A ppt about financial innovations in the Mauritian system. First some examples of financial innovations in the international market is explained and categorized under product, process and institutional innovations and then this is compared with financial innovations in the Mauritian system. When comparing innovations in the international market and Mauritian financial market, fields where Mauritius is lagging behind are pointed out.

2.  Critical and persistent part of economic landscape
over the past few decades.
 Active role of intermediaries resulting in endless
stream of new products/services
 Delivering benefits that are widely felt in the
Mauritian industry and across the broader economy
 Impact of recent global financial slow down ?
Financial innovation not without risk – can create or
intensify risk.

3. • Innovation in the financial system has
increasingly levelled up through the
past decades resulting in growth and
development of the country.
• Amongst the first financial institutions
were the Mauritius Commercial Bank in
1938, Hongkong and Shanghai Banking
Corporation Limited in 1916, Barclays
Bank in 1919, Bank of Mauritius in
1966 and State Bank of Mauritius in
1973.
• The economy , the economy grew by
an average rate of 7.3 per cent in mid
1980’s and came along a broad-based
liberalization of the economy.

4. Financial
Sector
Financial
Bank of Service
Mauritius Commission
Domestic Offshore Capital Global
Insurance Pension
banks banks Market business

5. 1. The Bank of Mauritius
- issue currency.
- regulates the operations of other banks.
2. Domestics Banks
(MCB,SBM,HSBC,…)
-continuously innovating through online
banking, credit cards, specific loans or
ATM.
3. Offshore Banks
-growing sustainably new financial
services like Investment Holding,
Trading, Property Investment, Financing,
Patent amongst others.

6. 1. The Stock Exchange of Mauritius
- 41 companies listed on the Official Market
- SEMDEX is an index of prices of all listed shares
- SEM Total Return Index (SEMTRI), it is an index to provide
market’s evolution over time
- SEM-7 is an index which measures movements in the 7 largest
eligible shares on the Official List in terms of capitalization,
liquidity and investability.
2. The Development and Enterprise Market
- 53 companies
- designed for Small and Medium-sized Enterprises and newly set-
up companies which possess a sound business plan and
demonstrate a good growth potential.

7. - The DEM since it had launched in August 2006, fell and
remained low until November 2006. This may be due to the fact
that the market was not well stabilized.
- However in December 2006, net purchases experienced a
considerable increase from Rs 2,341,433 to Rs 50,026,057, thus
the DEM is slowly marking its territory in the financial sector of
Mauritius.
3. Leasing Companies
- licensed by the Financial Services Commission.
- Leasing companies provide leases for equipment, machinery,
plant, motor vehicles, tools and other assets to industrial,
agricultural, commercial, service sectors and individuals.

8.  Mauritian Offshore Business Activities Act in 1992
 GBL 1 ;
− incorporated as a branch of a foreign Company
− E.g. aircraft financing, asset management, financial services,
 GBL 2 ;
Tax Exempted in Mauritius
− cannot be used for banking, insurance, or fund-related
activities
− cannot transact business with Mauritian residents
− cannot be public companies

9.  plays a key role in the financial sector of Mauritius
 From the table below, it can be seen that
i. The distribution of deposits and other securities and
government securities have risen while the others have
fallen.
ii. Despite this, the total assets figure has been very high and
experienced a change of 87% from 2002 to 2006, thus
showing how profitable this section of the financial sector is
in Mauritius.

11.  E.g. In Mauritius: Basic Retirement Pension, the National
Pension Fund, the National Savings Fund and the Civil
Service Pension Scheme
 To know benefits of this part of the financial sector, the
government made predictions

12.  Table shows Pension expected to rise tremendously by 2040
 Expenditure as a percentage of GDP will rise from 3.4% to
4.3%
 Pension schemes amounted to almost 11bn as December
2006.

