The relatively growing savings culture and diversification of sources of income stemming from the current market realities continue to push more Rwandans to embrace trust funds.

However, trust funds have yet to gain widespread popularity in Rwanda.

A trust fund is a regulated investment vehicle where investors can save their cash and earn investment returns that are higher than what they would get in a typical savings account, while having access to their cash at any time.

As low investment risk instruments, they are designed to preserve capital, while paying out distributions or interest to the investor twice a year. The proceeds are from investments in a diversified portfolio of money market instruments, cash deposits, and debt instruments issued by the Government of Rwanda and corporate entities operating in Rwanda.

An investor may choose to either reinvest the interest income back into the fund, thus compounding the growth of their capital investment, or opt to take the interest income out to meet other expenses, while their capital investment remains untouched in the Fund.

Currently, there are only two trust funds operating in the country, namely Iterambere Fund run by theRwanda National Investment Trust Ltd and Aguka Unit Trust Fund run by BK Capital.

Iterambere fund is tax-exempted as part of the government’s move to encourage an increase in domestic savings through investment funds.

Kevin Karobia, Senior Investment Research Analyst at BK Capital said that Aguka Unit Trust Fund has grown to an average of Rwf21 billion fund under management, attributing it to an attractive interest rate.

For fund stability, he said, they invest 70 per cent of capital in government instruments, 10 per cent in corporate bonds listed on stock exchange, and another 10 per cent in unlisted commercial papers.

Low uptake

Although the fund was launched in 2020, its uptake remains a challenge as a large portion of investments are dominated by institutional investors than retail investors.

While approximately 600 out of 1,000 active subscribers are retail investors, their combined balances are significantly smaller than those held by corporate companies, according to Karobia.

Karobia attributed the low uptake to the relatively low financial literacy levels and limited saving culture among Rwandans. "Once people really understand the benefits, we expect that we should even double the fund under management in no time.”

The same was reiterated by Andre Gashugi, Chief Investment Officer at RNIT-Iterambere Fund, who said that there is still a challenge of saving mindset that needs to be tackled through consistent financial education and awareness approaches.

"Most people decry that they have little or no money to save, but having a savings culture means that it is an action that comes first on the little income one gets for future financial needs,” he said while emphasising that the initial goal of the fund is to promote this culture among Rwandans.

Gashugi stressed that unit trust funds play a crucial role in driving economic development through channeling collected funds into the financial sector as investments, which are used to finance economic activities in the country, while generating returns at the end for trust investors.

Growing capital market

With over Rwf40 billion in assets, the fund is growing alongside Rwanda's capital market, offering investors opportunities to gain valuable stock market experience through primary and secondary market trading.

"This is a journey but it is steadily growing,” Gashugi noted

Thapelo Tsheole, CEO of Rwanda Capital Market Authority (CMA), said they are reviewing capital market law that should propel the introduction of new unit trusts in the economy.

At the same time, he mentioned that they are mulling the possibility of having foreign currency-denominated funds and that can act as hedge instruments to attract even foreign investors in domestic funds as the country continues to position itself as a good investment destination.

"We also need to create efficiency for people to get in or out. We need diversity in terms of unit trusts because there are only two and the landscape is actually big, but this is linked to the development of the stock or bond market,” he said

This means that if the debt market is deepened and diversified, unit trusts will be able to structure products, especially for retail investors, that leverage the growth of the capital market, Tsheole added.

He emphasised that the growth of trust funds depends on investors’ trust in market safety and this requires to have a proper regulatory framework in terms of licensing, supervision, obligations, and reporting that informs them about the state of assets.

Market competition ahead

Karobia said that while the players in Rwanda’s market are still few, the central bank issued a couple of fund management to some Kenyan companies, which is poised to generate competition in the market.

"Some of the disruptions will come from a market like Kenya that is ahead of us, then if we don't innovate, we will lose out on our clients. We expect that there will be competition and we are just angling to ensure that we are on the right side of the competition.”