Financial innovation in Mauritius

1. F i n a n c i a l
I n n o v a t ion
in
Mauritius
AKR

2. Overview
•
MAURITIUS WITHOUT FINANCIAL
INNOVATION
WHAT IS FINANCIAL INNOVATION
•
INNOVATION AND CRISIS
•
TYPES OF FINANCIAL INNOVATION
•
INNOVATION IN ISLAMIC BANKING
•
CLASSIFICATION OF FINANCIAL
INNOVATIONS
•
INNOVATION IN MAURITIUS AND IN OTHER
COUNTRIES
•
EXAMPLES OF FINANCIAL
INNOVATION
•
INNOVATION IN MAURITIUS VS INNOVATION
IN U.S
•
CAUSES OF FINANCIAL
INNOVATION
•
FINANCIAL INNOVATION IN MAURITIUS VS
INNOVATION IN MALAYSIA
•
BENEFITS OF FINANCIAL
INNOVATION
•
INNOVATION IN MAURITIUS VS INNOVATION
IN TOGO
•
CRITICISMS OF FINANCIAL
INNOVATION
•
POTENTIAL BARRIERS TO INNOVATION
•
CURRENT AND FUTURE TRENDS
•
MAURITIAN FINANCIAL SYSTEM
•

3. Mauritian Financial System
• Once a poor sugar production-based country.
• Today, the island is at the dawn of a new era:
• The financial services sector is one of the most important economic
pillars.
• The future of this sector is very promising.
• With evolving markets & international financial competition and
ever-changing demand of consumers, our financial market becomes
an obsolete one without proper and timely modification.
• This is where financial innovation comes into play.

4. What is Financial Innovation?
• Basically, financial innovation refers to the creation of new
financial assets or new ways to use existing financial assets.
• A broad term and a much wider phenomenon than just new physical
products or a new technology. E.g. Model T Ford, launched in 1908.
• different from what has gone before
• extremely desirable in the long run
• A dominant feature of the modern financial system.

5. Types of financial innovations
Three types of financial innovations:
1. Product innovation - Introduction of a good or
service or improvements made to existing
products.
2. Process innovation - execution of a new or
considerably improved production or delivery
method.

6. Types of financial innovations
3. Institutional innovation - Creation or
changes in organizational structures, the setting
up of new types of financial intermediaries, or to
changes in the legal and supervisory framework.

7. Classification of Financial Innovation
Market broadening instruments
Risk management instruments
Arbitraging instruments and processes

8. Classification of Financial Innovation
Market broadening instruments - increase the
size and depth of markets.
• Increase liquidity of the market.
• Attract new investors and offer new
opportunities for borrowers.

9. Classification of Financial Innovation
Risk management instruments - are
instruments which reallocate financial risks to
those who are less averse to them, or who
have offsetting exposure and thus are
presumably better able to shoulder them.

10. Classification of Financial Innovation
Arbitraging instruments and processes - are
instruments which enable investors and
borrowers to take advantage of differences in
costs and returns between markets, and which
reflect differences in the perception of risks as
well as in information, taxation and
regulations.

11. Examples of financial innovation in
Mauritius
• The Mauritius Commercial Bank
–Internet Banking
–ATM (1987)
–Juice
–Mobile Banking
–MCB Select

12. Examples of financial innovation in
Mauritius
• The Hong Kong & Shanghai Banking
Corporation (HSBC) Ltd
–AssetVantage
–Islamic banking services

13. Examples of financial innovation in
Mauritius
• SBI International Ltd
–Teacher Plus
–Health Plus
• CHEQUE TRUNCATION
• POLYMER BANKNOTES

14. CAUSES OF FINANCIAL INNOVATION
• Tax and Regulations
• Imperfections-asymmetric information
• Variations in inflation, interest rate
• Increase in Government deficits
• Advancement in technology
• Increase in competition

15. BENEFITS OF FINANCIAL INNOVATION
• Reduction in transaction costs
• Moving funds across time and spacecomplete markets
• Managing risks and the pooling of funds
• Boosting economic growth and development
• Facilitating the sale and purchase of goods
and services through a payment system
• Addressing moral hazard and asymmetric
information problems

16. CRITICISM OF FINANCIAL INNOVATION
• Speculation
• Recession- Financial crisis
• Exploitation of consumers
• Financial instability

17. MAURITIAN FINANCIAL SYSTEM
WITHOUT FINANCIAL INNOVATION
• Without Financial Innovation, Financial Sector
would not be able to perform its core
function: Intermediation
• Concentration on the primary and secondary
sectors of production.
• Difficulty in coping with the trading ways of
other countries.
• FDI would be low → to low investments, BOP
deficit, increasing unemployment.

