Banking System In Mauritius Finance Essay

Published: November 26, 2015 Words: 1607

"If you dont have a functioning financial system the world economy wont be revived. All the major economies have their responsibility to assist at a pace which is required to clean up the balance sheet of the banking system and to ensure that credit flows are resumed." Manmohan Singh

Banking system in Mauritius

The Bank of Mauritius was first established in September 1967 known as the Central Bank of the country. Central Bank acts as a banker for other banks. There were a few amendments in 2004 in order to cater for single bank licensing that is to separate the banking activities of the offshore and onshore banking. In addition, the amendments was brought forward in order to enable banks to get involved in both domestic and international banking. Furthermore to alter the tax regime for income from the business and to inspire the non-banking deposit taking institution to merge into banks. According to Section 5 of the Bank of Mauritius Act 2004 , the functions of bank includes the controlling of foreign exchange reserve, the issuing of notes and coins, the issuing of bills to combat the surplus liquidity and to adopt policies to protect the depositors and the creditors. In addition Section 6 of the Bank of Mauritius Act 2004 state the powers of the bank. Following the promulgation, the bank has the power to purchase and sell gold coins, control the foreign exchange reserves of Mauritius and accept deposits and pay interests from citizens including governments. The banking sector plays an important role in the financial system of the economy. In Mauritius, there are some main banks like the Mauritius Commercial Bank (MCB), the State Bank of Mauritius (SBM), the Barclays Bank, HSBC, Bank of Baroda, Bramer Banking Corporation, Bank One, Standard Bank, Standard Chartered Bank, Deutsche Bank, Afrasia Bank and banque des Mascareigne. The two most popular bank in Mauritius is the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM) which controls about 70% of the total assets of the banking system. The two largest foreign bank are the HSBC and the Barclays bank which holds about 22% of the market.

3.2 Payment cards in Mauritius

ATM was introduced in Mauritius in 1987 by the Mauritius Commercial Bank and has not stopped expanding its network since. Mauritius Commercial Bank (MCB) started by introducing Master Card in 1988 and Visa Card in 1991.Other banking institution also started to follow this trend by issuing debit and credit cards and sharing the ATM network in every corner of the country. Some of the transaction that can be performed through the ATMs of Mauritius are the withdrawal of cash, balance enquiry, paying utilities bills, transferring funds between two accounts and so on. The main components that exists in an ATM machine are a card reader, a display screen, a keyboard and a cash dispenser. Nowadays there are about 160 ATMs machine throughout the country. Payment cards like credit, debit, prepayment and charge card plays an important role in Mauritius. It facilitates the people from the burden of carrying liquid cash everywhere. However some places like markets and small shops in Mauritius still need liquid money in order to make purchases. In Mauritius, the holder of a credit card is offered an agreed credit limit from his bank and also the holder may choose not to repay the whole amount outstanding at the month end. However, an interest is charged on the outstanding balance. Credit cards involves three parties which are the holder of the card, the merchant and the bank or the card issuing organization. Bank may either be the acquirers or the issuers of credit cards or both. Examples of most used credit cards in Mauritius are Visa Card and Master Card. The Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM) are both the issuers and acquirers of the Visa Card and Master Card. The debit card is also largely used in Mauritius. It is an alternative than paying with cheque and can be used for the purchase of goods and services. The difference from credit card is that there is no credit limit facility with debit card instead the transaction being processed is directly debited to the card holder account. In Mauritius, there are two types of debit cards which are firstly a debit card which can be used to purchase goods and services and provide access to ATM. An example of this type of card would be the Maestro card. On the other hand, the other type of card is that which is usable only to ATM. An example would be Mr Best Card. There also exists prepayment card in Mauritius and it is issued by the Mauritius Telecom. It consists of a magnetic stripe and credit value and is used in public telephones to make call. Car card is also a payment card used in Mauritius. It is also known as fleet card and many people used it for payment of petrol bills. However, the Bank of Mauritius provide certain rules and requirement that have to be followed, that is, bank must publish any changes in interest rate so that customers be aware of. Also, bank should send a statement to customers about all the payment and withdrawals made. In addition, the customer must inform the bank as soon as possible if the card is lost or someone else knows the PIN.

3.3 Non-cash payment in Mauritius

Standing orders

It occurs when a person want to debit his account on a fixed date and a regular fixed amount and credit the amount to the person concerned. Example are when paying for gym or rent for a house.

Direct debits

A direct debits or direct withdrawal is a financial transaction designed for the benefit of utilities. It facilitate the work of debtors to pay their money owed at the end of the month through standing orders. For example, in Mauritius, the Central Water Authority, Central Electricity Board and the Mauritius Telecom uses the direct debits option for the citizens. It facilitate the task of the local people rather that queing to pay their bills and waste their time. Instead the amount due can be deducted directly from the debtor's bank account.

However there is a difference between standing order and direct debits. Standing order is when an instruction is given to the bank to make a fixed payment whereas direct debit is when the retailer has the right to claim money from the debtor's bank account and meet the bills.

Cheques

Some people use cheques for the purchase of goods and services. When paying by cheque, there is no need to carry liquid money. In some region in Mauritius, the ATM machine may be located quite far, hence in such situation using the cheques option is more advantageous. However, the person issuing the cheque must always have an idea about the current bank balance before issuing it.

3.4 Other payment options in Mauritius

Banker's office cheque

This is a bank cheque and not a personal cheque. When someone is preparing a banker draft , the amount is immediately transfer from their own account to the bank account. When paying with banker draft , it is safer than personal cheque because personal cheque take time to be cleared or may be dishonoured or bounced if there is not enough money in the bank account and the payee receives no money. On the other hand the fact that with banker draft the amount is immediately transfer to the bank account hence the payee will immediately receive the money when presented at the bank.

Travellers' cheques

It is a preprinted cheque which many people uses as a form of cash as it is accepted as a currency. People normally uses this type of payment option when they are on vacation. However since the 1990s, people prefer using payment cards in Mauritius than the traveller cheque because it is more convenient for travellers and relatively easy.

3.5 Internet Banking in Mauritius

Mauritius Commercial Bank (MCB) ltd was the first bank in Mauritius to introduce internet banking in November 1998. In our small island, internet banking allows customers to do banking transaction at their disposal. However, it also facilitate the work of busy citizens to conduct their banking transaction at home rather than going to the bank and waste a lot of time. From the banks' point of view, more internet banking in the country would lead to a reduction in the bank cost. Mauritius is experiencing rapid economic growth because of the diversification from agriculture to information technology. The use of internet banking has proved to be really advantageous since 1998. Some banks in Mauritius who offer the internet banking services are the Mauritius Commercial Bank (MCB), State Bank of Mauritius, Banque des Mascareignes, Barclays and the HSBC.

3.6 Legal aspects in the banking sector in Mauritius

The laws has been revised concerning the banking sector in Mauritius. Some main points of the Banking Act 2004 has been listed below:

No person has the right to be engaged in banking business unless a banking license has been issued by the central bank

Bank are not allowed to be engaged in other business not specified the banking license

Every bank must follow the instructions given by the central bank for the proper functioning of the Mauritius Automated Clearing and Settlements System (MACSS)

A bank shall inform the central bank if it set up an automated teller machine

Adequate security must be available for customers using ATMs

Only with the approval of Minister, the central bank has the right to declare a bank holiday