory board require regulatory approval? Are there any other requirements for supervisory board members?

The appointment of members of an SAB or a shariah adviser is subject to approval of the BOM. The Guideline also provides that if the appointment of an SAB or a shariah adviser has been approved by another regulator abroad, the Bank of Mauritius may choose to abide by this approval.

The eligibility criteria for appointment as a member of an SAB or a shariah adviser is an individual with proven experience or knowledge in the delivery of shariah rulings and issuing scholarly opinions on matters of Islamic law. He or she may be a local or foreign scholar of the highest integrity, honesty and ethical reliability.

Each member is also required to pass the fit and proper person test prescribed in section 3.2 of the Guideline on Fit and Proper Person Criteria issued by the BOM.


What are the requirements for Islamic banks to be authorised to carry out business in your jurisdiction?

Under the Banking Act 2004 it is an offence for a person to engage in banking business or Islamic banking business in Mauritius without a banking licence issued by the central bank. The requirements for Islamic banks to carry out business are the same as any conventional banks except that Islamic Banks will comply with the Guideline and guiding notes related to Islamic banking businesses.

Foreign involvement

May foreign institutions offer Islamic banking and capital markets services in your jurisdiction? Under what conditions?

By default, any foreign institution holding a banking licence is entitled to provide Islamic banking. However, it is mandatory that such activities are done through a window operation, completely segregated from the conventional activities. The minimum capital requirement of 400 million Mauritius rupees will apply in aggregate to the bank and its Islamic window. A foreign institution may also apply for a fully fledged Islamic banking licence, where the minimum capital requirement is applicable and it shall only carry out Islamic banking business. For offers in the capital markets, any foreign institutions may offer after having the approval from the FSC.

Takaful and retakaful operators

What are the requirements for takaful and retakaful operators to gain admission to do business in your jurisdiction?

The FSC governs the regulatory and supervisory regime for the non-bank financial services and global business sector in Mauritius. The FSC, established in 2001, is mandated under the Financial Services Act 2007 and has, as enabling legislation, the Securities Act 2005, the Insurance Act 2005, the Private Pension Schemes Act 2012 and the Captive Insurance Act 2015 to license, regulate, monitor and supervise the conduct of business activities in these sectors.

The Insurance Act 2005 provides that no person or corporation shall carry on, or hold himself, herself or itself out as carrying on, insurance business of any category or class, in or from within Mauritius except under the authority of a licence issued by the FSC under section 11 in respect of that category or class of insurance business (article 7(1) of the Insurance Act 2005).

Effecting or carrying out contracts of insurance (which would include takaful and retakaful) is therefore a regulated activity, which is governed by the Insurance Act 2005. The licensing requirements for takaful and retakaful operators in Mauritius would be the same as those that apply to conventional insurance and reinsurance companies under the Insurance Act 2005.

Foreign operators

How can foreign takaful operators become admitted? Can foreign takaful or retakaful operators carry out business in your jurisdiction as non-admitted insurers? Is fronting a possibility?

A foreign insurance operator can only be admitted in Mauritius either as a branch or as a registered legal entity, such as a subsidiary, subject to the relevant licence obtained under the Insurance Act 2005. Concerning the minimum capital requirement, this will depend on the type of insurance business.

For long-term insurance business, it is the higher of a stress test requirement determined in accordance with guidelines issued by the FSC to ensure that the long-term insurer remains solvent, or the higher of an amount of 25 million Mauritius rupees or an amount representing 13 weeks’ operating expenses.

For general insurance business, the minimum capital requirement is the sum of capital required for balance sheet assets, capital required for investment above concentration limit, capital required for policy liabilities, capital required for catastrophes and capital required for reinsurance ceded, as calculated under the Insurance Solvency Rules.

Disclosure and reporting

Are there any specific disclosure or reporting requirements for takaful, sukuk and Islamic funds?

There are no specific disclosures or reporting requirements pertaining to takaful, sukuk and Islamic funds. All will be similar to their non-Islamic counterparts.

Sanctions and remedies

What are the sanctions and remedies available when products have been falsely marketed as shariah-compliant?

There are no specific sanctions that may be imposed in respect of a falsely marketed shariah product. Penalties may be levied against an IBI if it has been in non-compliance of banking regulations and guidelines. However, the resulting reputational risk is much greater if regulators issue a public notice confirming such misrepresentations. Further, investors are always entitled to sue under civil law for such misrepresentation. In extreme cases, licences may be revoked in the event of serious breach to the banking licence conditions.

Jurisdiction in disputes

Which courts, tribunals or other bodies have jurisdiction to hear Islamic finance disputes?

There are no courts, tribunals or other bodies having the jurisdiction to hear Islamic finance disputes. The courts of law of Mauritius are the only recourse. In the case of a dispute, the courts in Mauritius will give effect to any arbitration clause chosen by the parties and the parties can have recourse to the Privy Council in England, which is the ultimate court of appeal.

Contracting concepts

Accommodation of concepts

Mudarabah - profit sharing partnership separating responsibility for capital investment and management.