13.  Demand driven force
 Protect against changing circumstances
 Advances in technology
 New ways to make profit
 Minimize the impact of taxes or regulations
 The ever-changing face of global patterns
 Competitive pressure

14. Financial innovations in the
international market
Despite the recent crisis and challenges, financial innovation will
continue to play an important role in promoting global growth,
especially in emerging markets and developing countries

15. What is Financial innovation?
Financial innovation refers to the creation of new financial
assets or new ways to use financial assets. There are 3 types
of financial innovation. There are 3 types of financial
innovation :
• Institutional innovations
• Process innovations
• Product innovations

16. In the global Financial Services industry,
there are many innovative companies.
Institutional
Innovation
Product
Innovation
Process
Innovation

17. Year Innovation Description
9000 BC Medium of exchange Bartering of produce and cattle
onwards
2500 BC Insurance Babylonian goods transport insurance
1700 - 1100 Annuities (first recorded) First purchased by Egyptian prince
BC
1000 BC Metal money and coins Early Chinese “tool money” and
primitive coins
321 - 185 BC, Bills of exchange Early bills of exchange,
promissory notes
2nd - 3rd Annuities (widespread) Annuities common in Roman
century AD Empire
14th century Bonds War as the “father of the bond
market” in
1602 Publicly listed stock East India Company on
Amsterdam
1609 Standardized currency Issued by Amsterdam Exchange
(Wisselbank)
18th century Options First call options on some
Dutch stocks
1710 Futures Japanese rice futures market
1742 Monopoly on issuing Bank of England
banknotes
1744 Insurance fund Modern insurance industry with

18. 1773 Check clearing house London bankers introduce
clearing house
1774 Mutual funds Early closed-end mutual fund
set up by Dutch
merchant
1829 Deposit insurance New York first state to establish
bank-obligation
insurance programme
1874 Standardized futures Chicago introduces standardized
exchange futures
contract and clearing house
1880s Workers’ insurance and Otto von Bismarck supports
the welfare state insurance and
pensions for German workers
1913 Federal Reserve System Woodrow Wilson signs US
Federal Reserve Act
1933 First national deposit US creates Federal Deposit
insurance scheme Insurance
Corporation in response to bank
failures

19. 1946 Venture capital Private equity firms established
in United States
1949 Hedge funds Absolute return or “hedged fund”
created by
Alfred Winslow Jones
1950 Early credit card Diners Club International
launches first
multi-purpose charge card
1958 Modern credit card Bank of America launches credit
card with
revolving credit line
1960 Automated teller US patent filed for early cash
machines (ATMs) dispenser
1961 Reverse mortgage Former Maine bank CEO’s idea
helps senior
citizens access housing equity
1968 Securitization (originate Ginnie Mae guarantees first
to distribute) mortgage
pass-through security
Late 1960s ATMs operational Cash dispensers deployed in
London and
elsewhere
1971 Floating exchange rates United States abandons fixed
exchange rate

20. 1971 Money market mutual Bruce R. Bent and Henry B. R.
funds Brown set up
first money market fund in United
States
1972 Debit cards City National Bank of Cleveland
issues ATM
account debit card
1970 - 1972 Foreign currency futures Development of FX futures
in New York and
Chicago
1973 Black-Scholes model Nobel prize winning option-
pricing model helps
launch modern derivatives
industry
1973 Point of sale terminals IBM launches POS terminals
linked to
mainframe store computer
1974 Automated clearing Electronic payments process
houses (ACH) replaces paper
cheques for routine payments
1976 Modern micro-finance Muhammad Yunus begins
research leading to
first micro-finance bank in 1983

21. 1981 CHIPS (same day A settlement wire transfer system
settlement) Clearing House for the banking
Interbank Payments System industry
1982 Consumer online stock First full-service consumer trading
trading system connects traders around the
world
1982 Stock index futures Kansas City Board of Trade introduces
stock index futures
1988 International capital Basel Accord (Basel I)
requirements for banks
1989 Exchange traded funds First ETF launched in Canada
1992 Insurance-linked Life insurers transfer risk while
securities releasing its value
to the open market through asset-
backed note
1992 Public–private UK government launches
partnerships programme of public–private
investment partnerships
1994 Credit default swap JP Morgan structures one of the first
credit default swaps
1999 Online payment service PayPal launches online payments
2004 Usage-based insurance Pay-As-You-Drive car insurance
2004 Longevity bonds and First longevity bond announced
swaps

22. Product innovations in the international
market
The mainstream of product innovations in the past
decades was centered on risk: risk as a threat, as the
possibility of a loss, but also as an opportunity for
profit. The introduction of interest rate futures,
hedging tools, mortgage-backed securities and swaps
might be seen as financial innovations that allow
investors to reach their desired exposure to particular
risks.

