capital market advisory council “cmac” and financial
TRANSCRIPT
CAPITAL MARKET ADVISORY COUNCIL “CMAC”
AND FINANCIAL SECTOR DEVELOPMENT PROGRAM
IN KIGALI RWANDA
A Thesis
presented to the School of
Postgraduate Studies and research
Kampala International University
Kampala, Uganda
In partial Fulfillment of the requirements for the degree
Master of business administration
By:
NDATSIKIRA Constantin
MBA/2003 1/DF
September, 2011
DECLARATION A
“This thesis is my original work and has not been presented for a Degree or any
other academic award in my University or institution of learning”
~ C~≤7~FifName and signature of candidate
~2~\ (0 j~otiDate
DECLARATION B
“I/we confirm that the work reported in this thesis was carried out by candidate
under my/our supervision”.
d~a_ frL~-c~3I ____________
Name and signature of supervisor Name and signature of su
pci-visor
~I)~ (~~i ________
Date Date
APPROVAL SHEET
This dissertation entitled Capital market advisory council (CMAC) and fi
nancial sector development program in Kigali, Rwanda prepared and
submitted by NDATSIKIRA Constantin in partial fulfillment of requirement for
the degree of Masters of business administration has been examined and
approved by the panel on oral ex~iination with a grade of PASSED.
Name and ii. of Chairman
L ~< ~ Ntu/~LclMName and sig. of Supervisor Name and sig. of Panelist
I,’6~~n ~.a a
Nam and sig. of panelist Name and sig. of panelist
Date of Comprehensive Examination:
Grade
Name and sig. of Director, SPGSR
Name and Sig. of DVC, SPGSR
DEDICATION
This book is a dedication to my Parents Mr. Rwigema Martin and Mukakarisa
Eugenie, my brothers and sisters, Monica, Francine, Pacifique, Delice and John
Claude.
This book is also a dedication to my beloved REGINE.
iv
AKNOWLEDGEMEgr
I would like to thank the AlmIghty God for enablIng me to complete thisreport. I would like also to thank my supervisor Dr D. L Klblkyo for all the assistance that he has given me throughout my research. I would like also to thankDc Kibuuka, Dr YAHYA Ibrahlm, Mr. MALINGA R. and all KIU staff and teachersfor all the support and the assistance they gave me throughout my study. FinallyI thank all dass comrades for theIr encouragement May the almIghty God reward abundantly,
NDATSIKIRA Constantin
V
ABSTARCT
The study investigated the effect of capital market on financial sector
development in Rwanda. From population 150, a sample of 132 respondents
was interviewed. Analysis of data was by regression analysis.
The objectives of the study were to determine the profile of respondents, to de
termine how CMAC contribute, to better financial intermediation in the area; to
identify the market of development services put in place by CMAC in order to
continue building the reputation as an innovative financier and to establish the
significant relationship between capital market advisory and financial sector de
velopment programme.
The findings of the study, following the research questions, revealed that there is
a strong relationship between Capital market and development of financial sector
in Rwanda because CMAC, through its stock exchange market will help to facili
tate financial institutions to get loans by buying securities, to provide services
like increasing incomes of investors, enhancing economic growth, and creating
employment, to increase the profits of financial institutions, and to attract more
financial companies to join Rwanda stock exchange market. The research re
vealed that, CMAC has a strong intervention in promotion of investor protection,
insuring that markets are fair, efficient and transparent so as financial sector
gets vibrant.
In order to enable a smooth transition into the effective operation of capital mar
ket in Rwanda there is need to implement the following policy recommendations.
There is a need to develop the confidence in the public for investing in capital
market by the increased public awareness aimed at educating the public about
CMAC and RSE operations.
Development of an effective legal system to increase the safety and complete
removal of uncertainty regarding the benefits of the resulting investments, guar
anteed stable banking sector, enforcement of capital market regulations so that
there is continued encouragement of the public in the bond market.
vi
TABLE OF CONTENTS
CHAPTER PAGE
ONE THE PROBLEM AND ITS SCOPE 1
Background of the Study i
Statement of the Problem 3
Purpose of the Study 4
Objective of the study 5
Research Questions 5
Hypothesis 5
Scope 6
Significance of the Study 6
Operational Definitions of Key Terms 7
TWO REVIEW OF RELATED LITERATURE 9
Concepts, Ideas, Opinions from Authors/Experts 9
Theoretical Perspectives 14
Related Studies 17
THREE METHODOLOGY 19
Research Design 19
Research Population
Sample Size 19
Sampling Procedure 20
Data collection Instrument 20
Validity and Reliability of the Instrument 21
Data Gathering Procedures 22
Data Analysis 23
Limitations of the Study 23
vii
FOUR PRESENTATION, ANALYSIS AND INTEPRETATION OF
DATA 25
Introduction 25
FIVE FINDINGS, CONCLUSIONS,
RECOMMENDATIONS 36
Findings 36
Conclusions 38
Recommendations 39
REFERENCES 41
APPENDICES 45
Append~x I - Transmittal Letter 45
Append~x II - Clearance from Ethics Committee 46
Append~x III - Informed Consent 47
Appendix IV - Research Instruments 48
Curriculum Vitae 55
viii
LIST OF TABLES
Table 1: Profile of respondents 25
Table 2: ContrIbutIon of CMAC to better financIal Intermediation In the area 29
Table 3: IdentIficatIon of the CMAC market of development services 31
Table 4: The effectiveness of CMAC In financIal sector development program ofRwanda 33
TableS: Pearson’s CorrelatIons 35
ix
LIST OF FIGURES
Figure I: Schema of the study 16
x
LIST OF ACRONYMS
BNR Banque Nationale Du Rwanda
CMAC Capital Market Advisory Council
RSE Rwanda Stock Exchange Market
GDP Gross Domestic Product
OTC Over The Counter
ROTC Rwanda Over The Counter Market
U.K United Kingdom
US United Nations
FSA Financial Services Authority
KCB Kenya Commercial Bank
BB Berkley Bank
CVI Content Validity Index
xi
CHAPTER ONE
THE PROBLEM AND ITS SCOPE
Back ground of the study
All economies fundamentally require government planning authorities for
finance, banking, insurance and retirement. Of equal importance is the capital
markets authority, which, however, does not have to be under the government.
Such is the global trend; the New York, and London Stock Exchanges were all
started by private entities. In Africa, the World Bank has influenced financial re
forms to ignite capital markets through legislation to provide security for the in
vestors (Kinyua, 2004).
Capital Markets benefits its clients by offering complete capital markets
solutions anywhere around the globe. Investment Properties, working in tandem
with Debt & Equity Finance, assures clients that all alternative recapitalization
strategies are evaluated. When working with buyers of assets offered by Invest
ment Properties, optimal debt structures are often secured, enabling borrowers
to obtain more loan proceeds at attractive terms and sellers to achieve better
results. By encompassing debt and equity solutions, the group ultimately pro
vides investors with the maximum flexibility to achieve their capital needs
(Bohnsted, 2000)
Recall that a capital market is where the supply and demand for long term
stock funds is channeled. In this market, stocks and other financial investments
are traded amongst capable financial investors who can obtain long term funds
by way of issuing stocks and bonds, (Kinyua, 2004).
An organized capital market or stock market has three components.
These are: One, the listed securities or stocks issued either by Government or
companies; Two, the investors or the public who own the securities, and Three,
the intermediaries or middlemen called stockbrokers.
The stockbrokers are members of the OTC market who are authorized to
sell and buy shares or bonds on behalf of the investing public.
(htt://cmauganda.co.ug/about/about.htm). Therefore a capital market is a mar
ket where stocks are bought and sold, Buyers and sellers of stocks meet at the
capital market to transact business, A capital market is a part of a stock market
or a securities market or a stock exchange (Bohnsted, 2000).
The capital market plays several roles in the mobilization of savings
amongst the various participants of the economy. They help in the monitoring
and control of the firms operating such as stockbrokers, dealers, and investment
advisors (Alile,1992), The authority and the security assist on the mobilization
of financial resources where the authority curries outs investment advises to
prospective investments. The market assists in the protection of the investors
‘interest through encouraging transparency by the listed companies, (Kother,
2003).The capital markets and security exchange affect the growth of the econ
omy by way of creation of liquidity in the economy.
The securities exchange aid as a means of exchange for the prospective
buyers and sellers in the market. Capital Markets combines the company’s in
vestment sales and mortgage banking businesses into a single, fully-integrated
global service offering.
2
The financial, sector is all the wholesale, retail, formal and informal
institutions in an economy offering financial services to consumers, businesse~
and other financial institutions. In its broadest definition, it includes everything
from banks, stock exchanges, and insurers, to credit unions, microfinance institu
tions and money lenders.
Financial sector on the other hand covers the short-term money market and
foreign exchange market operated by the Central Bank, the long-term capital
market, commercial and specialized banks, non-bank financial institutions and
microfi nance institutions (Sanvart, 1986).
