Banks of Tax Haven Mauritius Pursue Wealth Management

A major source of foreign direct investment in India, the island nation is now looking to serve ultrarich African clients.


Mauritius has long played a unique role in international finance. Once a French trading hub, the lush Indian Ocean island was captured by the British in the Napoleonic Wars. Since Mauritius gained independence in the 1960s, financial services have become an outsize feature of the country’s small economy: Until Singapore pulled ahead last year, the tens of billions of dollars moving through its banks to India made Mauritius the No. 1 source of foreign direct investment in the subcontinent. This flow stems from a 1983 treaty that exempts Mauritius-based companies from Indian taxes. Although the Financial Stability Board and the Organization for Economic Cooperation and Development recognize the country’s regulatory framework, its reputation as a tax haven persists.

Mauritian banks have pushed to diversify in recent years, with services for the wealthy residents of developing nations at the top of the list. The move to embrace private banking comes as these firms turn west to Africa in an effort to become less reliant on Indian clients.

“As Mauritius negotiates with India on revisions to its historically important tax treaty, it has also been working hard for some time to position itself as a regional African financial center,” says David Bartsch, a partner with Atlanta-based consulting firm Bank Solutions Group who advises financial institutions on corporate and capital markets strategy. Bartsch points to the Africa Training Institute, a joint effort with the International Monetary Fund that opened in 2013 to train central bankers and finance ministry personnel from sub-Saharan Africa. By boosting its financial credibility, Mauritius gives its banks an edge as they compete for business from ultrawealthy African families, he explains.

Among the institutions leading the charge to serve Africa’s entrepreneurial elite is Mauritius Commercial Bank, the nation’s oldest and largest bank, which manages $8 billion in assets. “Private banking has been identified as an important expansion axle,” says Jean Rey, Johannesburg-based chief representative officer of MCB’s South African division. “The immediate platform to be used will be MCB’s representative offices in Johannesburg and Nairobi.”

Founded in 1838, MCB is the longest-Operating bank anywhere south of the Sahara. Its Johannesburg office, established in 2008, is the linchpin of its African expansion. More branch offices will open in the medium term to develop wealth management franchises that complement existing business lines, Rey says. MCB’s African push has been a major driver of growth in the past decade: The bank now has relationships in some 38 countries regionwide, mostly in the financial institution and trade finance segments.

It’s already reaping rewards from this relatively new initiative. In 2014 net income for MCB Group, the bank’s parent company, rose 9.8 percent, to 2.8 billion Mauritian rupees ($84 million). This performance reflects revenue growth derived from enhanced portfolio management fees in the private banking business in particular, according to MCB Group’s annual report.

State Bank of Mauritius, the country’s second-biggest domestic financial firm, has ramped up wealth management in Africa and India. Less established players are also entering the field. Last year the Bank of Mauritius, the island’s central bank and regulator, granted licenses to two new banks to engage in private banking, bringing the total to 23.

The shift toward private banking may present challenges, says Stephen Shay, a professor of practice at Harvard Law School and former deputy assistant secretary for international tax affairs at the U.S. Department of the Treasury: “With such a robust financial intermediary industry already, the decision to expand into a more heavily regulated space is not without risks.”

Mauritius’s tax treaties with several countries in the surrounding region and its openness to foreign holding companies make it a vital entrepôt, Shay notes. But adding regulated and capitalized bank subsidiaries abroad may put pressure on the island’s financial sector because it must meet international reporting standards, he adds. •