“Understanding Capital

Market In Rwanda”

CIMERWATUESDAY 6TH APRIL 2010

CAPITAL MARKET ADVISORY COUNCIL

Presented byOlivier Kamanzi

Dep. Executive Director, CMAC

OUTLINE

INTRODUCTION

FINANCIAL SYSTEM

WHAT IS CAPITAL MARKET

HOW DOES THE CAPITAL MARKET WORKS ?

PRIMARY MARKET

SECONDARY MARKET

WHAT IS ROTC MARKET / RWANDA STOCK EXCHANGE

WHAT ONE CAN BUY OR SELL ON CAPITAL MARKET ?

MEMBERS OF ROTC & COMMISSIONS AND FEES

BENEFITS TO INVEST & LISTING ON ROTC MARKET

WHAT IS AN INVESTMENT, WHY INVEST, AND WHO IS AN INVESTOR?

MONITORING YOUR INVESTMENT AND WHEN CAN YOU START INVESTING?

HOW TO OPEN AN ACCOUNT AND TRADING

RISKS INVOLVED INVESTING IN CAPITAL MARKET

HOW AM I PROTECTED ?

CMAC OPPORTUNITIES AND ADVANTAGES

CMAC MILESTONES ACHIED

INTRODUCTION CMAC BACKGROUNG

The Capital Market Advisory Council (CMAC) was established by the Prime Minister’s order No. 01/03 of 28/03/2007 with the purpose of guiding the development of the capital market in Rwanda. The Council is under the supervision of the Ministry of Finance and Economic Planning

CMAC VISION

To be a key contributor to Rwanda becoming a competitive financial center regional and globally.

MISSION

To nurture wealth by facilitating the development of an orderly, fair, transparent and efficient capital market

CORE VALUES

Good Governance, Knowledge, Creativity and Innovation

FINANCIAL SYSTEM IN RWANDA VISION 2020

The Financial Sector identified as crucial geared towards stimulating the economic growth of Rwanda

FINANCIAL SYSTEM ARCHITECTURE

MONEY MARKET – Regulated by BNR

CAPITAL MARKET – Self regulated

INSURANCE – Regulated by BNR

PENSIONS – Regulated by BNR

MICRO-FINANCES – Regulated by BNR

NATIONAL PAYMENT SYSTEM – Regulated by BNR

WHAT IS CAPITAL MARKET

A market for SAVINGS and INVESTMENTS. Brings savers and investors together.

Market for long term funds required to finance long term projects.

Section of the financial sector that mobilizes savings and channels them to the most productive sectors of the economy.

If investment is going to increase the wealth of a nation, it must be channeled into productive businesses.

ROLE OF CAPITAL MARKET IN THE ECONOMY

Allocation of savings resources at the most efficient prices

2. Corporate governancei. transparency through disclosureii. higher standards of accounting

3. Risk sharing through wide share ownership4. Promote ease of access to finance as

different users of capital can choose among different methods i.e.-commercial paper- shares-bonds-government bonds-municipal bonds

ROLE OF CAPITAL MARKET IN THE ECONOMY

1. Allocation of savings resources at the most efficient prices

2. Corporate governance

a. Transparency through disclosure

b. Higher standards of accounting

3. Risk sharing through wide share ownership

4. Promote ease of access to finance as different users of capital can choose among different methods i.e.

a. Commercial paperb. sharesc. Bonds – Government and Corporate d. Municipal bonds

ROLE OF CAPITAL MARKET IN THE ECONOMY

5. Promote growth of financial services to accelerate growth

a. Insuranceb. Pensionsc. Collective investment schemesd. Funds Management and administratione. Bankingf. Real estate & propertyg. Infrastructure development

6. Privatization

7. Widening ownership of business and spreading the risks and wealth of a nation among the households.

ROLE OF CAPITAL MARKET IN THE ECONOMY

8. Savings from diasporas. Easy to use capital market to tap nationals savings earned in foreign countries.

9. Attract FDI as capital market provide an exit window

10.Diversification from traditional economic activities like agriculture

11.Savings culture through public education in investments

12.Encouraging self reliance

HOW DOES THE CAPITAL MARKET WORKS?

3 Components: Issuers, Investors, and Intermediaries Organized markets where buyers and sellers (Investors or

the public) meet A stock exchange or an OTC market has professional

intermediaries. Capital markets has two levels;

A. Primary Market: to raise new capital

B. Secondary Market: day to day trading of already listed securities.

Capital markets rely on;

Rules and regulations

Physical infrastructure Companies disclose all useful information about their

businesses

TRANSACTION FLOW – PRIMARY MARKET

Issuer is admitted to list on the OTC

Offer closes and announced and allotment follows

Public investors subscribe to securities during the offer period

Issuer states the offer period and offers securities to the

public

Issuer applies to list securities on the OTC market

Issuer prepares draft prospectus or information memorandum

Issuer appoints advisors sponsors / agents

Issuer offersDecides to raise capital

SECONDARY MARKET

Buyer client

Member

Stockbroker

(Buyer)

CMAC

OTC

Trading facilities

Registration

Member

Stockbroker

(Seller)

Seller Client

Market Report

Market where transactions are negotiated between a buyer and a seller.

How does the Rwanda OTC market operate?

A dual trading process

Members trade securities directly with investors and among themselves

Open outcry trading sessions are conducted at the trading floor of the OTC market.

WHAT IS AN OTC MARKET

ROTC MARKET PERFORMANCE

The primary debt market raised a total of Rwf.15.2 billion. On secondary market a total of Rwf 643 million worth of bonds were traded in 52 transactions.