The overarching vision of the financial sector development is to develop a stable
and sound financial sector that is sufficiently deep and broad, capable of effi
ciently mobilizing and allocating resources to address the development needs of
the economy and reduce poverty. The scope of financial sector development
program is to address weaknesses in access to finance, capital market develop
ment, regulation of non-bank financial institutions and payment system.
Statement of the prob~em
The financial sector assessment report (FSAP) describes the Rwandan
financial sector as narrow, shallow with an oligopolistic banking sector and very
narrow penetration of insurance services as well as undefined financial products.
The FSAP further recognized, wide interest rate spread, poor savings rate, scarci
ty of long term capital, unregulated pension and insurance sectors and a mal
functioning payment system. In addition, financial sector development which
should normally play a significant role in bridging this gap is steel weak, lacked
adequate financial management systems, and hard weak internal controls and
poor governance structures.
Rwanda lacked long term capital and market-based debt or equity products es
sential for its economic development strategy.
3
While the banking sector was exclusively liquid, the funds were short term
in nature. As results, mortgages and investment projects were financed on very
short maturity terms of around Syears. This weakness was exacerbated by lack
of efficient mechanisms for banks to transform the long term assets on their
books into liquid funds.
The financial sector in the gross domestic product (GDP) remains small at
5.2% in 2007.By the same year, it has been discovered that savings and invest
ment are still very low currently at 0.5% (Financial Sector development plan,
2007). The government has conducted an assessment of the financial sector and
designed a Financial Sector Development Program which contains specific actions
to develop the banking sector, microfinance and access to credit, long-term
finance and capital markets, contractual savings (insurance and pension) and
payment Systems. Finally the main challenge of the Rwandan financial sector is
inadequate institutional, organizational, and human resources capacity (Rusaga
ra, 2007).To overcome this enormous challenge, it is essential to build capacity
in all these dimensions. The Financial Sector Development Program is an impor
tant step, forward, especially in its emphasis on institutional development. That is
why the researcher has been interested on the effectiveness of capital market
advisory council in the financial sector development of Rwanda.
Purpose of the Study
The purpose of this study is to establish the relationship between the
capital market advisory council and the development of financial sector in Rwan
da. The Government has pursued positive steps to address this problem especial
ly through the strengthening of micro finance institutions and through promoting
stock exchange market (New Vision, 2010).
4
Research Objectives
The general objective of this study is the effectiveness of capital market
advisory council (CMAC) in financial sector development program in Rwanda,
The specific objectives are:
(i) To determine the profile of respondents in terms of objectives.
(ii) To determine how CMAC contribute to better financial intermedia
tion in the area.
(iii) To identify the market of development services put in place by
CMAC in order to continue building the reputation as an innovative
financier.
iv. To establish the effectiveness of CMAC in financial sector develop
ment program of Rwanda.
Research questions
(i) What are the profile respondents?
(ii) What is the contribution of Capital market in development of fi
nancial sector?
(iii) What are development services put in place by CMAC in order to
continue building the reputation as an innovative financier?
(iv) What is the level of effectiveness relationship between capital mar
ket advisory in financial sector development program?
Hypothes~s of the study
There is no significant relationship between the creation of capital mai ket
advisory council and development of financial sector in Rwanda.
5
Scope of the study
The geographical scope
The study will be conducted in Rwanda, the area which has only one word
that is KIGALI city. This area was selected because it is where CMAC is located
and most of the people in the area use CMAC services.
The theoretical scope
The study concentrated on establishing the relationship between tha fi
nancial sector development programs in Rwanda using capital market advisory
council. The study basically considered the services rendered by CMAC in Rwan
da, how have contribution to development of financial sector in the area.
The content scope
The study focused. on capital market advisory council and financial sector
development programs.
S~gnificance of the Study
This study will be significant in the following aspects: The CMAC will con
tribute to the financial sector development programs with the variety of services
offered and their various activities. The recommendation to be made after the
analysis of the collected data will help the entire financial systems to design ef
fective policies that will address the development of financial sector in Rwanda.
The study will help the business community not only to rely on banking
and other microfinance inst1tutions as a source of long term financing, but also to
increase on the listing of the stock exchange.
6
The study will also contribute to the information data bank in respect of capi
tal and securities exchange on which few studies have been carried out so far.
The study will also be used by different scholars in higher institutions of learn
ing, libraries and the public.
The information derived from the study will provide financial analysts, policy
formulators and researchers with the basic for the further research in Rwanda.
Operation Definitions of Key Terms
Capital Market Advisory Council
Capital Market Advisory Council is a council which admitted seven mem
bers to operate in the Rwanda OTC market, There are three categories of mem
bership, these are Stockbrokers, Dealers and Sponsors, the stockbrokers buy and
sell both in their own behalf and on behalf of the investing public, dealers trade
with their own funds. Capital market can also be defined as the market for long
terms, It is composed of borrowers and lenders. The rate of interest is deter
mined by demand and supply forces. Long term capital instruments include; or
dinary shares or equity, fixed interest capital, that is to say preference share cap
ital and debentures,
Capital markets
Capital markets include; stock exchange, investment companies insurance com
panies, building societies, pension funds, commercial banks, and many others,
Usually capital markets are divided in two: Securities market which is a market
for terms securities, like shares, debentures, Stocks, bonds and many others,
The second is a loan market which is a market for long term loans like mortgage
finance, lease finance and many others. Capital market has to insure transparen
cy by listed companies about their books of accounts.
7
The flnancia~ sector
The financial sector is defined as all the wholesale, retail, formal and informal
institutions in an economy offering financial services to consumers, businesses
and other financial institutions, In its broadest definition, it includes everything
from banks, stock exchanges, and insurers, to credit unions, microfinance institu
tions and money lenders.
Financial sector however, covers the short-term money market and foreign ex
change market operated by the Central Bank, the long-term capital market,
Commercial and specialized banks, non-bank financial institutions and microfin
ance institutions.
8
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Concepts, Ideas, Op~nions from Authors/Experts
Capitall market
capital market is a market for securities (debt or equity), where business
enterprises (companies) and governments can raise long-term funds. It is de
fined as a market in which money is provided for periods longer than a year, as
the raising of short-term funds takes place on other markets (e.g., the money
market). The capital market includes the stock market (equity securities) and the
bond market (debt). Financial regulators, such as the UK’s Financial Services Au
thority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the
capital markets in their designated jurisdictions to ensure that investors are pro
tected against fraud, among other duties.( Sullivan, Arthur; Steven M. Sheflin
,2003).
Capita~ markets
Capital markets may be classified as primary markets and secondary mar
kets. In primary markets, new stock or bond issues are sold to investors via a
mechanism known as underwriting. In the secondary markets, existing securities
are sold and bought among investors or traders, usually on a securities ex
change, over-the-counter, or elsewhere (Pearson Prentice, 2003, Hall. pp. 283).
Long time ago, stock market based financial systems have been associated with
the 1gth century UK, which was the first country to go through industrial revolu
tion, and 20th century US which was the first country to go through post industri
al revolution (Bohnsedt, 2000).
9
The bank based financial sector developments were associated with France,
Germany, and Japan. There have been numerous literatures on the comparative
relationship between capital market and financial sector development in an
economy (Alile, 1992).
Capital Market is one of the significant aspects of every financial market. Broadly
speaking the capital market is a market for financial assets which have a long or
indefinite maturity. Unlike money market instruments the capital market instru
ments become mature for the period above one year. It is an institutional ar
rangement to borrow and lend money for a longer period of time. It consists of
financial institutions which play the role of lenders in the capital market. Business
units and corporate are the borrowers in the capital market, Capital market in
volves various instruments which can be used for financial transactions, Capita!
market provides.long term debt and equity finance for the government and the
corporate sector (Harris, 1913).
Like the money market capital market is also very important. It plays a
significant role in the national economy. A developed, dynamic and vibrant capi
tal market can immensely contribute for speedy economic growth and develop
ment. Let us get acquainted with the important functions and role of the capital
market:
MobiJ~zation of Savings: Capital market is an important source for mo
bilizing idle savings from the economy. It mobilizes funds from people for further
investments in the productive channels of an economy. In that sense it activates
the ideal monetary resources and puts them in proper investments (Wrights,
2002).
Capllta~ Formation: Capital market helps in capital formation. Capital
formation is net addition to the existing stock of capital in the economy. Through
mobilization of ideal resources it generates savings; the mobilized savings are
10
made available to various segments such as agriculture, industry, etc. This
helps in increasing capital formation (Postel, 1994).
Provision of Investment Avenue: Capital market raises resources for
longer periods of time. Thus it provides an investment avenue for people who
wish to invest resources for a long period of time. It provides suitable interest
rate returns also to investors. Instruments such as bonds, equities, units of mu
tual funds, insurance policies, etc. definitely provides diverse investment avenue
for the public.
Speed up Economic Growth and Development: Capital market en
hances production and productivity in the national economy. As it makes funds
available for long period of time, the financial requirements of business houses
are met by the capital market, It helps in research and development. This helps
in, increasing production and productivity in economy by generation of employ
ment and development of infrastructure.
Proper Regulation of Funds: Capital markets not only helps in fund
mobilization, but it also helps in proper allocation of these resources. It can have
regulation over the resources so that it can direct funds in a qualitative manner.