The entry into a mudarabah arrangement is acceptable for a Mauritius entity or person, as it would be treated as akin to a partnership arrangement wherein the investor (rab-al-mal) contributes the capital and the recipient (mudarib) provides professional or managerial expertise to carry out the venture to earn a profit that is shared between the rab-al-mal and the mudarib in accordance with an agreed ratio. The mudarabah agreement, akin to a partnership, would be governed by the Mauritian Civil Code (Title 9 - The Company and the Association).

Murabahah - cost plus profit agreement.

Murabahah transactions can generally be implemented under Mauritian law. There is no restriction for Islamic banks on the use of this Islamic financial instrument in the Mauritian jurisdiction. Following double taxation issues relating to murabahah transactions, the Mauritius Revenue Authority published a Statement of Standard Practice SP5/10 in April 2010. This practice note addresses several issues, namely, the clear definition of murabahah as being a financing facility and the profit margin being equivocal to the interest element under conventional finance. This new legislation has the effect of treating the profit as interest payable during the period of the loan and, hence, qualifying for a VAT exemption. The murabahah transaction is discharged of the VAT obligation owing to its similarity to a financial transaction as per SP 5/10(3).

The bank can demand collateral in accordance with article 28(3) of the Banking Act 2004, which stipulates that any transaction with any related party involving credit has to be made on substantially the same terms, including interest rates and collateral required, as those prevailing at the time for comparable transactions with other persons. However, this may not involve more than the normal risk of repayment or present other unusual features.

Musharakah - profit sharing joint venture partnership agreement.

It is permissible for a Mauritius entity or person to enter into a musha­rakah arrangement as it is akin to a joint venture or partnership arrangement. However, care should be taken to determine whether the musharakah arrangement could fall within the broad definition of ‘collective investment scheme’ under the Securities Act 2005. To the extent that the musharakah arrangement is considered a collective investment scheme, the IFI requires authorisation from the FSC under Part VIII, article 97 of the Securities Act 2005.

A collective investment scheme authorised under the Securities Act 2005 shall pay income tax on its chargeable income at the rate specified in Part II of the First Schedule of the act.

Ijarah - lease to own agreement.

Ijarah generally refers to an operating lease. Banks in Mauritius are not allowed to carry out operating leases in accordance with article 30(3A) of the Banking Act 2004. IFIs can only carry out finance leases, which are equivalent to ijarah munthahiyah bi-tamlik (lease ending in ownership).

The law on leasing is incorporated in the Mauritian Civil Code, after article 1831 (Title 8-bis, entitled ‘Of Leasing and Financial Rentals’). A clear distinction is drawn between leasing (which, by essence, includes an option to buy) and financial leasing (where such an option does not exist).

Provisions on leasing regulate the leasing of movable and immovable property. Leasing can be resorted to, in respect of immovable property, only for operations leasing commercial property.

Provisions on financial leasing regulate the lease of movable property intended for professional use only.

Wadiah - safekeeping agreement.

Article 93 of the Banking Act 2004 lays the foundation for deposit insurance schemes, which serves the purpose of providing insurance against partial or complete loss of deposits in a bank with the view of contributing to the stability of the Mauritian financial system and minimising exposure to loss. Deposit insurance schemes guarantee depositors and depositors do not take any risk in cases where their deposits are insured. The concept of risk is minimised if not eliminated completely, with deposit insurance schemes, depending on the type of deposits covered and the ceiling of coverage. Returns are positively correlated with risk and, as risk is quite low with guaranteed deposits, such accounts are rewarded with relatively low returns. The general obligation of good faith exists under the Mauritian Civil Code, articles 16 and 17:

16 Everyone is required to exercise their rights and perform their duties under the requirements of good faith.

17 No person shall have the right to harm others or to harm out of proportion to the benefit they may withdraw.


Securities structuring

Sukuk - Islamic securities. Have sukuk or other Islamic securities been structured and issued in your jurisdiction to comply with Islamic principles, such as the prohibition of interest?

At present, there are no sukuk listed on the Mauritius Stock Exchange or issued for the domestic market in Mauritius. The requirements in relation to listings of sukuk on the Official Listing and Development Enterprise of Mauritius are governed by listing rules issued by the Mauritius Stock Exchange, which are similar to a bond. Chapter 8 (Part b: Specialist Debt Securities) of the Listing Rules caters for qualified investors, whereas Chapters 6 and 9 of the Listing Rules provide the necessary conditions for the listing of debt securities for subscription by the general public. To take advantage of certain tax efficiencies, the Mauritius Global Market is an ideal location for setting up a special purpose vehicle (SPV) as the user in a sukuk transaction. An SPV can be set up in Mauritius as a company holding a global business licence (GBL) or as a trust. A GBL holder is a tax-resident in Mauritius who can enjoy the full advantages of the double-taxation treaties signed by Mauritius. A recent example (2012) of an SPV from the local jurisdiction is the Islamic medium note (sukuk murabahah) programme of up to 5 billion Malaysian ringgit based on the shariah principle of the murabahah via tawarruq arrangement. Furthermore, the Mauritius Budget 2016 has also provided a five-year tax holiday to asset and fund managers with a mini­mum capital base of US$100 million, which offers great prospects for international shariah funds.

