Moneylending is a crucial credit device in the world of financial services which plays a significant role in supporting economic growth and development. However, since at the outset, there were exploitative tendencies of lenders imposing stringent and oppressive terms on desperate borrowers, it was essential to establish an effective regulatory framework to sufficiently protect the borrowers from abuses. Laws regulating the moneylending practices have existed since a long time ago. Originally, the Moneylenders Act 1959 (Moneylenders Act) was enacted to regulate the moneylending activity in Mauritius.
Laws regulating the moneylending practices have existed since a long time ago. Originally, the Moneylenders Act 1959 (Moneylenders Act) was enacted to regulate the moneylending activity in Mauritius. The Moneylenders Act was largely modelled after the English Moneylenders Act of 1927 and it governed the business of moneylending by organisations not specifically licensed as banks in Mauritius under the Banking Act 2004 (Banking Act). The object of the law was well thought. In the old English case of Litchfield v Dreyfus [1906] 1 KB 584, Farwell J observed that the English legislation was intended “to save the foolish from the extortion of a certain class of the community who are called money-lenders as an offensive term”.
On 21 December 2013, a pivotal change was brought to the licensing regime of moneylenders. The Moneylenders Act was repealed and the supervision, regulation and licensing of moneylenders were entrusted to the Bank of Mauritius. For the purpose of clarifying the scope of the moneylenders’ licence, various amendments were further made to the Banking Act in May 2015. The aim was to consolidate the regulatory framework for both banks and moneylenders under one all-encompassing legislation.
Subsequently in 2020, the relevant provisions on the licensing of moneylending were repealed in the Banking Act to transfer the responsibility for the supervision of moneylenders from the Bank of Mauritius to the Financial Services Commission which is a key body for financial services regulation. In light of the moneylending activity coming within the purview of the Financial Services Commission, a new section 14A was introduced in the Financial Services Act 2007 (Financial Services Act). The new legislation aims to provide a modern framework that serves to strike a proper balance between regulating licensed moneylenders and safeguarding the interests of borrowers.
As per the Financial Services Act, a moneylender is a person, other than a bank or a non-bank deposit taking institution, whose business is that of moneylending in Mauritius or who provides, advertises or holds himself out in any way as providing that business, whether or not he possesses or owns property or money derived from sources other than the lending of money, and whether or not he carries on the business as a principal or as an agent.
ELIGIBILITY FOR A MONEYLENDING LICENCE
The Financial Services Act emphasises on the eligibility to apply for the moneylending licence and who is not required to submit an application for a moneylending licence. Whilst it is provided that only a company can be a duly licensed moneylender under the Financial Services Act, the Financial Services Act also contains a series of persons exempted from the requirement to hold a moneylender’s licence when making/providing a loan, inter alia amongst which:
- Any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business not having as its primary object the lending of money, in the course of which and for the purposes of which he lends money.
- Any body corporate, incorporated or expressly empowered, or any other person expressly empowered, by any other enactment to lend money.
- Any organisation whose operations are of an international character and which is approved by the Minister.
- Any society registered under the Co-operatives Act.
- Any licensed broker in the performance of his duties as a public officer.
- Any licensed pawnbroker in the performance of his duties as a pawnbroker.
- Any specialised financial institution licensed by the central bank to engage in lending activities.
- Any trustee in the exercise of his functions under the Trusts Act.
- Any person lending money through a peer-to-peer lending platform operated by a person licensed by the Commission to operate that platform.
It is apposite to note that the Financial Services Act affords no prima facie presumption as regards to the definition of a moneylender and hence it begs the question as to who bears the burden of proving that a lender ought to be licensed or not. In comparable jurisdictions such as UK and Australia where there is an absence of such presumption, it was settled that the burden of proving that the lender is carrying on the business of moneylending falls on the borrower. This may be difficult since the scope of the lender’s business operations would be a matter within the lender’s knowledge.
In UK, it was well established that although the borrower bears the burden of proving that the lender is carrying on the business of moneylending, if the lender wishes to contend that he falls within one of the exemptions to the definition of “moneylender” then he bears the burden of proving this. This was unanimously held to be the position by the English Court of Appeal in United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 by Lord Denning MR. In Lord Denning MR’s view, every person whose business was moneylending fell within the definition of “moneylender” unless he could bring himself within one of the specified exceptions and it was also highlighted that the facts required to invoke one of the exceptions were within the knowledge of the lender and not the borrower.
Conversely, the High Court of Australia held in the case of Austin Distributors Ltd v A H Paterson Car Sales Pty Ltd (1941) 65 CLR 118 that the burden was on the borrower to show that the lender did not come within one of the exceptions to the definition of moneylender as prescribed under the law. This reasoning was later criticised by Professor Pannam in his book The Law of Money Lenders in Australia and New Zealand (The Law Book Company Limited, 1965). Professor Pannam suggests that the question of who bears the burden of proving whether the lender falls within the exceptions to the definition of moneylender should turn on whether the exceptions to the definition of moneylender are provisos to the primary definition or whether they are true definitional exceptions. If the latter, the onus of proof lies on the borrower. If the former, the onus lies on the lender instead. Professor Pannam further suggests that in determining this question, it is imperative that one looks at the substance of the statutory provision in question and not merely at its form.
It is however worth noting that the position in Mauritius is yet to be determined inasmuch as the issue of onus of proof in respect of whether a person would be exempted or required to be licensed as a moneylender remains to be tested by our Courts.
MONEYLENDING FAQS
With a view to address some pertinent queries on the moneylending industry to ensure effective supervision of moneylenders, the Financial Services Commission issued Frequently Asked Questions (FAQs) on moneylending licences in February 2023.
The FAQs clarified that a Global Business Company (GBC) should apply for a moneylending licence where it is engaged or intends to engage in the business of moneylending in Mauritius. A GBC would not be required to seek a moneylending licence where it is solely engaged in the business of moneylending outside Mauritius. With regard to a GBC lending money to another GBC, the transaction shall be deemed as conducting business outside Mauritius.
An applicant for a moneylending licence must maintain a minimum stated unimpaired capital of MUR 30,000,000 (or its equivalent) or 5% of the moneylender’s total liabilities or such other amount as the Financial Services Commission may require. In addition, the holder of a moneylending licence must register with the Money Credit Information Bureau (MCIB) once the licence is granted by the Financial Services Commission.
As part of its regulatory duties, the Financial Services Commission may appoint a duly qualified person or an officer to carry out inspections on the operations and affairs of the moneylender to ensure that the moneylender is complying with the financial services laws and guidelines. In terms of penalties, the Financial Services Act provides that any person who contravenes the laws pertaining to moneylenders under the Financial Services Act shall commit an offence and shall be liable to a fine not exceeding one million rupees and to imprisonment for a term not exceeding 5 years.
Overall, despite moneylending being a relatively small fraction of the credit market, and often not considered a mainstream financial service, it remains a vital part of the economic structure and it is indispensable to recognise the need to adequately protect vulnerable borrowers from the exploitative actions in the moneylending system. Licensing of moneylenders ensures ongoing access to credit by those persons having no choice and who can be easily swayed to have recourse to illegal lending. The laws regulating moneylending in Mauritius not only encourage fair practices but also promote financial stability of the economy.
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