Service Provision: As an important financial set up capital market provides var
ious types of services. It includes long term and medium term loans to industry,
underwriting services, consultancy services, export finance, etc. These services
help the manufacturing sector in a large spectrum.
Continuous Availability of Funds: Capital market is place where the invest
ment avenue is continuously available for long term investment,
11
This is a liquid market as it makes fund available on continues basis, Both buyers
and seller can easily buy and sell securities as they are continuously available.
Basically capital market transactions are related to the stock exchanges. Thus
marketability in the capital market becomes easy. These are the important func
tions of the capital market.
Government is involved in creating and enabling policy, legal, and regula
tory environment for development of securities markets and train government
regulators on how to oversee the marketplaces. The Securities Markets Group is
also an active thought leader striving to advance knowledge in a variety of secur
ities market areas via papers, books, toolkits, and workshops.
Private individual’s also participate in active dialogue with key international
securities organizations, such as International Organization of Securities Com
missions (IOSCO), to improve the standard setting process applied to developing
countries. The private individuals’ work involves operations around the world,
ranging from single country to regional and global prolects (Fama F. Eugine,
1970).
They focused on strengthening the enabling legal and regulatory environ
ment, supporting the development of market infrastructure and participants, and
helping to bring new and innovative transactions to market.
Financial sector development program is the short-term money market
and foreign ex-change market operated by the Central Bank, Commercial and
specialized banks, non-bank financial institutions and microfinance institutions. In
this regard, the specific objectives of Financial Sector Development Program con
sist of: expanding access to credit and financial services to the whole population
across the country in both urban and rural areas, enhancing savings mobilization,
especially long-term savings; and, Channeling long-term capital for productive
investments (Harris, 1913).
12
Financial Sector Development Program provides a program loan to support
vital policy reforms in the financial sector, a project loan to facilitate program
implementation; and an associated technical assistance to institutionalize skills
and capacity development in the financial sector and promote the sector’s
growth, (Asian development bank, 2007)
The program’s aim is to reduce legal, regulatory, and supervisory constraints on
the financial sector; strengthen corporate governance and promote greater
commercial orientation in financial institutions; establish a surveillance system for
anti—money laundering (AML) and combating the financing of terrorism (CFT) to
support security and stability in the financial sector; develop national accounting
and auditing policies and standards for reliable financial reporting; establish a
credit information bureau to improve credit decisions to sustain capacity devel
opment by developing and setting up a training institute for the financial sector,
(Gavelle, 1999).
This is a program which gives an overview of the country’s economic de
velopment, financial sector development, and recent political transformation de
tails regarding the country’s compliance, (www.businessweek.com).
This program has been implemented in the Royal Monetary Authority
(RMA), which is Bhutan’s central bank, implemented the prudential financial sec
tor development program measures in 2009 to tighten monetary policy and
make the financial sector more resilient. It raised cash reserve and minimum
capital requirements and also revised the provisioning requirements for doubtlul
loans to minimize potential adverse impacts from risky lending.
Otherwise, developments in the financial market have generally been positive
and the entry of more banks and another insurance company into the financial
sector is expected to bring greater competition and new technology.
I—,
The link between capital market and financial sector is that the capital market is
essential to issue and trade long-term securities currently comprising of Treasury
bonds, and corporate bonds; contrary to T-bills (short-term tenor of less than
one year) issued and traded on the money market, T-bonds (long-term tenor of
more than one year) are essential to raise capital for public and private invest
ments, with the issuance and trading of equities (Gravelle, 1999).Seward for
example concluded that capital market and banks seem to complement each
other in transferring financial resources from households to firms (Seward,2004),
Investment in the stock markets also provides a source of income. Shares.
pay dividends when companies declare profits and decide to distribute part of
the profit to shareholders. International evidence on the link between financial
sector development and improvements of financial sector is in living standards
Indicated by the measures to the access in finance, analyzes of the determi
nants, and evaluations of the impact of finance on growth, equity and poverty
reduction, increasingly shedding light on the benefits of financial sector devel
opment ( Greenwood smith, 1996).
Theoretical Perspectives
This study will be based on systems theory. Systems theory focuses on
the arrangement of and relations between the parts which connect them into a
whole rather than reducing an entity to the properties of its parts or elements
(von Bertalanffy, 1968). This particular organization determines a system, which
is independent of the concrete substance of the elements. Thus, the same con
cepts and principles of organization underlie the different disciplines, providing a
basis for their unification (von Bertalanffy, 1968).
14
Simply put, a system is an organized collection of parts (or subsystems)
that are highly integrated to accomplish an overall goal. The system has various
inputs, which go through certain processes to produce certain outputs, which
together, accomplish the overall desired goal for the system. So a system is
usually made up of many smaller systems, or subsystems. For example, an or
ganization is made up of many administrative and management functions, prod
ucts, services, groups and individuals. If one part of the system is changed, the
nature of the overall system is often changed, as well — by definition then, the
system is systemic, meaning relating to, or affecting, the entire system, (von
Bertalanffy, 1968).
A system can be said to consist of four things, The first is objects — the
parts, elements, or variables within the system. These may be physical or ab
stract or both, depending on the nature of the system.
Second, a system consists of attributes — the qualities or properties of the sys
tem and its objects. Third, a system had internal relationships among its objects.
Fourth, systems exist in an environment. A system, then, is a set of things that
affect one another within an environment and form a larger pattern that is dif
ferent from any of the parts, (L. von Bertalanffy, 1968).
If any of the parts or activities in the system seems weakened or misa
ligned, the system makes necessary adjustments to more effectively achieve its
goals.
15
SCHEMA OF THE STUDY
F~gure I: Schema of the study
Source: vaHous authors
The above conceptual framework shows a relationship between capital
market advisory council and financial sector development programs, Independent
variable as capital market advisory council and dependent variable as financial
sector development programs.
Capital market advisory council provides services that include financial in
termediation (savings, credits schemes, insurance, capital market development
services), social intermediation (group formation, shareholders training) and
market of development services (the prices of stock go up, put in a better finan
cial position and will continue building the reputation as an innovative financier.)
When companies participate in capital market and are listed on the stock ex
change, they raise more capital and this contributes to their development.
Th~
Capitall market advF~sory councN (CMAC)
- Financial intermediation- Market of development services-security market forexample shares, debentures, stocks...-loan market for example mortgage finance,
Process
Economk factors
- Exchange rates
- Interest rates
-Monetary policy
Demand and supply
- Regulatory framework
Finanda~ Sector devellopment program.
- Greater access to credit- Employment increase- Raise capital-Increased investment opportunity-selling more shares-economic expansion
16
However, there are other economic factors that intervene like the exchange rate
keeps on increasing and decreasing, monetary policy, demand and supply of
money and regulatory framework which regulates and controls the economy.
These economic factors have come in to affect the financial sector development
programs in Rwanda, with Greater access to credit, Employment increase, Rais
ing capital, increased investment opportunity, selling more shares, economic ex
pansion and among others.
However the ability of Rwandans to use such services and capital market to pro
vide the services effectively will depend on the contextual factors like increased
levels of income, increased investment opportunities and to allow the shares of
privatized companies to gain a domestic listing that will influence the services
provided by the CMAC and the activities to be undertaken by the Rwandans that
enhance development. Give the above factors, the impact of capital market advi
sory council (CMAC) in financial sector development program in Rwanda will be
realized through greater access to credit, trade development and grow of wealth
if the CMAC services are used by Rwandans
Related studies
Various forms of literature have looked at the relationship between capital
market and development of financial sector. As capital market is defined as a
market in which long term debt and equity instruments are bought and sold
(Marchart, 2004). Long time ago, stock market based financial systems have
been associated with the 19th century UK, which was the first country to go
through industrial revolution, and 20th century US which was the first country to
go through post industrial revolution. The bank based financial sector deveiop
ments were associated with France, Germany, and Japan.
17
There have been numerous literatures on the comparative relationship between
capital market and financial sector development in an economy (Alile, 1992).
Seward for example concluded that capital market and banks seem to comple
ment each other in transferring financial resources from households to firms
(Seward, 2001).
Modern growth. th~aory
It identifies two specific channels through which the financial sector might
affect long-run growth: through its impact on capital accumulation (including
human as well as physical capital) and through its impact on the rate of techno
logical progress (Levine (1997).
These effects arise from the intermediation role provided by financial institutions
which enable the financial sector to: mobilise savings for investment; facilitate
and encourage inflows of foreign capital (including FDI, portfolio investment and
bonds, and remittances); and optimise the allocation of capital between compet
ing uses, ensuring that capital goes to its most productive use. Levine (1997)
Levine (1997) identifies five basic functions of financial intermediaries which give
rise to Savings mobilisation, Risk management, Acquiring information about in
vestment opportunities, Monitoring borrowers and exerting corporate control,
facilitating the exchange of goods and services (Levine, 1997).
18
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The research was based on a descriptive survey design and a cross sec
tional design based on structured questionnaire. This is because he collected in
formation from a random sample that had been drawn from a target population.
