How to Leverage Collective Investment Schemes for Business Growth, Personal Wealth

Understanding Collective Investment Schemes (CIS) in Rwanda

Rwanda's capital market offers opportunities for businesses seeking capital and individuals seeking to build wealth. Catalytic to this prospect are the CIS, often known as funds, a structured approach to pooling funds from multiple investors for collective investment, in accordance with the CIS Act of 2021.

The Capital Market Authority (CMA) serving as the chief regulator for CIS, licenses, regulates, and oversees Collective Investment Schemes and their service providers, intervening when necessary to protect investors.

The CMA recognises several types of CIS, including a unit trust, investment company, partnership, and contractual schemes, all of which operate on the principle of pooling money from many investors to invest in a diversified portfolio of securities or other assets.

How CIS Support Business Growth

For businesses, particularly public companies and issuers of securities, CIS can be a powerful mechanism for capital raising. Businesses can raise funds by offering various securities, including shares, debt securities, derivatives, and asset-backed securities, to the public through CIS. This process requires the submission and prior approval of a prospectus by the CMA.

Securities issued through CIS can be listed on Rwanda Stock Exchange (RSE), which increases visibility, liquidity, and investor trust. Beyond this listing benefit, offers can be made to specific categories of investors, such as accredited, sophisticated, or qualified institutional investors.

Benefits for Individual and Institutional Investors

CIS provide individual and institutional investors with opportunities to build wealth through a variety of benefits. These include diversification, which spreads investments across multiple asset classes; professional management by licensed managers who oversee portfolios on behalf of investors; and access to a wide range of instruments such as bonds, Asset-Backed Securities (ABS), Real Estate Investment Trusts (REITs), and Islamic securities.

In practice, ABS allow investors to earn income from pools of underlying assets, while REITs provide exposure to real estate markets without the need for direct ownership. Islamic securities, once legalised, will further expand opportunities by offering investment options structured in accordance with Sharia principles. To support these activities, the Central Securities Depository (CSD) increases efficiency in the market by streamlining trading and record-keeping, thereby advancing smooth transactions and secure safekeeping of securities.

Tax Incentives and Exemptions

Rwanda’s 2022 Income Tax Act, as amended to date, incorporates several tax incentives and benefits for businesses and individuals who invest in CIS. The incentives are part of a broader government strategy to promote and facilitate various types of investment through tax reductions and exemptions.

• Income Tax Exemption: Income generated from savings within CIS is exempt from the standard 28% income tax rate.
• Capital Gains Tax Exemption: Any capital gain realised from the sale or transfer of shares or units of CIS is exempt from capital gains tax.
• Reduced Corporate Income Tax: Newly listed companies on the capital market can benefit from a reduced corporate income tax rate of 20% for five years if at least 40% of shares are sold to the public (Article 2 of Income Tax Act, 2023).
• Preferential Withholding Tax: Dividends and interest from securities listed on the capital market are subject to a 5% withholding tax for resident taxpayers of Rwanda or the East African Community.
• Special Rate for Licensed CIS: Licensed CIS registered as investors may qualify for a 3% corporate income tax rate, provided they meet specified operational and governance requirements.

Regulatory Oversight and Market Integrity

The 2011 Capital Market Business Act, as amended to date, and the 2024 Capital Market Corporate Governance Code, work together to ensure transparency, market integrity, and investor protection by prohibiting unfair practices like insider trading and market manipulation. They also require that all market participants, including brokers, dealers, investment advisors, and fund administrators, are licensed and meet strict financial and corporate governance standards.

This makes CIS a timely alleyway permitting businesses to secure financing while allowing individuals to diversify their portfolios and build wealth. CIS effectively addresses the core challenge of investing wisely and responsibly.

Businesses and individuals should now explore and take full advantage of the opportunities that CIS presents, starting with some of the CIS already licensed by the CMA, including Iterambere Fund and Aguka Fund, among others.