Legal position

What is the legal position of sukuk holders in an insolvency or a restructuring? Are sukuk instruments viewed as equity or debt instruments? Have there been any court decisions or legislation declaring whether sukuk holders are deemed to own the underlying assets?

Sukuk has various structures, which will be subject to variations in their classifications for insolvency, tax and regulatory purposes. However, typically sukuk are structured to have the same economic effect as conventional bonds (explaining the Islamic bond appellation in the market) and are treated as such for International Financial Reporting Standards (IFRS) purposes. In an insolvency involving the issuer, sukuk holders are in a similar position to that of their conventional counterparts in that sukuk holders would have a debt claim against the issuer for the outstanding face amount of their respective certificates.

The treatment of sukuk as equity or debt instruments is dependent upon their structure and the risks and rewards of the sukuk. In particular, whether the sukuk are asset-based or asset-backed could affect this analysis. It is often the case that, from the originator’s perspective, the sukuk are shown as a financial liability on its balance sheet because it retains control over the issuer entity. From the sukuk holder’s perspective, the holding would need to be classified into certain categories, such as an instrument held to maturity or a loan and receivable. Legislation now provides that, where certain conditions are satisfied, the return paid to sukuk holders is tax-deductible by the issuer consistent with the treatment afforded to conventional bondholders.

There have been no court decisions nor has there been legislation declaring whether sukuk holders are deemed to own the underlying assets.


Takaful - Islamic insurance. Are there any conventional cooperative or mutual insurance vehicles that are, or could be adapted to be, shariah-compliant?

There are no conventional cooperative or mutual insurance vehicles that could be adapted to be shariah-compliant. Takaful insurance may be implemented for conglomerates that also have an insurance company within their group. For instance, some Muslim conglomerates have the potential to provide takaful to their group, but owing to lack of expertise have not pursued such a route.

Which lines of insurance are currently covered in the takaful market? Is takaful typically ceded to conventional reinsurers or is retakaful common in practice?

Takaful has not represented a meaningful portion of the market since its launch in 2008 by a life insurer. The response of the market was not positive and the life insurer has not implemented measures to promote such a product. Reinsurance typically applies to policies exceeding a particular amount. However, it is fair to say that reinsurance is not applicable for such amounts.


Regulatory obstacles

What are the principal regulatory obstacles facing the Islamic finance industry in your jurisdiction?

There are no substantial regulatory hurdles for the Islamic finance industry in Mauritius; however, the following restrictions are worth noting.

The Civil Code of Mauritius provides that the selling of beneficial ownership is restricted, except under the trust company. Other shortcomings have been noticed, particularly in the new legislation concerning leasing and financial leasing, which comprises certain provisions that are incompatible with the concept of ijarah, such as those in refer­ence to ownership of the asset by the lessor, major maintenance of asset and termination of contract in the case of partial or total loss.

Another hurdle for Islamic banks is the restriction in the Non-Citizens Property Restriction Act: a non-citizen who wishes to hold, purchase or otherwise acquire a property requires the prior approval of the Minister responsible for the subject of Internal Affairs in writing, who may authorise him or her to purchase, acquire or hold the property, subject to such terms and conditions as the Minister may impose. Such a law is not clear and may represent an obstacle and a barrier for Islamic banks whose shareholding may be composed of non-citizens of Mauritius for its normal business operations.

Shariah law

In what circumstances may shariah law become the governing law for a contract or a dispute? Have there been any recent notable cases on jurisdictional issues, the applicability of shariah or the conflict of shariah and local law relevant to the finance sector?

Shariah law is not applied in Mauritius and Mauritius law does not recognise shariah as a system of law capable of governing a contract on the basis that Mauritius law does not provide for the choice or application of a system of law other than a system of national law. This is based on the Convention on the Law Applicable to Contractual Obligations 1980 (the Rome Convention), which requires that a governing law of an agreement must belong to a country.

However, in the case of disagreements, the Mauritian court will take into consideration the clauses of the commercial agreements entered into for Islamic finance transactions, which will be in compliance with shariah and Mauritius laws. There is no legal case or dispute that has occurred in Mauritius in this respect.

Parties may still elect to have a dispute resolution in relation to a contract determined and resolved in accordance with shariah principles by submitting to arbitration. Under section 46 of the Arbitration Act 1996, arbitral tribunals are obliged to decide disputes with reference to either the national law chosen by the parties or any other agreed considerations (including shariah considerations).

Institutional takeover

Are there any special considerations for the takeover of an Islamic financial institution, outside the requirements of the general merger control regime?

Mauritius has no special rules governing the takeover of an IFI.

Other notable features

Are there any notable features of the Islamic finance regime and markets for Islamic finance products in your jurisdiction not covered above?

Not applicable.