The sample chosen represented a cross section of the target population. This
was because they were categories of different participants that are from CMAC,
RSE, and customers of financial institutions and these were studied at one point
in time depending on their characteristics. This research design is used as a sys
tematic collection and presentation of data to give a clear insight with an aim to
discover the extent of the problem. Also both quantitative and qualitative me
thods were used to establish relationship between variables.
Research population
The study population consisted of 40 staff members (There are three cat
egories of membership: These are Stockbrokers, Dealers and Sponsors) from
CMAC, 50 from RSE, and 60 customers. So the total population is 150
Sample size
During conducting research, it is often impossible, impractical or too ex~
pensive to collect data from all population of analysis included in the research
problem. Thus a smaller number of a sample is often chosen to represent the
relevant attributes of the whole sets of population.
19
In selecting the research sample size, the following formula for sample
size determination was used:
Nn= 2
1 + Ne
Where: n is sample size, N represents population, CL represents the level of signi
ficance. Here ct= 0~05. (Slovin,1994).
Sampflng procedure
The research considered the staff members of CMAC. Therefore, the study
included CMAC staff and Members of the Rwanda OTC Market. The survey popu
lation included 36 staff members of the selected capital market, the 44 members
from RSE, and 52 customers. So the total population is132 members who inter
viewed include loan officers, officers in charge of training, administrative officers,
and buyers and sellers who met in one place for the exchange of securities.
The study comprised of 150 respondents of which only 132 responded
representing an overall 88% which was considered to be adequate for arriving at
an informed decision.
To get a clear picture of the nature and accurate information about opera
tion of capital market advisory council in the development of financial sector in
Rwanda, the researcher gathered information from CMAC, RSE as operator in the
market and the data from CUSTOMERS.
Research instrument
This study utilized questionnaires to obtain data from the respondents.
The questionnaires designed and administered by the researcher. The question
naire included both closed and open-ended questions. This method was selected
because it is easy to administer questionnaires; it saves time, it helps to collect
information that was applicable to the study,
20
Research procedure
The researcher obtained an introductory letter from Kampala International
University and presented it to selected CMAC. Respondents especially the CMAC
staff consulted in advance in their respective places and appointments was made
to fill the questionnaires, The questionnaire has been done face to face with the
selected respondents.
Vall~dfty and Rell~abH~ty of the instruments
As mentioned earlier, the questionnaires have been used in collecting the
data for this study. In order to determine the validity of that instrument, an ex
ercise of data collection was firstly carried out using a group of people from an
area assumed to having similar characteristics as the sample of the study. In ad
dition, the instrument was presented to the supervisor for validation related to
face validity, content validity and the appropriateness and clarity of questions
and their ability to generate the required information. Afterwards, necessary
amendments were applied before the actual data collection process.
The reliability of questionnaires was tested using the Cronbach Alpha
Coefficient method of internal and the computed reliability coefficients will be
shown in the table (Cronbach, 1990).
Furthermore a content \Ialidity index was calculated as suggested by amin’s for
mula,
rCVI=
fl
Where: CVI is coefficient of validity index, R is the number of item declared valid,
and N as the total number of item.
21
Tabilel
Content VaNdity Index of The questions
Questbnnafre Content vaNd~ty index (CVI)
Items on the contribution of CMAC to
better financial intermediation in the 24
area, the market of development CVI= =0.857
services put in place by CMAC in order 28
to continue building the reputation as
an innovative financier, and
formulation of development program
base on the findings were 28
The table 2 above shows that out of 28 questions, 24 were proved valid and with
respect to Amin’s formula the content validity index is 0.857. Therefore, the instrument
was proved valid.
Data Gather~ng procedures
The data collection process started after the approval of the proposal and an
introduction letter was acquired from the office of the director of School of
postgraduate Studies and research.
22
The questionnaire was reviewed for possible typographical letter before
the distribution.
Finally the introduction letter was presented to the selected capital market advi
sory council office, to the general office of Rwanda stock exchange, and to some
financial institutions; and the researcher requested an opportunity to provide
explanations pertaining to his study and the questionnaire was distributed.
Given that the distribution of questionnaires was hard work, the researcher
looked for assistant to help him in the distribution of questionnaire in order to
ease the task.
Data anallys~s
The data was collected was scrutinized and edited to eliminate any errors.
The collected data was also coded; this is the process of translating edited res
ponses into numerical figure. A complete coding schedule was done to ensure
that various responses obtained classified into meaningful forms so as to bring
out the patterns that are essential clearly. The study also used both qualitative
and quantitative analysis. The research used the general tables, charts and per
centages to establish the relationship between CMAC and financial sector devel
opment programs.
In addition to that, Microsoft excel and SPSS were used for processinç1 and
analyzing of quantitative data. In the analysis, relationship between independent
variable of the study ant dependent variable was examined and analyzed using
tables, graphs, and charts.
Umitat~ons of the study
The limitations that the researcher proposes to be a countered during the
study include: The researcher personally administering the questionnaires and
this would spend a lot of time and well trained research assistants have be also
used.
23
Finding appropriate time to fill questionnaires was hard since the staff
members of the selected CMAC had other activities outside office and also during
office hours they can be busy with office work. For buyer and sellers served by
CMAC they can have limited time in their transactions .However the researcher
will arrange with the Members of the Rwanda stock exchange Market, The state
members of the selected capital market and buyer as well as sellers served by
CMAC when to fill the questionnaire.
They were instances of some respondents resisting completion of the
questionnaires due to fear of conflict of the regulatory authorities but since they
were assured of confidentiality the researcher got the necessary information. The
last limitation was that they were instance of the respondents delaying respond
ing to the questionnaires as they were no financial rewards. Despite all the
above impediments, sufficient and reliable data were collected witch made me
arrive at a better, meaningful and conclusive research study.
24
CHAPTER FOURPRESENTATION, ANALYSIS AND INERPRETATION OF DATA
ProfUe of RespondentsTable 2 presents data on the general profile of respondents.
The profile characteristics of interests in this study were age, gender,
occupation and profession of respondents were asked to provide their profile
information using a closed ended questionnaire and results were summarized
using frequencies and percentage distributions as indicated in table 2.
Tab~e 1
ProfNe of respondents
N=132
Category Frequency Percentage(%)
Gender Male 93 70Female 39 30
Age group Between20-35 10 7.536-65 113 85.565+ 9 7
Levd of EducationCertificate 5 4
Bach. Degree 90 68Masters 37 28
PhD 0 0occupation 4.2
~Businesspersons 93 7017
Civil servants 23 13
Others 11 58
Profession 36Stockbrokers 76 7
Dealers 47 36
Loan officers 9 7
Source~ Primary Data 2011
25
In Table 2 shows that the respondents covered by the research, male
were 93 (70%) while female constituted 39 (30) respectively and therefore, the
male population constituted the majority of respondents. The researcher needed
to know the age distribution of respondents to help categorize the respondents
in Rwanda capital market.
The research reveals that majority of respondents 113 (85~5 %) were
in the 36-65 years age bracket, followed by 10 (7~5%) in the 20-35 years age
bracket. The table also shows that 9 (7%) respondents were in 65+ year’s age
bracket.
The researcher also round it necessary to determine the educational levels
of the respondents as that is the main determinant of the buying and selling se
curities that is most appropriate for especially those participants with low levels
of education and fresh graduates. The level of both education and participants
determines to some extent the level of capital market development on one hand
and financial sector development in general.
Thus, from the table, it can he observed that respondents hold a range of
educational qualifications from High school certificates, Bachelors’ Degrees and
Masters’ Degrees. Most of the respondents constituting majority of the total res
pondents 90 (68%) have Bachelors’ Degrees, followed by those with Masters’
Degrees with 37 (28%) and 5 (4%) of the respondents are holders of high
school certificates and none of the respondents have PhDs. The differences in
qualifications determine the placement of respondents on different posts in
CMAC. Placement is also done with respect to the grade at which the post is and
the hierarchy of the administration. Senior management positions are occupied
by those with higher levels of education, training and experience whereas most
positions are held by junior officers with Bachelors’ Degrees and followed by
those with college certificates who serve as office messengers, cleaners and
26
kitchen staff. This hierarchy of administration (in form of grades) creates room to
carry out a SWOT staff analysis to ascertain improvement needs or promotion to
those that merit it and this help in promotion of CMAC and thus promotion of
financial sector in Rwanda.
The study also sought to find out the occupation of the respondents have
rendered to the organization to enable us put their responses into proper pers
pective. Table 2 above represents the categories of occupations in CMAC as indi
cated by the respondents. The study reveals that respondents who were busi
nesspersons were 93 (700/c), civil servants were 23(l7%), and others were 11
(l3%). Majority of respondents were businesspersons.
The study finally sought to find out the professions of the respondents
have participated to the organization to enable us put their responses into proper
perspective. Table 2 above represents the categories of professions in CMAC as
indicated by the respondents. The study reveals that respondents who were
stockbrokers were 76 (58°k), dealers were 47(36%), and loan officers were 9
(7%). Majority of respondents were stockbrokers.
