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³With Banks entering the leasing business, the market is even more competitive, putting pressure
on the industry to innovate in terms of product and services offering and improve efficiency´.

An Insight into the evolution of the Leasing Industry and what lies ahead, 24 Years after its
inception by The Mauritius Leasing Company in 1987. An industry which is fiercely competitive
and undergoing a radical transformation at the present juncture.

Leasing has come a long way in establishing itself as a powerful alternative source of funding to
conventional bank financing. This new channel of financial intermediation emerged in the late
1980s at the height of the textile boom. It helped stimulate investment in the productive sectors
of the economy and provided a strong impetus to industrialization and entrepreneurship in
Mauritius.

Mauritius Leasing played a pioneering role in the industry and stayed at the forefront of
innovation up till now.

Leasing, now increasingly known as asset finance, flourished rapidly on the back of strong
demand for new forms of financing from businesses, mainly from the manufacturing sector.
After a decade or so, in around 1997, banks started to create their own leasing subsidiaries,
causing the boundaries of the financial industry to change considerably.

Meanwhile, the clientele has also evolved. The industry diversified away from manufacturing to,
construction, agricultural and to the less equipment-intensive services industries like
transportation.
Consequently leasing providers also moved into new asset classes such as automobile financing.
Today, asset finance is almost equally shared between automobile and equipment financing.

The industry has as many as a dozen of leasing providers sharing a market of around MUR 12-14
Billion in terms of assets financed through leasing. The sector is near saturation, having reached
around 28% in terms of total capital investments through leasing.

With banks coming into the leasing business and competing in a smaller market, the market has
grown even more competitive, putting pressure on the industry to innovate in terms of products
and services and improve efficiency. The Mauritius Leasing has a long history of product
innovation that has helped the business stay ahead of the curve and advance the industry namely,
fleet management, Islamic leasing and more recently Real Estate Leasing.

The regulatory regime has also changed considerably over the decades. In the beginning, the
leasing activity was initiated through the Ministry of Industrial Development and then the
regulations became more stringent with the leasing activity being regulated by the Financial
Services Commission [FSC]. The deposit-taking activity, which most leasing companies pursue
in view of raising funds, is regulated by the Bank of Mauritius who have also recently introduced
the capital adequacy regime for Non Bank Deposit Taking Institutions. This twin- regulation
system poses serious challenges in terms of cost of compliance. However, the forthcoming
announced merger of the FSC and the BOM should hopefully address the issue and reduce the
regulatory burden.

Going forward, the industry is set to go through another wave of transformation. Leasing
companies are reconsidering various business development routes in line with the new capital
requirements, loss of tax incentives for asset finance subsidiaries of banks and intense
competition on margins. Whilst some years earlier, many banks were diversifying into asset
finance, today we are seeing quite the reverse movement. Some leasing companies are now
converting into banks whilst some bank owned leasing subsidiaries are being amalgamated with
their banking parent.

Banks have the advantage of raising money at a cheaper rate than leasing companies. A bank can
raise low cost deposits through current and savings accounts as opposed to the more costly term
deposits leasing companies have to rely on, thus generating higher margins in the business. This
explains why some leasing companies are pursuing that route. Turning into banks also allows the
players to expand into a range of other banking products and build new income streams built
upon cross selling and upselling to their existing client base both on the Leasing and Deposit
Taking fronts.

With such developments, the new dynamics may also trigger a movement of consolidation in the
coming years.

Given these dynamics, leasing is becoming increasingly specialized for those standalone leasing
companies who need to excel at it and become more efficient and innovative. For those
becoming banks, the challenge is in up-keeping the specialization inherent in this business and
adding real value to their clients, which may prove challenging within the context of a banking
operation.

It¶s for this reason, that one has seen innovative developments in the leasing business such as
Fleet Management specialization, Islamic leasing, Real-Estate Leasing amongst others which
have again been pioneered by Mauritius Leasing.

On the other hand, some players, not traditionally considered to be part o the leasing landscape,
are moving on to new heights. For example, Veling is a very good example of a leasing business
with a specific area of expertise in aircraft leasing becoming one of the global players in this
segment of the industry.

This serves to confirm that Mauritius has all that it takes to make the transition to a new vibrant
model of the financial services industry where complex deals can be structured and executed.

The emergence of Islamic Finance is an added pillar to this scheme. Islamic banks are
establishing operations in Mauritius and make use of products such as Sukuks backed by Ijaara
(Islamic Leasing) instruments to structure their transactions. These mechanisms coupled with the
double-taxation avoidance agreement [DTAA] network which Mauritius has with other countries
can help deliver world-class financing products.

Leasing operators have demonstrated that they can successfully partner with the government in
the implementation of economic stimulus efforts and jointly devised the Leasing Equipment &
Modernasation Scheme´
The leasing industry has played a very proactive role in the wake of the economic slowdown
resulting from the global crisis. The Leasing operators have demonstrated that they can
successfully partner with the government in the implementation of economic stimulus efforts and
jointly devised the Leasing Equipment & Modernisation Scheme [LEMS] which have benefitted
many SMEs and large companies. Leasing operators have provided funding to businesses in
view to strengthen capacity in anticipation of economic recovery. The success of the scheme is
testimony to the fact that the industry can work together with government to address issues of
national interests.

Similarly, we are operating the Finance Leasing Scheme jointly with stakeholders in the sugar
industry. The scheme provides financing to small planters and other operators in the supply chain
to modernise equipment.

Given the challenges facing the asset finance industry, we believe that leasing companies should
be allowed to enlarge their offering and tap into new business lines such as factoring and
consumer finance to help enhance returns for their stakeholders and participate fully in the
financial system.

On the other hand, the regulatory regime governing the deposit taking activity should make it
easier for leasing companies to also compete on a level playing field through access to cheaper
funding like banks.

To conclude, we should be able to take a liberal view in further allowing existing players to tap
into newer business lines and markets so that the industry remains profitable and sustains its
growth which can only be to the benefit of the regulators and the various stakeholders which it
serves.