BCR 10 years, 9% coupon, Corporate Bonds

FXD1, 8%, 2 year, Treasury Bonds

FXD2, 8% 2 year, Treasury Bonds

FX3, 8.25%, 3 year Treasury Bonds

Cross listing of KCB: Turnover of Rwf 12million from 63,000 shares traded since 18th June 2009

The Rwanda Stock Exchange was

established in 2005. It is a dormant

company yet to be activated. It will be

expected to run the trading operations

of the Rwanda OTC Market.

RWANDA STOCK EXCHANGE

Treasury Bonds

Corporate Bonds

Security Maturity Coupon Rate

%

Closing price 

08/5/08 Rwf

YTM 

%

Prev. Price 07/5/08

Rwf.

Bid 

Offer (Ask) 

Sales Rwf

FXD1/2008/2yr 14/01/2010 8.00 100.250 6.912 100.00 - 102.00 5M

FXD3/2008/3yr 31/01/2011 8.25 - - - - - -

Bond Rate (TB) Maturity Closing price31/1/08

Previous price31/1/08

Bid Offer (Ask) SalesRwf

BCR2yr

FXD1/2008+ 1.00%

2017 102.2500 102.2500 - - -

UNDERSTANDING THE MARKET REPORT

Shares and bonds

WHAT IS A BOND? A bond is a debt.

WHAT IS A SHARE / EQUITY? A share is a unit of ownership Participate in the affairs Your voting rights at the General meetings A dividend income

WHAT CAN ONE BUY ON ROTC MARKET?

7 members

Three categories of membership:

Stockbrokers, Dealers, and Sponsors

MEMBERS OF THE RWANDA OTC MARKET?

Helps investors to either buy or sell securities

Acts as the middleman or intermediary between investors

Gives advice to investors

To qualify as a broker

Minimum education skills and professional qualifications

WHO IS A STOCKBROKER OR BROKER/DEALER?

The current brokerage fees are: Bonds (debt): First Rwf 5m……………1/8%

Above Rwf 5m ………………..……negotiable

 Shares (equities): First Rwf 100,000...1.5%

Above Rwf 100,000…………………………….. negotiable

HOW MUCH COMMISSIONS OR FEES DO STOCKBROKERS OR B/D CHARGE?

Savings

Income

Wealth or Capital gain

Securities as Collateral

Liquidity

BENEFITS TO INVESTORS?

Access capital Discover the value of its business Raise a company’s visibility and enhance its

status with customers and suppliers at home and overseas

Have better bargaining position with financiers Enhance management practices Foster employee motivation Benefits from Capital Market incentives Use of shares as currency Listed securities are easily acceptable as

collateral against loans from financial institutions.

BENEFITS TO ISSUERS OR LISTING ON OTC MARKET?

Payday Postponing your consumption today savings

WHAT IS AN INVESTMENT?

WHY INVEST?

Creating wealth It is impossible to create wealth without

investing Secure the future Comfortable retirement Investment is a time-honored practice for

increasing your wealth

Anyone with

Investment objective

Time horizon for his investment

Risk torelance

Expectation of return and money to invest

WHO IS INVESTOR?

Actively follow or monitor his investment

Developments within the company you invested in

The stock market

The economy as a whole

Reading the business pages of the newspapers and listening to local FM station and TV

MONITORING YOUR INVESTMENT?

NOW!!!

WHEN CAN YOU START INVESTING?

Open an account with a brokerage house Making contact with a broker of your choice Personal particulars

HOW TO OPEN AN ACCOUNT?

TRADING ?

Trading arrangement

Only through authorized Members (Stock brokers)

Trading is open to the general public

Business risks

Behavioral risk / Counterparty risk

Poor or fraudulent

Market risks / Systemic risk

Price fluctuation(worldwide)

Perceived risk / Fear

RISKS INVOLVED INVESTING IN CAPITAL MARKETS ?

CMAC ensures that only competent and credible professionals are licensed to serve the market.

CMAC supervises all members of ROTC to ensure compliance with regulatory requirements

CMAC ensures that prospectuses of issuers have adequate disclosure for decision making

CMAC ensures that there are periodic reports and all price sensitive information are released once they are available

National public education and awareness campaigns create well informed investors

Developing a legal framework.

HOW AM I PROTECTED?

Stockbrokers; Investment advisors; Registrars; Fiscal agents; Custodians; Data vendors; Credit Rating agencies; Investment banks; Venture Capital companies; Investment clubs; Investment research houses; Financial analysts and

journalists; Financial Publications; Discount Houses (Treasury

bills on Rwanda OTC market); Fund managers and Asset managers; Hedge funds. Etc…

CAPITAL MARKET OPPORTUNITIES?

Viability of projects determined by demand and supply.

Liquidity and projects pricing is made possible through public participation

Availability of information by investing publicly.

CAPITAL MARKET ADVANTAGES?

ROTC Market fully functioning (primary and secondary market)

7 Active Members Legal Framework: Draft Law on Capital Market Authority, Draft

Law Regulating Capital Market in Rwanda, Law Regulating Collective Investment Schemes – approved by the Cabinet

Policy Proposals Privatization of Government Shares through the capital

market Fiscal and None Fiscal Incentives: set of incentives and

recommendations aimed at stimulating the investment environment for the development of the capital market in Rwanda

CMAC Strategic Plan – 5 years National Public Education and Awareness Program Capacity Building – Training program for Market Participant

and Staff New Listing Integration into East Africa Capital Market – Member of

EASRA & EASEA

CMAC MILESTONES ACHIEVED?

MURAKOZE

CYANE