Contr~bution of CMAC to better flnanda~ intermed~atbn in the area
The second objective of this study was to determine how CMAC contribute
to better financial intermediation in the area. This was concerned with the devel
opment of awareness of people about financial institutions of Rwanda; how
CMAC has played a bigger role in increasing profits of financial institutions.
Following the results, we have obtained that there is a great contribution of
CMAC in financial intermediation. For example from April 2007 to March 2008,
many achievements were recorded, including, the minimum capital requirement
for banks was increased from RwF 1.5 billion to RwF 5.0 billion in order to in
crease the financial robustness and resilience of banks which are all complying
(www.cmac.org.rw).
27
The Central Bank Act through CMAC was amended to allow the BNR to re
gulate non-bank financial institutions, including insurance companies and pension
funds; prudential regulation and supervision is essential to promote confidence
and maintain the stability of the financial system (www.cmac.org.rw).
The Microfinance Policy implementation Strategy was completed to lay the
ground for the development of microfinance activities and a supporting Microfin
ance Law was submitted to Parliament. Government support to capacity building
and professional management will help increase access to finance by allRwan
dans and the efficient of microfinance institution. Also both credit and capacity
building funds for microfinance institutions were approved by the cabinet and will
be established soon to provide long-term sustainable refinancing access to MFIs
in form of external lines of credit and also enable MFIs access liquidity to invest
and obtain earnings. A capacity building fund on the other hand aims at develop
ing professional management and sustainability of microfinance institutions
(Rusagara, 2008). Table 3 concerned with the development of awareness of
people about financial institutions of Rwanda; how CMAC has played a bigger
role in increasing profits of financial institutions.
Following the below results, we have obtained that there is a great contri
bution of CMAC in financial intermediation with total mean of 1.36.
28
Tabile 2
Contr~bution of CMAC to better flnanda~ ~ntermed~at~on ~n the area
(Item anallysis n=132)
Mean Interpretation RankCurrently, the limited number of investment vehicles/products in the CMAC is a Not appreciated ihindrance to investor participation in the securities market. 2.97
CMAC improves market services in financial sector of Rwanda by allowing loan 1 64 Very highly appreciated 2facilities and savings facilities.CMAC contributes in business information and training 153 Very highly appreciated 3
CMAC identifies market of development services by accepting insurance facikties. 1.50 Very highly appreciated 4
CMAC affects the development of financial sector in Rwanda with its good reputa- 144 Very highly appreciated 5tion and with its international competition.CMAC has attracted more companies to join financial sector in Rwanda 1.44 Very highly appreciated 5
CMAC has attracted more companies to join financial sector in Rwanda 1.39 Very highly appreciated 7CMAC facilitates financial institutions to get loan by buying their securities. 1.33 Very highly appreciated 7CMAC has played a bigger role in increasing profits of financial institutions. 1.33 Very highly appreciated 7
Services provided by CMAC are sufficient compared to the customer need 1.33 Very highly appraciated 7
CMAC affects the development of financial institutions by supplying efficient 131 Very highly appreciated 11operations.CMAC has built a good reputation by developing financial sector of Rwanda 1.31 Very highly appreciated 11
CMAC services have contributed to development in the country 1.31 Very highly appreciated 11Are you satisfied with the current services rendered by RSE? 1.31 Very highly appreciated 11
CMAC has developed awareness of people about financial institutions of Rwanda 1.31 Very highly appreciated 11
CMAC after creating RSE has affected the development of financial sector in 1 28 Very highly appreciated 16Rwanda.The most objective of my institution is poverty alleviation — 1.28 Very highly appmciated 16CMAC provides services like loan facihties, savings facilities, business information 1 28 Very highly appreciated 16and insurance facilities. .
How do you rate the role of CMAC to enhance the ability of regulators? 1.25 Very highly appreciated 19CMAC has contributed to better financial intermediation in Rwanda. 1.25 Very highly appreciated 19Enterprises benefit from participation on the stock market by increasing profits. 1.22 Very highly appreciated 19The objective of my institution is developing financial sector in Rwanda by provid- Very highly appreciated 22ing services like increasing incomes of investors, enhancing economic growth, and 1.19creating employment.CMAC contributes to better financial intermediation in Rwanda. 1.19 Very highly appreciated 22RSE helps CMAC inaugurating its objectives in order to continue building a good 1.17 Very highly appreciated 23reputation as an innovative financmer.In your opinion, how do you rate the participahon of CMAC in the development of 1 17 Very highly appreciated 23financial sector in Rwanda? .
How Do you rate the effectiveness of CMAC in financial sector development pro- ~ 17 Very highly appreciated 23gram of Rwanda?My institution is effective in developing financial sector of Rwanda. 1.17 Very highly appreciated 23Capital market in Rwanda is meeting its goals. 1.14 Very highly appreciated 24
SUB-TOTAL 1.36
Source: pr~mary research data, 2011
29
Table 3 shows that all of the activities of CMAC were rated very hi~hly
by participants of RSE and bank clients, with the exception of CMAC products,
(See table 2). This is because CMAC products and vehicles were considered not
appreciated all of them by participants.
The most reasons for this are that there are still narrow scopes of in
vestment products on the security exchange market and thus create a disincen
tive for investment in capital market. Another reason is that all of the activities
are only based in Kigali. So businesspersons from other areas do not have oppor
tunity on regular publications on the current issues and listing requirements. So
the overall analysis revealed that there is very high contribution of CMAC to bet
ter financial intermediation in Rwanda. Following the objective one the research
revealed that there is high significant contribution of CMAC to better financial
intermediation with mean of 1.36.
Market of development servkes put ~n place by CMAC ~n order to con~
tinue buNding the reputation as an innovat~ve finander
The third objective of this study was to identify the market of develop
ment services put in place by CMAC in order to continue building a reputation as
an innovative financier. This was concerned with the services provided by CMAC
like loan facilities, savings facilities, business information and insurance facilities
on how they continue building the reputation as an innovative financier. The ta
ble 3 shows that all of the services rendered by CMAC were rated very highly by
members of CMAC, participants in RSE and bank clients, with the exception of
CMAC products that they disagree with the limitation of investment vehicles as a
hindrance to investor participation. (See table 3).The results are presented in
ta ble3.
Table 3
Identification of the CMAC market of development services
(n=132)
~__F.I Mean Inter RankCurrently, the limited number of investment vehicles/products in the CMAC 2 7~ Low 1is a hindrance to investor participation in the securities market.CMAC contributes in business information and training 1.63 High 2~.CMAC improves market services in financial sector of Rwanda by allowing 1 (2 High 3loan facilities and savings facilities.CMAC identifies market of development services by accepting insurance 1 (2 High 3facilities.CMAC affects the development of financial sector in Rwanda with its good ~ High 5reputation and with its international competition. 3
Services provided by CMAC are sufficient compared to the customer need 1.29 High 6RSE helps CMAC inaugurating its objectives in order to continue building a 1 25 High 7good reputation as an innovative financier.CMAC after creating RSE has affected the development of financial sector ii~ 1 17 High 8Rwanda.In your opinion, how do you rate the participation of CMAC in the develop- 1 17 High 8ment of financial sector in Rwanda?~ 1.17 High 8The most objective of my institution is poverty alleviation 1.17 High 8CMAC provides services like loan facilities, savings facilities, business in- 1 15 High 12formation and insurance facilities.Are you satisfied with the current services rendered by RSE? 1.13 High 13
CMAC has contributed to better financial intermediation in Rwanda. 1.13 13CMAC’ services have conti~ibuted to development in the country 1.13 High 13CMAC has built a good reputation by developing financial sector of Rwanda 1.12 High 16Enterprises benefit from participation on the stock market by increasing prof. 1 12 High 16its.CMAC has attracted more companies to join financial sector in Rwanda 1.10 High 18
CMAC affects the development of financial institutions by supplying effi- 1 10 High 18cient operations.How do you rate the role ofCMAC to enhance the ability of regulators? 1.10 High 18
CMAC has played a bigger role in increasing profits of financial institutions. 1.10 High 18CMAC has developed awareness of people about financial institutions of 1 10 High 18RwandaCMAC contributes to better financial intermediation in Rwanda, 1 .08 High 23Capital market in Rwanda is meeting its goals. 1.06 High 24
How Do you rate the effectiveness of CMAC in financial sector development 1 06 High 24program of Rwanda? .
CMAC facilitates financial institutions to get loan by buying their securities. 1.06 High 24My institution is effective in developing financial sector ofRwanda. 1.04 High 27The objective of my institution is developing financial sector in Rwanda by High 28providing services like increasing incomes of investors, enhancing economic 1.02growth, and creating employment.
SUB-TOTAL 1.24Source: primary research data, 2011.
3
Following the results given by respondents in the table 3 above CMAC
provides the market of development services like loan facilities, savings facilities,
business information and insurance facilities, increasing incomes of investors,
enhancing economic growth, and creating employment, the research revealed
that CMAC is very significant in building the reputation as an innovative financier
with the mean of 1.2411.
