The link between capital market and economic growth in Rwanda

1.1 Background

Today most economic systems around the universe are judged by the public presentation of their capital markets. The possible function of fiscal markets in economic growing has been good documented. Most African states including those in Sub-Saharan Africa ( SSA ) have late under gone fiscal sector reforms such as restructuring and privatizing of province owned Bankss and constitution of capital markets.

In the literature there are different positions on the nexus between capital markets and economic growing of a state.

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North ( 1996 ) shows that, differences in economic establishments are the major beginnings of cross-country differences in economic growing and prosperity. High quality establishments have a positive influence on the deepness and development of the fiscal sector of states.

This proposed research will chiefly confer with with the literature about the nexus between capital market and economic growing and the function that establishments play in capital markets and seek to nail and associate these to the Rwandan context. In developed capital markets families are the major participants as investors. Saunders and Cornett ( 2004 ) claimed that in the United States, families are the individual largest holders of corporate stock.

However, the capital markets of least developed states are really shallow in footings of capitalisation because of a limited figure of listed companies and limited engagement of families ( rescuers ) either due to deficiency of capacity or deficiency of consciousness as to the capital markets. Therefore this survey will besides analyze the impact of the families ( rescuers ) in the capital markets in least developed states in Africa including Rwanda.

1.2 Statement of the Problem

Despite a rush of planetary investor involvement in the 1980s and 1990s, Africa has been bypassed by the monolithic international capital fluxing to developing economic systems. Aggregate capital flows to developing states have been quickly transcending functionary development aid flows since 1980s. However, Africa remains the lone developing part in which development aid flows exceeds private capital flows ( Senbet and Otchere, 2006 ) .

This was chiefly attributed to the deficiency or absence of a well developed fiscal sector ( capital markets, Bankss, finance companies, life insurance companies, and insurance companies ) and the hapless economic policies and establishments in African states. Capital markets are a critical portion of an economic system doing it possible for industry, trade and commercialism to boom without any obstruction in footings of resources. The fiscal markets serve a critical intent in the growing and development of a company that wants to spread out. For such companies with enlargement programs and new undertakings in demand of support and investors looking for a better return, the fiscal market is the best platform.

The private sector normally lacks entree to recognition installations. Investing, growing and economic public assistance are all excessively low in developing states. This is more terrible in Africa, peculiarly in Sub-Saharan Africa ( Platt, 1998 ) .

Most African states, peculiarly those in Sub-Saharan Africa, have late undergone extended fiscal sector reforms. The reform bundle includes restructuring and denationalization of province owned Bankss, the debut of private banking systems, along with bank supervisory and regulative strategies, the debut of a assortment of steps to advance the development of financail markets ; including money and stock markets ( Senbet and Otchere, 2006 ) .

Rwanda ‘s economic system chiefly depends on agricultural productiveness. The industry and service sectors are non wholly developed to force the economic system towards higher growing.

Rwanda ‘s long-run development program, as articulated in Vision 2020, seeks to transform Rwanda into a middle-income state and an economic trade and communications hub by the twelvemonth 2020. An efficaciously working fiscal sector is a basically of import and indispensable component for accomplishing this objective.A Rwanda seeks to develop a fiscal sector that is effectual, in peculiar, byA spread outing entree to recognition and fiscal services ; heightening nest eggs mobilisation, particularly long term nest eggs ; and mobilising long-run capital for investing.

A cardinal strategic end of the Vision 2020 program is to do Rwanda an economic trade and communications hub in the bosom of Africa.A This will necessitate important investing in substructure in the signifier of roads, power, rail, airdromes and telecommunications.A These programs besides call for the active engagement and enlargement of the private sector in Rwanda ‘s economic system which will necessitate long term investing in substructure and industry, which can merely be provided through the mobilisation of domestic nest eggs through capital markets.A

The Rwanda capital market now referred to as the Rwanda Over the Counter ( OTC ) market was established by the Capital Market Advisory Council in January 2008.

It is from this position the research worker is set abouting this survey to see the nexus between capital market and economic growing in Rwanda. How does Rwanda stand to profit from this capital market?

1.3 Purpose of the survey

The chief intent of this thesis is to look into and reexamine the literature on the nexus between capital market and the economic growing and prosperity of a state, peculiarly in Rwanda. This survey will besides analyze the importance of establishments for the public presentation of capital markets and families ( rescuers ) part to the capital market so that companies can raise the needed capital easy in a state where funding is limited to the banking sector and yet accessible merely to a few large private companies and province owned endeavors.

1.4 Aims of the survey

The aims of this proposed survey are chiefly to happen out:

Whether capital market is an alternate towards the economic growing of least developed states such as Ethiopia.