23. • Securitization
One example of a risk management financial innovation is
securitization. It is probably, one of the most important
financial innovations that occurred in the last part of the
previous century. It allows banks and also non-financial firms
to obtain liquidity from assets that, otherwise, cannot be sold
in liquid markets. For instance, banks can sell the bad loans
and remove them from their balance sheet and thus getting
rid of the credit risk. Securitization was one of the factors
which contributed to the financial crisis of 2007.

25. • Credit default swap

26. Process innovation in the international
market
• Self-serve kiosks
Washington Trust Company reduced
their number of tellers by 50% by
introducing self-serve kiosks in the
waiting area. In addition to this
solution, Washington Trust also added
a kiosk that accepts bulk cash
deposits, check deposits and
completes other online banking
functionality

27. • Cheque21
Credit process innovations such as new payment services etc
have also been more prevalent in recent years. For example
Aquabanc provides the new Cheque21 service which allows
cheques to be scanned by customers and sent electronically to
banks
Provides benefits for
both the customer and
the client because Cheque21 has been
customers get ease of passed into law and
payment and the client allows physical cheques
gets a file that is easy to be scanned and
to store. submitted online

28. • Gay niche market
Credit Suisse develops a profitable niche segment in
London by targeting gay and lesbians with their private
banking arm
Credit Suisse has a very personalized
approach to private banking in the UK.
 In London, 1 out of every 9 people
is gay.
 Credit Suisse’s now provides gay
financial advisors to clients who are
themselves openly gay.
 The services provided by the
private bankers includes not just
traditional banking offerings but
also information tailored to services
such as adoption and civil
partnership

29. Institutional innovation in the international
market
• The Grameen Bank
Grameen Bank has enabled 4.9 million borrowers to emerge
from extreme poverty by offering microcredit loans to poor
people.

30. • Zopa
Zopa (US) matches lenders with borrowers online. They guarantee
lenders a ~3.75% return on their money and charge borrowers
~8.5%.
 Zopa was the first online social
lending company, starting
operations in the United Kingdom
(UK) in 2005. They have since
grown to Japan, Italy and the
United States (US).
 Before the deposit is accepted the
lender must find a borrower for
their money on Zopa’s website.
This ensures that the money will be
lent.

31. • Mutual fund
Mutual fund is another example of institutional innovation. This
refers to fund raised by a financial service company by pooling
the savings of the public.

32. • Financial innovation as a tool to solve
environmental problem
The financial technology applied to environmental problems is known as
carbon markets. One of the interesting things about carbon finance is that it
is a proposal for letting the invisible hand solves some of the environmental
problems that might otherwise be regulated by the government which may
not always be the best option
Credit Suisses has adopted the carbon principle to become
the first bank to go completely carbon neutral in 2009
Credit Suisse is providing
opportunities for its clients to
participate in environmental
initiatives.

33.  1. Institutional Innovation
 The COMESA Clearing House (CCH) has introduced the
Region Payment and Settlement System (REPSS) which
encourages trade by transferring funds more easily within
COMESA.
 Modernization of Mauritius Automated Clearing and Settlement
System (MACCS) - With the emerging of the financial sector, there is a
need for a more dynamic payment system and the Central bank has
decided to replace the existing MACSS with new application based on
best international practice.
 Offshore Banking

34.  Online banking gives customers facilities like checking
the accounts, paying bills and transferring of funds to another
accounts.
 Central Database System (CDS) launched in July 2007 as there is a
need for an online application for data collection and dissemination.
 In 2006, the MCB has launched the mobile point of sale in association
with Emtel and VeriFone.

35.  In 2012, the MPCB launchers the Electronic-Correspondence which
allows customers to receive their bank statement or other documents via
e-mail, in PDF format which are secured by a password.
 The Bank of Mauritius has introduced a new system for clearing and
settlement of cheques known as the truncation which enhances the
payment system by reducing the clearing days.