The results revealed also that CMAC provides services like loan facilities,
savings facilities, business information and insurance facilities and it continues
building the good reputation as an innovative financier (www.CMAC.rw), This
was concerned with the services provided by CMAC like loan facilities, savings
facilities, business information and insurance facilities on how they continue
building the reputation as an innovative financier. The results on the table 3
which shows that CMAC is very significant in building the reputation as an inno
viate finance
The effectiveness of CMAC ~n finandall sector dev&opment program of
Rwanda
The fourth objective was to the effectiveness of CMAC in financial sector devel
opment program of Rwanda.This was concerned with the participant’s views in
Rwanda stock exchange market. Kigali, as the campaign to promote a saving
culture among the Rwandan population intensifies; the Capital Markets Advisory
Council (CMAC) has welcomed the initiative as timely and important. CMAC the
body charged with the regulation of the capital markets in Rwanda as well as
ensuring long term savings says the campaign will boost the overall national sav
ings (www.cmac.org.rw). The responses were presented in the table 4.10:
Tabile 4
The effectiveness of CMAC hi finandall sector devebpment program of
Rwanda (n=132)
CMAC improves market services in financial sector of Rwanda by allowing loan Very high appreciated 3facilities and savings facilities. 1.64
CMAC has developed awareness of people about financial institutions of Rwanda 1 57 Very high appreciated 4
CMAC has built a good reputation by developing financial sector of Rwanda 1 50 Very high appreciated 5
CMAC has attracted more companies to join financial sector in Rwanda 1 48 Very high appreciated 6
The most objective of my institution is poverty alleviation 1.30 Very high appreciated — 7
Capital market in Rwanda is meeting its goals. 1.30 Very high appreciated 7CMAC has contributed to better financial intermediation in Rwanda. 1.27 Very high appreciated 9
How do you rate the role of CMAC to enhance the ability of regulators? 1~7 Very high appreciated 9
Services provided by CMAC are sufficient compared to the customer need 1.27 Very high appreciated 9
CMAC affects the development of financial sector in Rwanda with its good reputa- Very high appreciated 12tion and with its international competition. 1.25
Are you satisfied with the current services rendered by RSE? 1.25 Very high appreciated 12
CMAC has played a bigger role in increasing profits of financial institutions. 1 23 Very high appreciated 15
How Do you rate the effectiveness of CMAC in financial sector development Very high appreciated 16program of Rwanda? 1.20
CMAC facilitates financial institutions to get loan by buying their securities. 1 20 Very high appreciated 16
CMAC’ services have contributed to development in the country 1.18 Very high appreciated 18
CMAC affects the development of financial institutions by supplying efficient 1 16 Very high appreciated 19operations. . —~
Enterprises benefit from participation on the stock market by increasing profits. 1.16 Very high appreciated 19
In your opinion, how do you rate the participation of CMAC in the development of 1 14 Very high appreciated 21financial sector in Rwanda?CMAC contributes to better financial intermediation in Rwanda. 1.14 Very high appreciated — 21RSE helps CMAC inaugurating its objectives in order to continue building a good 1 14 Very high appreciated 21reputation as an innovative financier.CMAC after creating RSE has affected the development of financial sector iii 1 11 Very high appreciated 24Rwanda.My institution is effective in developing financial sector of Rwanda. 1.09 Very high appreciated 25The objective of my institution is developing financial sector in Rwanda by pro- Very high appreciated 26viding services like increasing incomes of investors, enhancing economic growth. 1.07and creating employment.
SUB-TOTAL 1.43OVERALL TOTAL 4.03
_____________________________ Mea aCMAC identifies market of development services by accepting insurance facilities. 1.84
CMAC contributes in business information and training
— InterpretationVery high appreciated
Very high appreciated
Rank
2
Source: primary research data, 2011
The table 4 revealed that all of the participants either in CMAC, RSE or the
clients of the banks have appredated the creation of CMAC and RSE in the pro
motion of financial sector in Rwanda with a mean of 1.4310 (see table 4.) This
high significant relationship between CMAC and financial sector development
program pushed a researcher to formulate the following development program:
expanding access to credit and financial services to the whole population across
the country in both urban and rural areas, enhancing savings mobilization, espe
cially long-term savings; and, Channeling long-term capital for productive in
vestments.
Capital Markets Advisory Council (CMAC) has welcomed the initiative as
timely and important. CMAC the body charged with the regulation of the capital
markets in Rwanda as well as ensuring long term savings says the campaign will
boost the overall national savings (www.cmac.org.rw). The responses were pre
sented in the table 4. The results revealed that this program includes Quality
services for fund managers, institutions, banks, corporations, government agen
cies, endowments and foundations, and high-net-worth individuals, and this re
vealed that there is high Significance relationship between Capital market Advi
sory Council and Financial sector development program using the participant’s
views in Rwanda stock exchange market with the mean of 1.43.
Significance relationship between Capital market Advisory Council and
Financial sector development program using the participant’s views in
Rwanda stock exchange market
Table 5 shows a significant relationship between CMAC, RSE and financial
institutions. CMAC is correlated with the financial institutions on the mean value
of 0.7. RSE also has a significant correlation with financial institution with the
mean value of 0.9 which means that the clients of the banks have appreciated
the creation of CMAC and RSE in the promotion of financial sector in Rwanda
with the R-value of 0.9.the results are shown in the tableS,
34
Pearson’s
Table 5
Correlations (n=132)
Variables R~ Value Sign Value Interpretation Decision on H0Correlated
F.I Vs CMAC .724 .000 Significant Correlation Rejected
F.I Vs RSE .952 .000 Significant Correlation Rejected
Source: primary research data, 2011
The table 5 revealed that CMAC has a significant correlation with financial
institutions with the value of 0.7. RSE also has a significant correlation with fi~
nancial institutions which means that the clients of the banks have appreciated
the creation of CMAC and RSE in the promotion of financial sector in Rwanda
with the R-value of 0.9 which means that there is a strong relationship between
capital market and financial sector development program in Rwanda
35
CHAPTER FIVE
FINDINGS, CONCLUSION, RECOMMENDATIONS
The study was carried out to evaluate the effectiveness of the CMAC on
financial sector development program of Rwanda, The findings from the study
revealed that there is a strong significant relationship between Capital market
advisory council and financial sector development program of Rwanda. The ob
jectives of the study were to evaluate the effectiveness of capital market advi
sory council (CMAC) in financial sector development program in Rwanda, to de
termine the profile of respondents, to determine how CMAC contribute to better
financial intermediation in the area, to identify the market of development ser
vices put in place by CMAC in order to continue building the reputation as an in
novative financier, to formulate development program base on the findings of
the study. The above intended objectives of the study were followed in the
course of conducting the research.
FINDINGS
Following the main objective of the study which intended to study the ef
fectiveness of capital market advisory council (CMAC) in financial sector devel
opment program in Rwanda, the findings of the study revealed that the introduc
tion of capital market advisory council and the creation of Rwanda stock ex
change market are efficient in the development of financial sector in the country.
So, the research revealed that there is a strong relationship between Capi
tal market and development of financial sector development program in Rwanda
because CMAC, through its stock exchange market will help to facilitate financial
institutions to get loans by buying securities, to provide services like increasing
incomes of investors, enhancing economic growth, and creating employment, to
increase the profits of financial institutions, and to attract more financial compa
nies to join Rwanda stoc~k exchange market.
36
The objective one of the study intended to determine the profile of the
respondents in terms of their sex, their age, their level of education, and their
occupation in their respective organizations.
The findings revealed that both CMAC, RSE as well as in Fl, majority of
respondents were between 46-55 years old. CMAC had 42%, while F.I had 35%
and RSE with 57%. The findings also revealed that in CMAC, RSE, and F.I, the
number of male overweighed the number of female with respective percentages
of 77% in RI, 72% in CMAC and 61°k in RSE. So, the average percentage was
70% of male. The findings also revealed that majority of the respondents hold
tertiary level of education that is batcher’s degree and above. In F,I they were
6l.5%, while in CMAC were 94.4% and in RSIE were 54.5%. The findings also,
revealed that more of respondents were businesspersons with 76%in F.I 69% in
CMAC, and 645 in RSE,
Following the second objective which was to determine how CMAC contri
bute to better financial intermediation, the study revealed that CMAC supplies
efficient operations, developing financial sector in Rwanda by providing services
like increasing incomes of investors, enhancing economic growth, and creating
employment, and also greater access to credit will further fuel the construction
boom that accounts for much of the economic growth currently being recorded
in Kigali. So this shows that CMAC contributes match to better financial intermed
iation. (www.rse.Co.rw)
Furthermore, following the third objective which was to identify the market of
development services put in place by CMAC in order to continue building the
reputation as an innovative financier, the study revealed that this was concerned
with the services provided by CMAC like loan facilities, savings facilities, business
information and insurance facilities to the buyers and sellers of stocks and they
have contributed to development in the country.
37
The last objective was to formulate development program base on the
findings, the study revealed that this program includes Quality services for fund
managers, institutions, banks, corporations, government agencies, endowments
and foundations, and high-net-worth individuals.