The function of establishments toward the development of capital market.

Whether families ‘ nest eggs will do a existent impact on the overall public presentation, liquidness, and market capitalisation of the capital market in Rwanda.

1.5 Research inquiries

This thesis is intended to reply the undermentioned inquiries:

Is a capital market an alternate towards the economic growing of least developed states in general and for Rwanda in peculiar?

Will establishments be critical for the public presentation of capital market in Rwanda?

Will domestic nest eggs in Rwanda have a function to play in the capital market?

1.6 Scope of the survey

This survey presents the different positions as to the nexus between capital markets and economic growing, and the function that establishments play in the public presentation of capital markets. The focal point being the capital market in Rwanda ; it besides investigates the impact of families ‘ nest eggs on capital market in Rwanda.

1.7 Significance of the survey

The research worker intends to roll up informations in order to analyze the nexus between capital market and economic growing in Rwanda.

This survey will analyze the function of establishments toward the development of capital market every bit good as the impact of the families ( rescuers ) in the capital market in Rwanda.

Additionally, this research is to carry through the demand of the Master ‘s grade in Business Administration.

1.8 Definitions of footings

Fiscal sector: The Reserve Bank of Australia ( ) , defines fiscal sector as “ the sector of the economic system that comprises fiscal establishments and fiscal markets ” .

Fiscal establishment: “ A company whose primary map is to intercede between loaners and borrowers in the economic system ” . ( ) .

Institutions: in this proposed survey establishments could be defined as follows:

i⤠Definition 1 ( )

“ Constitution, foundation, or organisation created to prosecute a peculiar type of enterprise, such as banking by a fiscal establishment ” .

i⤠Definition 2 ( )

“ Consistent and organized form of behaviour or activities ( established by jurisprudence or usage ) that is self-acting in conformity with by and large accepted norms. For illustration, political establishments are involved with ( and modulate ) competition for power ; and economic establishments ( such as markets ) encourage and modulate production and distribution of goods and services ” .

Least Developed Countries ( LCDs ) : In its latest triennial reappraisal of the list of Least Developed Countries in 2003, the Economic and Social Council of the United Nations used the undermentioned three standards for the designation of the LDCs, as proposed by the Committee for Development Policy ( CDP ) :

a low-income standard, based on a three-year mean estimation of the gross national income ( GNI ) per capita ( under $ 750 for inclusion, above $ 900 for graduation ) ;

a human resource failing standard, affecting a composite Human Assets Index ( HAI ) based on indexs of: ( a ) nutrition ; ( B ) wellness ; ( degree Celsius ) instruction ; and ( vitamin D ) grownup literacy ; and

an economic exposure standard, affecting a composite Economic Vulnerability Index ( EVI ) based on indexs of: ( a ) the instability of agricultural production ; ( B ) the instability of exports of goods and services ; ( degree Celsius ) the economic importance of non-traditional activities ( portion of fabrication and modern services in GDP ) ; ( vitamin D ) ware export concentration ; and ( vitamin E ) the disability of economic littleness ( as measured through the population in logarithm ) ; and the per centum of population displaced by natural catastrophes.

Mentions LIST

Demirguc-Kunt, A. , & A ; Maksimovic, V. ( 1996 ) . Stock Market Development and Corporate Finance Decisions. Finance & A ; Development, 33 ( 2 ) , 47-50.

North, D. C. , & A ; Weingast, B. R. ( 1996 ) . Fundamental laws and Committedness: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. In L. J. Alston, T. Eggertosson & A ; D. C. North ( Eds. ) , Empirical Studies in Institutional Change: Cambridge University Press.

Nyong, Michael O. ( 1997 ) : “ Capital Market Development and Long-run Economic Growth: Theory, Evidence and Analysis ” First Bank Review, December 1997: 13-38.

Samuel, Cherian ( 1996 ) : “ Stock Market and Investment: The Governance Role of the Market ” The World Bank Review Volume 10 Number 2.

Saunders, A. , & A ; Cornett, M. M. ( 2004 ) . Fiscal Markets and Institutions ( 2 ed. ) . New York: Mc Graw-Hill/ Irwin.

Senbet, L. W. , & A ; Otchere, I. ( 2006 ) . Financial Sector Reforms in Africa: Positions on issues and policies. In B. Francois & A ; B. Pleskovic ( Eds. ) , Annual World Bank Conference on Development Economicss: Growth and Integration ( Senegal Proceedings ) . Washington, D.C. : The World Bank.

Rwanda fiscal sector development plan ( 2007 ) . Retrieved January 12, 2011, from

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