36.  Many banks have been able to expand the range of products offered by
entering in the leasing business and this has become a new revenue
streams.
 MCB offers green loan to projects which are environment
friendly and the person entitled is granted 12% cash amount
of the loan approved for financing such projects.
 SBM offers Eco loan to individuals and SME and give them the
opportunity to equip their homes or offices with solar system
installations.

37.  During the crisis, the banking and the insurance sector was
affected differently because they have:
 Different business models
 Different roles
 Different risk profiles
 Taken for granted that insurers would never become an
issue of systemic relevance but this could be questioned by
the current financial crisis.
Financial Innovation, perhaps also in insurance,
is in the dock.

38.  Different strategies adopted to survive the crisis :
 Innovation of British American Insurance – Mauritius (BAI):
 BA lady
 “BAI Takaful” which complies with
 Islamic Sha’riah regulations.
 New version of A+ Education plan
 Mauritian Eagle Insurance (MEI) :
 Innovative products / Services
 Home Premier – All in one policy

39.  Other financial innovations used by other
insurance companies :
 Pay - as - you - go insurance e.g. auto insurance
 Business interruption policies for non-physical
damage
 Micro – insurance ( Access to insurance for the
poor)

40. Stock Exchange The Bond Market
• Globalisation
• Merge with other
stock exchange
• Trade derivatives
• Small despite
• Not fully implemented
development
in mauritius
• Bank lending
• Can increase
dominated
development
Micro Finance Credit Scoring
• Innovation not implemented in
Mauritius
• Bank can knoe credit
worthiness of borrowers
• Insurance take better decison

41.  Introduction of new products
 Enlarge the market
 Microfinance
 Improves market efficiency
 Deliver essential functions

42.  One of the root cause of the financial crisis
 Exploitation of consumers
 Increases complexity
 May lead to abuses e.g market power

43.  Islamic finance is one of the fastest growing segments in
the international financial arena and is fast gaining
momentum in Mauritius.
 It is an alternative financial system reflecting financial
transactions and activities which are in accordance with the
practices and principles of Islamic law, known as Shariah,
which is a set of rules, practices and principles governing all
aspects of life of those who have submitted themselves to
Islam.
 The general objective of the Islamic financial system is to
promote human wellbeing, adopt measures for establishing
justice, equity, fairness and prohibiting harm and unproductive
activities.

44.  The general objective of the Islamic financial system is
to promote human wellbeing, adopt measures for
establishing justice, equity, fairness and prohibiting harm
and unproductive activities.
 HSBC Bank was the first to incorporate Islamic banking
on the island.

45.  The downturn fuelled by the crisis has clearly proved that a
banking system based on interest does not have positive
outcomes.
 With a population of 15% Muslims, Mauritius is already well
incorporated with the Islamic culture. In fact, Mauritius has had
a Waqf Act since 1941.
 Further legislation has been introduced to allow more innovative
product within the financial Services landscape. Appropriate
Banking legislation has been amended to allow for the
development of Alternative Financial Services such as Islamic
Financial Services which is a fast growing activity with big
export potential.

47.  Islamic banking and finance provides an example of
innovation.
 It attempts to achieve the economic effects of
conventional financial products by employing Islamic
legal contracts and methods in product development.
 Also, with the increase in the size and sophistication of
Islamic banks and financial institutions and a greater
awareness of risk, Islamic banks have gradually moved
away from the riskier clients.

48.  Increased competitive pressure on Islamic banks and financial
institutions leads to more product innovation.
 Islamic financial innovation can be defined as the process of
utilising Islamic legal contracts in new ways to develop financial
products that are in compliance with shari'a and at the same time
have the ability to replicate the economic effects of conventional
financial products.
 Therefore, the objective of Islamic financial innovation is to
develop financial structures (products and institutions) that are not
only sharia compliance but also offer a distinct social value.

49.  Though the dark sides of financial innovations have
an impact of on the economy, innovations cannot be
bypassed.
As we have seen financial markets are now
characterised by rapid innovations and only
effective innovations will provide for more
efficient allocation of resources, higher capital
productivity and therefore growth of the economy.