Thus the general conclusion of the findings was that CMAC is efficient in the de
velopment of financial sector in the country, and the living standards of the pop
ulation too, This however ~s because CMAC’services have contributed to devel
opment in the country, CMAC improves services in financial sector of Rwanda by
allowing loan facilities and savings facilities, contributes in business information
and training, identifies market of development services by accepting insurance
facilities.
CONCLUSONS
The capital market advisory and Rwanda stock exchange market have a
significant relationship and are also effective to the financial sector development
program of Rwanda. This is because by its creation savings and investment have
increased constantly. There is agreement between the theory and the practice of
CMAC, RSE in the promotion of financial sector in Rwanda. This has motivated
more companies/organizations to the listing on the security market.
Furthermore the theory states that a company has to be in operation and must
have published its audited statements for at least one year and must be profita
ble to be eligible for listing. This has been major incentive for companies to list
their securities on the security market and the public investing in such securties.
Also other incentives would include withholding tax exemption on dividends iaid
by listed companies, reduced corporation tax rate for listed companies and ex
emption from value added tax for supplies supplied by listed companies.
The Rwandan financial sector also should present adequate institutional, organi
zational and human capacity so as to give potentiality to investors to list the enti
ties on the stock exchange.
Finally the researcher saw the possibility that there would be increased
concern by major institutional investors that would cause funds to beef up their
business practices.
RECOMMENDATIONSThe findings revealed that there have been major incentives for compa
nies to list their securities on the security market and the public investing in such
securities, however, lack of trust and confidence, limited incentives for listed
companies. In order to enable a smooth transition into the effective operation of
capital market in Rwanda there is need to implement the following policy rec
ommendations.
There is a need to develop the confidence in the public for investing in
capital market by the increased public awareness aimed at educating the public
about CMAC and RSE operations. Development of an effective legal system toincrease the safety and complete removal of uncertainty regarding the benefits
of the resulting investments, guaranteed stable banking sector, enforcement of
capital market regulations so that there is continued encouragement of the pub
lic in the bond market,
Capital market advisory council and Rwanda stock exchange market
should develop a documentary highlighting those organizations that have in
vested in stocks and their benefits. For instance shareholders who invested mas
sively in RSE, BRALIRWA, BK and in KCB, when the stocks were first introduced.
The last recommendation is that decentralization is a strong key to development.
Currently the capital market advisory council and Rwanda stock exchange are
located in Kigali and so are all the brokerage firms. They should make the cam
paign as they travel to other regions.
Furthermore, the government should speed up the process of divestiture process
of the underperforming government parastatals. This process will attract poten
tial investors who will inject in the operations of such companies substantial
amounts of money, turning around the company and thus leading to the overall
development of the country
AREAS FOR FURTHER RESEARCH
This research insisted on capital market advisory council and financial sector de
velopment program. However the researcher will assess the relationship between
capital market and the performance of the listed companies on the security ex
change.
The researcher will assess the relationship between the listed companies on the
development of the Rwandan economy.
40
REFERENCES
Amin, E.M., (2005), 5oci~l science research: conception,, methodology and analy
sLs 1st ed, Kampala: Makerere University.
Anu p1 ndi, Ravi, et a I. Managing Business Process Flows: Principles of Operations
Management. 2nd ed. Upper Saddle River, NJ: Pearson Prentice Hall,
2004.
Bertalanffy, V. L. (1968), General Systems Theory, New York: Braziller. available
on http://pespmcl.vub.ac.be/systheorhtml
Harris, F. W. Operatio)7s Cost (Factory Management Series), Chicago: Shaw
(1915).
Harris, F.W. How Many Parts To Make At Once Factory, The Magazine of Man
agement, 10(2), 135-136, 152 (1913).
http://enwikipedia.org.wiki, free encyclopedia retrieved 30 May 2010
Laszlo, E. (1972). The systems view of the world The natural philosophy of the
new developments in the sciences. New York: George Brazillier.
MINECOFIN (2009), Program Information Document (PID), Kigali, Report No.:
AB4542.
Rusagara, C. (2008), Financial Sector Development Program (FSDP): Case of
Rwanda, Kigali: NBR.
Wilson, R. H. A Scientific Routine for Stock Control” Harvard Business Review,
13, 116-128
Joseph Ki nyua,” Business Process Flows: Principles of Operations Management.
2nd ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2004.
41
Alile H. I.(1992): “Establishing a stock market : Nigerian Experience, presented
at an International conference on” Promoting Capital Markets in Africa’~
Abuja, Nigeria, 11-13 November 1992.
Bohnstedt et al, 2000. Capital Market Development in Uganda. Private Sector
Opinions on listing. A Survey carried out by Germany Technical Coopera
tion on behalf of bank of Uganda.
Jack, R.F& Norman, E.W. (2000),How to design and evaluate research in educa
tion. (4th ed.)New York: Mc Graw-Hill.
Kother, R.C.(2003).Research methodology & Techniques.New Delhi:New age
international publisher Ltd.
Sanvart, K.P (1986).International transactions in services: The politics of trans
border data flows, Berkeley. California: West view Press.
Morgan,R.,Cronin, E.,Severn, M.(1995): innovation in banking, new structures
and systems, Long Range Planning, 28(3),91-100.
Alile H.I.(1992): establishing a stock market :Nigerian Experience, presented at
an International Conference on “promoting capital market in Africa”. Ab
uja, Nigeria, 11-13 November 1992.
Bohnstedt et al, 2000. Capital Market Development in EAC. Private sector opi
nions on listing “IZBD Series No. 2.
Benimadhu S.(2001):”A development strategy for African Stock exchanges in
SDACC countries, Bla ntyre, Ma lawi.
Blommes.tein, H.J.(2003).Major policy challenges in developing exchanges in
emerging economies, 9nancial Market Trends, 85, 123-142.
42
Bhalla V.K (2000):”Investment Management: Security Analysis and Portfolio
Management’s C hand& Company Ltd.
Capital markets Government of Rwanda Statute, 2010
Capital market Authority Annual Report 2010
Competing in the global economy, An investment Climate Assessment for Rwan
da, 2010, by World Bank and doing business association consultancy,
David 3 ~Wrights, “An analysis of global capital market risk, adjusted re
turns”2002.
Eric Postel:”Emerging Capital Market in Africa: challenges and opportuni
ties”. 1994
Presentation made to EAC on the challenges and opportunities of developing na
tional and regional Capital Market in Africa.2000.
Fama F. Eugene, Efficient Capital Markets: A review of Theory and Empirical
work, journal of finance 25. No, 2 (May1970).
Financial Services Development Programme FSD No. 2002-Capital Market Devel
opment in Rwanda- The statistical profile of the security market in
Rwanda.
Gravelle Toni (1999): Liquidity on the Government of Canada Security Mar
ket.Investors guide to Rwanda.2008-2010.
Greenwood, Smith (1996). Emerging Capital Markets, Financial and Investment
issues,
Rwanda Stock Exchange Website: http://www.rse.co.rw (Read on 25th may
2011).
43
Wagacha, M. (2001)JKenya’s capital market: to list or not to list. A survey of en
terprise attitudes.
(www~cbre~com/capital markets)
www~busiweek.com
www.cmac.org.rw
44
APPENDICES
APPENDIX I
TRANSMITTAL LETTER
Ogaba Road - KansangaP.O. Box 20000, Kampala, Uganda
[ KAMPALA lx —2b6 4 266813,+25(, 41267634INTERNATIONAL ~ ~ 41 5019~4UNIVERSITY F ma’l ~Jn nfBkiu xc up
_________ _______ Website: www.kiu.ac.ug
OFFICE CF THE COORDINATOR, BUSINESS AND MANAGEMENTSCHOOL OF POSTGRADUATE STUDIES AND RESEARCH (SPGSR)
[‘ebruarv 3. 2011Dear Sir/Madam.
RE: REQUEST FOR NDATS1K1RA CONSTAN’rlN MBA/20031/82/DFTO CONDUCT RESEARCH iN YOUR ORCANIZATION
The,.,above mentioned is a bonafide student of Kampala International Universityphrsuing a Masters of Business Administration (Finance and Banking).
He is currently conducting a Field research of which the title is “Capital MarketAdvasory Council CMAC and Financial Sector Development Program in Kigali,Rwanda”.
~four organization has been identified as a valuable source of information pertaining tohis research project. The purpose of this letter is to request you to avail him with thepertinent information he may need.
Any information shared with him from your organization shall be treated with utmostconfidentiality.
Any assistance rendered to him will he highly appreciated.
