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P2P lending - Opening up as a global platform

Insight 6 October 2020

P2P lending - Opening up as a global platform

The Mauritius International Financial Centre (MIFC) has constantly been showing regulatory leadership throughout its existence by regularly updating its products’ palette to keep up with the fast-moving global financial industry.

Peer to Peer lending (P2P lending), also known as crowdfunding, is a method where multiple small investors collectively lend money to specified projects listed by borrowers in return for interest payments. P2P lending operations would generally be promoted and managed by a P2P operator through an online platform acting as matchmaker between lenders and borrowers. In addition to providing the technological and financial infrastructure, the P2P operator would also be responsible for reviewing the projects, determining the interest rate payable and receivable, risk-rate and credit-rate the projects (including verification with credit bureau), drafting the term sheet of the projects as well as ensuring the general administration of the loans, amongst others.

Since 2017, the MIFC has launched its own regulatory framework for P2P lending on a restricted basis by limiting access only to resident borrowers, imposing strict limits on amount of lending per lender and a limited maturity period. The 2017 P2P rules were based on the premises that the non-banking sector could leverage on the power or efficiency of the Peer to Peer networks for offering equivalent and sound alternatives in terms of lending opportunities in Mauritius. This enabling framework has allowed the growth of successful local P2P operators giving an alternative and efficient source of financing to local SMEs as well as an additional asset class to investors willing to diversify their portfolio.

Backed by the success and the experience built, the regulator has recently issued the 2020 P2P rules (known as the Financial Services (Peer to Peer Lending Rules 2020) which has elevated the P2P product to the world stage by opening access to foreign borrowers and relaxing the limits for potential lenders.

We are pleased to set out in this paper a synopsis of 2020 P2P rules for your consideration.

What do you need to be a P2P operator?

 A P2P operator needs to be incorporated and licensed in Mauritius but can also have a foreign branch. The P2P operator should be managed by a Board of directors of at least three individuals (out of which one director should be independent and resident in Mauritius). A P2P Operator shall not have a bank as a shareholder, unless approved by the regulator.

The operational requirements of the P2P operator

  1. The P2P operator should establish an office and have in place relevant technological infrastructure for carrying out of its business activities within Mauritius, including a proper business continuity and disaster recovery plan.
  2. The P2P operator should employ staff proportionate to the size, nature and complexity of its business activity.
  3. A P2P Operator shall be required to establish escrow account arrangements with a licensed financial institution in Mauritius in order to facilitate the transfer of funds between lenders and borrowers through the P2P Lending platform.
  4. Proper security measures need to be in place to preserve the integrity and privacy of lenders’ and borrowers’ information hosted on the P2P Lending platform, in conformity with the local Data Protection requirements as well as GDPR requirements.
  5. Ensure that prior checks are made with a relevant credit bureau with regards to the credit profiles of borrowers prior to disbursement of loan and upon the grant of funds to the borrowers, provide particulars of the borrowing to the relevant credit information bureau
  6. A minimum unimpaired stated capital of MUR2,000,000 (USD50,000) should always be maintained by the P2P operator;
  7. A P2P Operator shall maintain at all times a professional indemnity insurance cover commensurate with the nature and scope of its activities.
  8. A P2P Operator shall conduct due diligence on lenders, in accordance with the requirements of the prevailing laws and Code on the Prevention of Money Laundering and Terrorist Financing in Mauritius. The P2P Operator shall similarly conduct due diligence of borrowers and assess their creditworthiness, prior to their admission to the P2P Lending platform.

The operational limits of the P2P operator

1. A borrower shall not borrow through a P2P Operator an amount less than Rs 50,000 (USD1,250).

2. Unless one third of the amount borrowed is reimbursed, a borrower shall not at any time, in the aggregate, borrow through P2P Operators:
2.1 an amount exceeding Rs 1 million (USD25,000), if the borrower is a natural person;
2.2 an amount exceeding Rs 3 million (USD75,000), if the borrower is a legal person.

3. A lender shall not, in the aggregate, lend through P2P Operators over any 12-month period:
3.1 an amount exceeding Rs 1.5 million (USD37,500), if the lender is a natural person; and
3.2 an amount exceeding Rs 3 million (USD75,000), if the lender is a legal person.

The above limits shall not apply to sophisticated investors[1] when they lend in foreign currency through P2P Operators to borrowers that are not resident in Mauritius.

4. A P2P Operator shall consider only request for borrowing being applied to finance a project.

5. The reimbursement period of lending through P2P Lending platforms shall not exceed 84 months.

6. In all circumstances, funds shall be made available to borrowers only after the required total funding has been pooled or raised for any project.

Incentives for the P2P operator

 The Mauritius Budget 2019/2020 announced a five-year tax holiday for P2P operators, provided the company starts its operation prior to December 31, 2020.

Interest income received by an individual from peer-to-peer lending will be subject to income tax at the rate of three percent after the tax holiday. Any bad debt and fees payable to the peer-to-peer operator will be deductible from taxable interest income. No tax deduction at source will be applied to peer-to-peer interest income.

Regulatory fees payable

 The regulatory fees payable are as follows:

Processing fees:           USD1,000

Fixed annual fee:           USD2,000

Variable Annual Fee:     0.35% of gross fees from Peer to Peer lending activities

Additional consideration

 By virtue of having its activities being carried out substantially out of Mauritius, the P2P operator would also be required to apply for a Global Business Company (“GBC”) license in Mauritius in case the promoter of the P2P operator is a foreign person / entity.

How can we assist?

 At setup

  • Entity structuring (including support for licensing)
  • Support to borrowers and lenders in the setup of their entities – locally or globally
  • Sourcing of infrastructure – Office and technology
  • Sourcing of talents locally
  • Sourcing of service providers, including opening of bank account
  • Legal support in drafting constitutive documents, subscription documents, notices, disclaimers, amongst others
  • Compliance support through the setting up of internal controls, AML/CFT framework, recovery procedures, manuals and customer review process (including rating)

Ongoing services

  • Company secretarial
  • Registrar and transfer agent
  • Directorship services
  • Regulatory management and reporting
  • Compliance services, including ongoing review of customers;
  • FATCA and CRS services
  • Bookkeeping and Accounting services (including coordination of audit process)

[1] “sophisticated investor” includes an entity controlled / owned by a government, a bank, an investment manager, an insurer, an investment adviser or an investment dealer.

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