This week the Rwanda Stock Exchange (RSE) announced the introduction of new listing rules for exchange-traded funds (ETFs) and real estate investment trusts (REITs).

These are a new class of financial instruments that will only deepen Rwanda’s capital market by offering investors more opportunities and flexibility to invest in a diversified pool of assets.

ETFs are traded on a stock exchange just like individual stocks. They allow investors to buy a small portion of assets that the fund holds, thereby giving them flexibility to invest.

Take New Gold ETF that trades on the Johannesburg Securities Exchange (JSE) and accessed in secondary markets such as Kenya. This allows investors to invest in gold, a safe haven against inflation, without buying or carrying physical bars.

For REITs, think about them as a vehicle to invest in an apartment or a commercial building without actually building one from scratch. REITs package real estate assets into one fund that they then list on the exchange to allow investors to buy shares in them.

With REITs, investors have a way to invest in large-scale, income-generating real estate without needing to directly manage, finance or own the properties. REITs take the typical ‘illiquid’ asset – real estate – and make them ‘liquid.’

REITs are particularly interesting in a sense that they allow investors to raise money needed for things like affordable housing and urban dwellings.

Kudos to RSE and CMA for this move. The real work starts now. For small and less developed capital markets like Rwanda’s, the biggest challenge is how to ensure the uptake of these complex financial assets.

For now, you could expect institutional investors such as banks, pension funds, sovereign wealth funds, and some private companies that need diversification to easily invest in ETFs and REITs.

However, it is hard to believe that ETFs and REITs will easily attract retail investors in Rwanda, given that these individuals are not knowledgeable enough to understand complex financial instruments.

Investor education, especially among individuals, will go a long way to ensure successful take off of ETFs and REITs.