Collective investment schemes and the regulations

Since its launch on January 31, 2008 the Capital Market Advisory Council (CMAC), an institution in charge of developing capital markets in the country, has been trying to develop a properly functioning stock exchange. This has also involved developing the legal requirements to ensure that participating parties behave according to the rules and regulations of the game. Amongst the four laws drafted by CMAC so far, the latest, the Collective Investment Schemes (CIS) law has attracted my interest. This is mainly because unlike other laws which have been drafted to regulate newly established products and institutions, the CIS have been in existence on the Rwandan turf for a long time. A Collective Investment Scheme is any arrangement whereby funds are solicited from the investing public for the purpose of investing, re-investing and or trading in securities or other assets. The Rwandan mutual fund industry has remained unexciting and lags behind its East African Community counterparts of Tanzania, Kenya and Uganda. Yet quite a number of Rwandans have been pooling resources as a way of increasing their savings with intentions of making long term investments. The biggest challenge though is that under the current arrangement in Rwanda, the pooled assets by different investors are not professionally managed by an independent manager. These funds are also not well regulated. As the Rwanda stock exchange grows with a diversity of products coming up, CMAC plans to attract CIS resources on the Kigali bourse through the purchase of shares, gilts and bonds (both corporate and government owned). However, when most consumers buy financial products on the stock exchange, they have less understanding and information than the professional parties involved. And if the market is not well regulated coupled with the information gap, a lot of consumers will have no confidence and will not get involved in financial markets, thus bearing negative consequences not only on consumers but also on the economy. During a validation workshop on the CIS law Thursday this week, Robert Mathu the Executive Director of CMAC said the law has been drafted to establish a comprehensive regulatory framework for CIS as a means to develop the Rwanda stock market. Indeed, this is important because more and more consumers will be participating in the financial markets as the products become increasingly complex. If not regulated, CIS are unlikely to offer a level of investor protection equivalent to that available in other EAC countries. By applying high governance standards in the establishment, sale, management and operation of CIS, CMAC is protecting the interests of the investing public. It is only sophisticated investors who would be willing to take up risks of unregulated collective investment schemes.But we don’t have many in our society currently. The writer is Journalist Contact: gahamanyi1@gmail.com