Yours trUly,
c~- ~1c~k,Mr Malinga RamadhanCoardmatorBusiness and Management, (SPGSR)
‘Exploring the Heights’
45
APPENDIX II
CLEARANCE FROM ETHICS COMMITTEEDate________________Candidate’s Data
Name_ NDATSIKIRA CONSTANTIN_______________________________Reg: _MBA/20031/DF_________________________________Course _MBA (Banking and finance)__________________________________Title of Study
CAPITAL MARKET ADVISORY COUNCIL AND FINANCIAL SECTOR DEVELOPMENTPROGRAM IN KIGALI,RWANDA,
Ethical Review ChecklistThe study reviewed considered the following:
Physical Safety of Human SubjectsPsychological SafetyEmotional SecurityPrivacyWritten Request for Author of Standardized InstrumentCoding of Questionnaires/Anonymity/ConfidentialityPermission to Conduct the StudyInformed ConsentCitations/Authors Recognized
Results of Ethical ReviewApprovedConditional (to provide the Ethics Committee with corrections)Disapproved/Resubmit Proposal
Ethics Committee (Name and Signature)Chairperson _______________________________Members: _____________________________
46
APPENDIX IIIINFORMED CONSENT
In signing this document, I am giving my consent to be part of the research
study of NDATSIKIRA CONSTANTIN that will focus on Capital Market Advisory
Council CMAC and Financial Sector Development Program in Kigali Rwanda,
I shall be~assured of pri’~’acy, anonymity and confidentiality and that I will be giv
en the option to refuse participation and right to withdraw my participation ~ny
time.
I have been informed that the research is voluntary and that the results will be
given to me if I ask for them.
Initials: ____________________________
Date ____________________________
47
APPENDIX IV
RESEARCH INSTRUMENTS
SECTION A
Questionnaire for buyers and sellers (customers) served by CMAC in
the selected area (Kigali city)
Dear Sin Madame
Greetings!
I am a candidate for masters of business administration at Kampala
International University with a thesis on capital market advisory council and
financial sector development program in Kigali Rwanda. As I pursue to
complete this academic requirement, may I request your assistance by being
part of this study?
Kindly provide the most appropriate information as indicated in the
questionnaires and please do not leave any d item unanswered. Any data from
you shall be for academic purposes only and will be kept with utmost confiden
tiality.
May I retrieve the questionnaires 2 weeks after you receive them?
Thank you very much in advance.
Yours faithfully.
N DATSIKI RA Consta nti n
L Demographic background information.
1.1 Gender : (a) Male LZI (b) female EEl
1.2 Age (a) 20-35years ~ (b) 36-45 years
48
(c) 46-55 years (d) 56-65 years
(e) 66 and above ___
1.3, Level of education (a) primary EE(b) tertiary ~
(c) A’ level EEl (d) 0’ level EEl
1.4. What is your occupation: (a) BusinesspersonEE Not employed (c) civIl E~
servant (e) farmer EE
(g) Others (specify)
Please answer the following questions by ticking the level of agreement based on
your own opinion.
SD = Strongly Disagree (disagree without doubt)
D = Disagree (disagree with certain level of doubt)
A = Agree (agree with certain level of doubt)
SA = Strongly Agree (agree without doubt)
N°Statement
ISAIIA ~ DI~ SD I1
CMAC provides services like loanfacilities, savings facilities, businessinformation and insurance facilities.
2 Services provided by CMAC are sufficient compared to the customer’need
3 CMAC’services have contributed todevelopment in the country.
4 Currently, the limited number ofinvestment vehicles/products in theCMAC is a hindrance to investorparticipation in the securities market.
5 Enterprises benefit from participation on the stock market by increasing profits.
6CMAC contributes to better financialintermediation in Rwanda.
49
2~ In th~s questbn, pilease answer by putting the appropriate number
correspond~ng to the correct response
Strongly agree Agree Disagree Strongly disagree
1 2 3 4
a. CMAC has built a good reputation by developing financial
sector of Rwanda
b. CMAC has developed awareness of people about financial
institutions of Rwanda
c~ ~
in Rwanda.
d. CMAC has played a bigger role in increasing profits of
financial institutions.
e. CMAC has attracted more companies to join financial sec
tor in Rwanda
Thank you for your great part~dpat~on
May the a’mighty God b~ess you
50
SECTION B
Questionnaire for the members of the selected CMAC
Dear Sir! Madame
Greetings!
I am a candidate for masters of business administration at Kampala
International University with a thesis on capital market advisory council and
financial sector development program in Kigali Rwanda. As I pursue to
complete this academic requirement, may I request your assistance by being
part of this study?
Kindly provide the most appropriate information as indicated in the
questionnaires and please do not leave any d item unanswered. Any data from
you shall be for academic purposes only and will be kept with utmost confiden
tiality.
May I retrieve the questionnaires 2 weeks after you receive them?
Thank you very much in advance.
Yours faithfully.
N DATSI KIRA Consta nti n
1. Demographic background1.1 Gender (a) Male (b) female1.2 Age (a) 20-35years (b) 36-45 years
(c) 46-55 years (d) 56-65 years(e) 66 and above
2~ Profession(a) Stockbroker EEl (b) Dealers EEl(c) Sponsor. EE (d) Loans officer EE(e) Secretary EEl(f) Other (Specify)
51
3~ in this question, pilease answer by putting the appropriate numbercorresponding to the correct response
~SjT~ongly agree Agree Disagree Strongly disagree[1 2 3 4
a. My institution is effective in developing financial sector ofRwanda.
Ii The most objective of my institution is poverty alleviationc. The objective of my institution is developing financial sec
tor in Rwanda by providing services like increasing incomes of investors, enhancing economic growth, andcreating employment.
d. CMAC facilitates financial institutions to get loan by buying their securities.
e. CMAC has attracted more companies to join financial sector in Rwanda
4~ In this question, p~ease answer by putting the appropriate number
corresponding to the correct response
Strongly agree Agree Disagree Strongly disagree
1 2 3 — 4
a. CMAC improves market services in financial sector of
Rwanda by allowing loan facilities and savings facilities.
b. CMAC contributes in business information and training
c. CMAC identifies market of development services by ac
cepting insurance facilities.
Thank you for your great participation
May the almighty God bless you!
52
SECTION C~
Questionr~aire for participants in Rwanda Stock Exchange
Market
Dear Sir! Madame
Greetings!
I am a candidate for masters of business administration at Kampala
International University with a thesis on capital market advisory council and
financial sector development program in Kigali Rwanda, As I pursue to
complete this academic requirement, may I request your assistance by being
part of this study?
Kindly provide the most appropriate information as indicated in the
questionnaires and please do not leave any item unanswered. Any data from you
shall be for academic purposes only and will be kept with utmost confidentiality.
May I retrieve the questionnaires 2 weeks after you receive them?
Thank you very much in advance.
Yours faithfully.
N DATSIKIRA Co nsta nti n
1. Demographic background
1.1 Gender (a) Male ~1 (b) female EEl
L2 Age (a) 20-35years (b) 36-45 years
(c) 46-55 years (d) 56-65 years
(e) 66 and above
2. Level of education (a) phmary EEl (b) tertiary
(c) A’ level EE (d) 0’ level
53
3~In this question, please respond by ticking the appropriate response
Very adequate Adequate2
Fairy adequate3
~euate
Note: very adequate=strongly agree, adequate=agree, fairy adequate=disagree,inadeciuate=stroncjlv disagree.
How Do you rate the effectiveness of CMAC in financialsector development program of Rwanda
1. How do you rate the role of CMAC to enhance the abilityof regulators?
2. In your opinion, how do you rate the participation ofCMAC in the development of financial sector in?
3. Are you satisfied with the current services rendered byRSE?
4. Capital market in Rwarida is meeting its goal.
~
4~ In this question, please answer by putting the appropriate number
corresponding to the correct response.
Strongly agree Agree Disagree Strongly disagree1 2 3 4
a. CMAC affects the development of financial institutions bysupplying efficient operations.
b. CMAC after creating RSE has affected the development offinancial sector in Rwanda.
c. RSE helps CMAC inaugurating its objectives in order tocontinue building a good reputation as an innovative fina ncier,
d. CMAC affects the development of financial sector inRwanda with its good reputation and with its international competition.
Thank you for your great participationMay the almighty God bless you!
54
RESEARCHER’S CURRCULUM VITAE
Personall Proffle
Surname : NDATSIKIRA
First name : Constantin
Marital status : Single
Date of birth : 01/01/1983
Nationality : Rwandan
Current address : Masaka Sector, Kicukiro district, Kigali city.
TEL +250788564237/+250728564237
E-mail:~
Educatbn background
Ongoing: Master’s in business administration with banking and finance, Kampala
International University
2007: bachelor’s Degree in Economics with Money and Banking, National Univer
sity of Rwanda
2001: Advanced Certificate of Human Sciences, Gr Sc St Aloys
RWAMAGANA
Other tra~nings
2008: Administration and good governance
2010: Business plan preparation and implementation
Work exper~ence
2010-Now : Financial manager of SACCO.
2007-2010 : Teacher of Economics in Secondary Schools in Rwanda
2007-2011 : Consultant in Kicukiro Consultancy Council.
55
Languages proficiency
LANGUAGES UNDESTANDING
AND SPEAKING
Kinyarwanda Excellent
English Fluent
French Excellent
Swahili Fluent
Hobbies
Watching and playing volley ball and football
I, the understanding, certify that to the best of my knowledge, this CV correctly
describes me, my qualification and my experience.
NDATSIKIRA Constantin Date; 30th August 2011
.~
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