The capital market is a place where buyers and sellers indulge in the buying or selling of financial securities like bonds, stocks, and others. The trading is undertaken by participants such as individuals and institutions.

Rwanda’s stock market was established in 2008 and it has since then grown to become one of the most promising stock markets in Africa. A stock market is a particular category of the capital market that only trades shares of corporations. Stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Such financial activities are conducted through formal exchanges and through what is called over-the-counter (OTC) marketplaces that operate under a defined set of regulations.

Today, the Rwanda Stock Exchange (RSE) boasts a number of key trading companies listed on it, and these include, Bank of Kigali (BK), Kenya Commercial Bank (KCB), National Media Group (NMG), Bralirwa, Uchumi Supermarket, Equity Bank, I&M Bank Rwanda, MTN Rwanda, CIMERWA and RH Bophelo.

Set up with the aim of making available a market mechanism that would enable the private and public sector to access long term capital for economic development, the capital market offers an opportunity for Rwandans and foreigners to diversify their businesses, raise low-cost capital and share risks with others.

Here, Doing Business takes a look at equity and bond products on Rwanda’s Capital Market and why clients should take advantage of them.

Equities (shares)

In finance, equity represents the value that would be returned to a company’s shareholders if all assets were liquidated and the company’s debts were paid off. Equity is the ownership stake in a company or any other valuable business.

A number of companies in Rwanda have floated shares on the capital market, giving the clients an opportunity to invest in them. When a business needs to expand its operations, one of the ways it uses it is to divide its capital into small chunks called shares, stocks or equities.

Those shares are then sold to investors, including individuals, in order for the business to raise funds and invest in activities that generate profits. When you buy shares in that company, you become one of its owners, and you are therefore referred to as a "shareholder.”

Anyone can save and invest money through these shares on the stock market, regardless of how much money they hold. All you need is to be ready to make your initial purchase.

Owning shares in a company gives you an opportunity to participate in its affairs through your voting rights at the General Meetings. In addition to this, when the company reports profits and decides to distribute them, you are paid a dividend as income.

A dividend is the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors. Dividend is usually a part of the profit that the company shares with its shareholders. Dividends are often distributed quarterly. They may be paid out as cash or in the form of reinvestment in additional stock.

Bonds: corporate and treasury bonds

A bond is a debt. When you buy a Treasury bond issued by the government you are a lender and the government is a borrower. Equally, when you buy a bond issued by a company, the company is a borrower and you are a lender.

Corporate bonds are a form of debt financing. They are a major source of capital for many businesses, along with equity, bank loans, and lines of credit. A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as ongoing operations, mergers and acquisitions (M&A), or to expand business.

Treasury bonds (T-bonds) are long-term fixed-interest instruments issued by the Central Bank for fiscal or monetary policy purposes. A Treasury bond is a government debt security. A Treasury bond investor receives interest payments (coupons) periodically: quarterly, semi-annually and the face value at maturity. Treasury bonds can be issued with a maturity of 2, 3, 5, 7, 10 years or more. In Rwanda, Treasury bonds can go up to 30 years. They are open to all investors, residents and non-residents. Treasury bond investors (residents and non-residents) must open an account either in licensed commercial banks in Rwanda or at the Central Bank for the payments.

Generally, bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. Once the bond reaches maturity, the bond issuer returns the investor’s money.

The bonds will promise to pay you an interest income periodically.

Treasury bonds are issued by the government for a number of reasons which may include: the need to raise money to finance a specific project, the need to ‘fund the deficit” that is to say, raising money to fund a shortfall in tax revenues, and so on.

For T-bonds, the minimum bid amount is Rwf50 million for competitive bids and Rwf100, 000 for the non-competitive bids.

The private sector (non-government institutions) may issue bonds to raise money to finance a specific project, fund a cash flow shortfall, and so on.

More and more activity on the local capital market gives opportunities for entities to access long term and low-cost finance (capital), discover the real value of their businesses, but it also enhances corporate governance (management) practices and use of shares as a currency in the country.