Business Borrowing Booms to Rs199 Billion Despite Key Interest Rate Surge

The debt of companies in Mauritius has surged from Rs 175 billion in January 2024 to Rs 199 billion in the same month of 2025, raising questions about the potential impact of a 50-basis-point rise in the key interest rate. Will this increase temper these figures? Recent insights from the Bank of Mauritius’ Financial Stability Report revealed that demand for credit facilities among businesses has continued to grow, even amidst relatively high borrowing costs.

Credit flow to the business sector has supported production, with corporate lending rising at an annual rate of 4.2% as of June 2024.

The report highlighted that the increase in credit to businesses was largely driven by demand for loans denominated in rupees, whereas the appetite for foreign currency loans has been more subdued.

The risks associated with business debt have remained low through the first half of 2024, bolstered by robust growth in key economic sectors, which has positively impacted the financial resilience of companies.

Higher profits have enhanced their capacity for leverage and borrowing, with corporate debt in relation to Gross Domestic Product (GDP) remaining at historically low levels, alleviating concerns about debt sustainability.

According to the central bank’s data, the total business debt reached Rs 199 billion by January 2025, a significant rise from Rs 175 billion the previous year.

Fazeel Soyfoo, an International Tax partner at Andersen, explained that businesses often incur debt for short- to medium-term needs, such as funding working capital, while long-term debt aligns with a company’s strategic development vision.

The economic context has become more challenging, particularly for small and medium-sized enterprises (SMEs), primarily due to rising operational costs spurred by the depreciation of the rupee.

“Before considering a loan, a business must evaluate its capital structure, deciding what proportion should be equity and what should be debt,” explained Imrith Ramtohul, a Senior Investment Consultant at Aon Solutions Ltd.

He warned that in times of growth, debt can escalate if directors seek additional loans, and while interest rates had been manageable until recently, this may have prompted companies to take advantage of borrowing conditions.

International developments, particularly statements from US President Donald Trump, also loom large over business confidence.

Imrith Ramtohul, Senior Investment Consultant at Aon Solutions Ltd, noted that if the conflict in Ukraine escalates, it could severely impact Mauritius’s import-dependent firms.

Conversely, the installation of a new regime has brought more clarity to the economic landscape through various communications, with listed companies apparently faring well.

The Impact of the Key Rate

In February, the key interest rate increased from 4% to 4.5%, a change that Soyfoo considered as significant, though not monumental.

He stressed, however, that this hike will influence borrowing costs and repayment schedules, prompting businesses to reconsider their future financing options.

Ramtohul pointed out that the impact will differ markedly between profitable large corporations and those heavily indebted, with the latter likely facing rising financial burdens that could erode profit margins.

He stated, “A 50-basis-point increase is substantial for firms with high levels of debt.”

Looking ahead, the Monetary Policy Committee is anticipated to convene again on May 7, potentially signalling further changes.

Soyfoo has noted that any increase during this meeting will lead to heightened interest payments.

However, if the rate hike yields a stabilising effect on the rupee’s value, the overall cost of doing business might actually decline.

For Ramtohul, the outcome is hinging on each company’s specific operations and profitability, which will ultimately determine their capacity to absorb further increases in the key rate.

Yet, he warned that in the event of a recession, a global demand decline could adversely affect businesses.

Bank Credit for the Private Sector

In the first half of 2024, bank credit to the private sector has seen a steady upward trajectory within a favourable credit environment.

The relatively high cost of borrowing has not dampened the demand for credit facilities from households and businesses alike, with private loans increasing at an annual rate of 7.4% as of June 2024, boosted by robust growth in household credit, which rose by 11.8%.

While a slowdown was observed towards the end of the second half of 2023, corporate credit growth has maintained positive momentum with a 4.2% rise recorded in June 2024.

Voices of Business: Roshaan Kulpoo, President of United Pay Ltd

As we survey the landscape in 2025 after almost three years of turmoil and a year of recovery, how are businesses navigating these waters?

“Debt remains prevalent, but its impact is muted for 30% of the population,” asserted Kulpoo.

This is evidenced in the credit card usage figures, the number of new and second-hand vehicles purchased in 2024, and overall consumption patterns.

“Just as households are battling rising living costs, so too are businesses, but debt can be a catalyst for innovation and creativity.”

What is the current cash flow situation for businesses?

“It may not have improved significantly,” Kulpoo acknowledged.

“While the government and banks offer various support facilities, it is imperative for businesses, especially SMEs, to reassess their business models and expenditures.

The link between corporate debt and the ability to increase sales and provide decent wages to employees cannot be overlooked, as productivity remains a pressing issue.”

With corporate debt climbing to Rs 199 billion in January 2025, an increase from Rs 175 billion a year prior, what does this signify?

Kulpoo argued that a sector-specific analysis is crucial, as certain industries have emerged relatively unscathed.

“I firmly believe corporate debt will not decrease. Mauritians thrive on a certain level of indebtedness, just as companies do.

This trend of rising director interest rates has not deterred the growth of both household and corporate debt, and the figures speak volumes.”

As we ponder whether corporate debt will lessen following a 50-basis-point hike in the key rate and its implications for interest rates, Kulpoo insisted:

“Let’s be honest, debt is part and parcel of life for Mauritians and businesses alike. We operate within a system where a significant segment of the population has no choice but to rely on debt.

With 70 to 80% of people earning monthly salaries below Rs 30,000, businesses aiming for growth are often compelled to utilise the lending facilities available to them.”

Source: Defi Media