P2P lending has, worldwide, been hailed as an innovative solution that democratises financing. Start-ups and small entrepreneurs have typically relied on bank finance to grow. But they present risks that banks are not always prepared to take — at least not cheaply. Online platforms that connect borrowers directly with investors bypass the problem of getting bank financing. The 2017-2018 Budget announced in its paragraph 127 that the “FSC will set the rules for regulating Fintech activities such as peer-to-peer lending and funding as well as mobile wallet”. In November 2017, the FSC issued draft P2P Lending Rules for consultation. In a communiqué dated 10 November 2017, the FSC explained that the aim of those P2P Rules was to “establish a sound and conducive automated environment or platform for the offer and execution of alternative peer to peer lending, other than bank lending, for the benefits of borrowers and stakeholders in the non-banking sector of Mauritius”. In so doing, the FSC recognised that P2P Lending platforms are an important segment of the Fintech space. P2P Lending as a financial business activity requiring a licence was added to the Second Schedule of the Financial Services Act by the Finance (Miscellaneous Provisions) Act 2020. As a consequence, the FSC published the Financial Services (Peer to Peer Lending) Rules 2020 (hereinafter the “Rules”) in the Government Gazette on 14 August 2020. The Rules are made under section 93 of the Financial Services Act and they came into operation on 15 August 2020. It is apposite to note that the adds
Under the Rules, the P2P operator will facilitate access to finance by matching borrowers and lenders on its online platform . A P2P Lending platform can accept lenders and borrowers, both legal and natural persons. There are no restrictions on the participation of foreign lenders or borrowers on licensed P2P Lending platforms. However, there are lending and borrowing limits which the Rules provide. For instance, a lender who is a natural person, shall not lend more than MUR 1.5M in any 12-month period, whilst for a lender who is a legal person, the limit is MUR 3M. These limits would not apply to sophisticated investors who are lending to borrowers who are not resident in Mauritius, in any other currency than the Mauritian Rupee. Lenders are required to provide a signed risk acknowledgement form in relation to each lending they make. For borrowers, a natural person cannot borrow in excess of MUR 1M, whilst a legal person cannot borrow in excess of MUR 3M through P2P operators. The minimum amount of borrowing through a P2P Operator has been fixed to MUR 50,000. The reimbursement period of lending through a P2P Lending platform shall not exceed 84 months. The funds are made available to the borrower only after the required total funding has been pooled or raised for any project.
Under the Rules, a cooling off period of 2 business days is provided to both the borrowers and the lenders during which they may cancel their written agreements without incurring any penalty. Such a cancellation right has to be disclosed by the P2P operators before the agreements are signed.
As regards the P2P operator, the Rules provide that it must be incorporated as a company in Mauritius and must have a minimum unimpaired stated capital of MUR 2 million or its equivalent in any other currency. The FSC is empowered under the Rules to prescribe a higher amount of such unimpaired stated capital. The annual licence fees payable to the FSC is USD 2,000 and 0.35% of the gross fees from P2P lending activities.
It would seem that a foreign company registered in Mauritius under the Companies Act would not be able to apply for a P2P Lending licence inasmuch as it is not incorporated in Mauritius. Similarly, any other corporate vehicle recognized under the laws of Mauritius would not be eligible to apply to the FSC for such a licence as the Rules restrict such an application to a “body corporate”, which is itself defined as “a company incorporated under the Companies Act”.
The P2P operator shall be managed by a board consisting of a minimum of three directors, one of whom shall be an independent director and a resident of Mauritius. The P2P operator shall at all times establish an office and employ staff proportionate to its size, nature and complexity of its business. It also has to put in place all relevant information technology infrastructure for the carrying out of its business activities. It will have to preserve the integrity and privacy of information hosted on its lending platform. It has to obtain the consent of the borrowers to ascertain their credit profiles from a credit information bureau and upon the grant of the funds to a borrower, the P2P operator will have to forthwith provide particulars thereof to the credit information bureau. As of date, the only credit information bureau which has been set up is the Mauritius Credit Information Bureau (MCIB), which has been set up by the Bank of Mauritius. Furthermore, the P2P operator has to put in place a business continuity and disaster recovery plan for its business. The P2P operator is also required to maintain at all times a professional indemnity insurance cover which is commensurate with the nature and scope of its business activities.
The P2P operator, as a licensee of the FSC under section 14 of the Financial Services Act, will be subject to all the obligations and responsibilities for putting in place AML/CFT measures. It will also be expected to adopt and maintain adequate internal control policies and procedures which is not limited to the sound management of possible conflicts of interests and the handling of complaints. A local bank or a foreign bank is prevented from being shareholders of a P2P operator, unless the prior approval of the FSC is obtained.
At the time of onboarding , the P2P operator is required to carry out due diligences on both lenders and borrowers in accordance with prevailing laws. Besides, it should also assess the creditworthiness of borrowers before admitting them on the lending platform.
A P2P operator is restricted from undertaking certain activities in its own name, namely deposit taking, lending and providing or arranging for any credit enhancement or guarantee. The P2P operator shall be required to establish an escrow account with a licensed financial institution in Mauritius in order to facilitate the transfer of funds between the lenders and the borrowers through the P2P lending platform.
There are certain disclosure requirements to which the P2P operator should comply with. These disclosures have to be made on the P2P operator’s website. This therefore presupposes that the P2P operator should have a website. Such a website should comply with the Guidelines for Advertisement and Marketing of Financial Products which the FSC had issued back in January 2015. These disclosures pertain to key information relating to the conduct of its business namely (i) general details on how the P2P Lending platform functions, (ii) information on costs and charges, (iii) measures to prevent money laundering and terrorist financing, (iv) measures to ensure security of the information technology and data protection systems on the lending platform, and (v) the dispute resolution process.
The website of the P2P operator is also required to publish two general risk statements in a prominent position which read as follows: “All funds transacted through this Peer to Peer Lending platform are not tantamount to bank deposits or credits in Mauritius and therefore, there shall not be any statutory compensation in case of loss through the use of this Peer to Peer Lending platform”. “The Financial Services Commission, Mauritius does not vouch for the correctness of any information or statements published on this Peer to Peer Lending platform”.
Moreover, there are a few specific disclosures which the P2P operator should make on its website: (a) a description of the borrower’s project for which financing is bring sought through the P2P lending platform, (b) the latest financial statements of the borrowers and a disclaimer that the P2P operator gives no assurances about the accuracy of those financial statements, (c) a signed confirmation from the borrower that it is not seeking funds concurrently for the same project from other P2P lending platforms, (d) any credit scoring conducted by the P2P operator on the borrower, and (e) the historical default rate by borrowers on the P2P lending platform.
The P2P operator has record keeping and reporting obligations under the Rules. Records have to be maintained for at least seven years. The P2P operator will be required to submit quarterly reports to the FSC on its cumulative list of active lenders and borrowers, total amount of funds transacted on the platform, the credit score of and default amount by borrowers, and any other information that the FSC may require.
In a communiqué dated 31 August 2020, the Chief Executive of the FSC stated that the Rules are “part of the broader spectrum that the FSC is working on for consolidating the regulatory framework for Fintech in Mauritius. Operators in the non-bank financial services sector can now leverage on P2P networks for offering equivalent and sound alternatives to promote access to credit and raise capital”.
As technology continues to change the world of investment and finance, innovators such as P2P operators should be celebrated and encouraged.
Published in Mauritius Business Magazine on 16 September 2020.