18. MAURITIAN FINANCIAL SYSTEM
WITHOUT FINANCIAL INNOVATION
• Example: ATM
Had it not been introduced, what would have
been the effects?
• Consumption pattern → low leading to a
reduction in production, thus reducing
economic efficiency.
• Standard of living would have been very poor.

19. FINANCIAL INNOVATION AND CRISIS
• The economic crisis that started in 2007 has negatively
affected business innovation and research and development
in all countries.
• Firms resorted to securitisation, one example of a risk
management financial innovation.
• It contributed to the financial crisis of 2007.

20. FINANCIAL INNOVATION IN
ISLAMIC BANKING
Islamic financial innovation can be defined as
the process of utilizing Islamic legal contracts in
new ways to develop financial products that are
in compliance with Shariah and at the same
time produce economic effects which other
financial products have on the economy.

21. FINANCIAL INNOVATION IN
ISLAMIC BANKING
• Islamic Private Equity Funds
It is similar to the Islamic mutual fund, but here the
investments are made in unlisted companies. Venture
Capital and Private Equity are ideal Islamic compliant
investment structures and are based on the conventional
Private Equity Fund.

22. Comparability between
innovation in Mauritius and
innovation in other countries

23. FINANCIAL INNOVATION
Mauritius V/s United States
• U.S is considered to be the best in all
Economic reports compared to Mauritius.
• Money and capital markets → largest and
most highly developed in the world.
• Mauritius - relatively well-developed financial
system than other African developing
countries.
• The securities markets are shallow.

24. FINANCIAL INNOVATION
Mauritius V/s United States
• U.S provoked the 2007/08 financial crisis, caused
by financial innovation, not Mauritius.
 How and why not Mauritius?
• Supervisory bodies: the Board of Investment, the
Central Bank, the Competition Commission.
• International bodies: International Monetary
Fund, the World Bank.
• Amendments and creation in the Mauritian legal
system: the Finance Act 2011, Banking Act 2004.

25. FINANCIAL INNOVATION
Mauritius V/s United States
• Unlike Mauritius, U.S found itself trapped for
about three years.
• Excessive lending.
• Collapse of Lehman Brothers and the
American Investment Group.
• Risk management failures in many financial
firms and deficiencies in the regulatory
oversight.

26. Financial Innovation
Mauritius V/s Malaysia
• Malaysia has trained Mauritius on Islamic
banking.
• Innovation in Mauritius has virtually been in
line with innovation in Malaysia.

28. Financial Innovation
Mauritius VS Togo
• Togo has a poor human development index
compared to Mauritius
• Togo has not been able to face the recent
economic downturn compared to Mauritius
• Financial Innovation is more boldly present in
Mauritius than in Togo
• Better regulations in Mauritius than in Togo

30. POTENTIAL BARRIERS TO FINANCIAL
INNOVATION
• Lack of opportunities given to employees by managers and
unskilled managers
• Lack of time and capital
• Ineffective commercialization and execution of products (unfit
management of advertising)
• Standards
• Cost and complication of patents and Intellectual Property Rights
protection
• Potential barriers to Financial Innovation

31. Trends of Financial Innovation
• Wide range of financial services are being
provided due to financial innovation
• Insurance sector and banking sector are being
more dynamic
• Corporate finance, risk management and
financial data processing are being provided.

32. CONCLUSION
Financial innovation has indeed helped
Mauritius to develop its economy to a great
extent.
As a small island economy, we cannot believe
that we cannot innovate – otherwise we will die.

33. Thank you for
your kind
attention