The link between capital market and economic growth in Rwanda

The link amidst great foodstuff and sparing issue in Rwanda1.1 BackgroundToday most economies around the military personnel are judged by the performance of their superior merchandises. The potential region of monetary trades in scotch developing has been well documented. Most African countries including those in sub-Saharan Africa (SSA) have latterly under gone financial area reforms such as restructuring and privatizing of declare have banks and establishment of upper-case letter commercialises.In the literature there are different views on the link between neat market places and scotch growth of a nation.North (1996) shows that, differences in stinting institutions are the major sources of cross- plain differences in economic growth and prosperity. high-pitched quality institutions have a positive influence on the prescience and learning of the financial firmament of nations.This proposed research go away mainly chitchat with the literature ab come fo rward the link between chapiter market and economic growth and the design that institutions play in capital markets and try to peg and relate these to the Rwandan context. In genuine capital markets households are the major participants as investors. Saunders and Cornett (2004) claimed that in the unify States, households are the single largest holders of corporate stock.However, the capital markets of to the lowest degree developed countries are very shallow in name of capitalisation because of a limited number of listed companies and limited participation of households (savers) either referable to lack of capacity or lack of awareness as to the capital markets. Therefore this field leave behind also examine the touch of the households (savers) in the capital markets in least developed countries in Africa including Rwanda.1.2 Statement of the worryDespite a surge of global investor interest in the mid-eighties and 1990s, Africa has been bypassed by the massive internat ional capital flowing to developing economies. integrality capital flows to developing countries have been rapidly exceeding official education assistance flows since 1980s. However, Africa remains the only developing region in which instruction assistance flows exceeds private capital flows (Senbet and Otchere, 2006).This was mainly attributed to the lack or absence seizure of a well developed financial firmament (capital markets, banks, finance companies, sustenance insurance companies, and insurance companies) and the poor economic policies and institutions in African countries. ceiling markets are a vital part of an parsimoniousness making it executable for industry, trade and commerce to flourish without any obstacle in experimental conditions of options. The financial markets serve a vital purpose in the growth and development of a beau monde that wants to expand. For such companies with involution plans and new projects in need of funding and investors looking for a better return, the financial market is the best platform.The private sector usually lacks addition to credit facilities. investing, growth and economic welfare are all too low in developing countries. This is more severe in Africa, finickyly in Sub-Saharan Africa (Platt, 1998).Most African countries, particularly those in Sub-Saharan Africa, have recently undergone extensive financial sector reforms. The reform package includes restructuring and privatization of state owned banks, the establishment of private banking systems, a foresightful with bank supervisory and regulatory schemes, the introduction of a variety of measures to promote the development of financail markets including money and stock markets (Senbet and Otchere, 2006).Rwandas economy primarily depends on agricultural productivity. The industry and service sectors are not entirely developed to push the economy towards higher growth.Rwandas long-term development plan, as articulated in Vision 2020, seeks to tran sform Rwanda into a middle-income country and an economic trade and communications hub by the year 2020. An effectively cognitive operation financial sector is a fundamentally important and essential constituent for achieving this objective. Rwanda seeks to develop a financial sector that is effective, in particular, byexpanding access to credit and financial services enhancing savings mobilization, especially long term savings and mobilizing long-term capital for investment.A key strategic finishing of the Vision 2020 plan is to make Rwanda an economic trade and communications hub in the heart of Africa. This will require significant investment in theme in the form of roads, power, rail, airports and telecommunications. These plans also call for the active participation and expansion of the private sector in Rwandas economy which will require long term investment in infrastructure and industry, which can only be provided through the mobilization of domestic savings through capi tal markets.The Rwanda capital market now referred to as the Rwanda Over the Counter (OTC) market was effected by the Capital Market Advisory Council in January 2008.It is from this perspective the tec is undertaking this study to see the link between capital market and economic growth in Rwanda. How does Rwanda stand to benefit from this capital market?1.3 Purpose of the studyThe main purpose of this thesis is to investigate and go off the literature on the link between capital market and the economic growth and prosperity of a nation, particularly in Rwanda. This study will also examine the importance of institutions for the performance of capital markets and households (savers) contribution to the capital market so that companies can raise the required capital slow in a country where financing is limited to the banking sector and to date accessible only to a few big private companies and state owned enterprises.1.4 Objectives of the studyThe objectives of this proposed study are mainly to find outWhether capital market is an alternative towards the economic growth of least developed countries such as Ethiopia.The theatrical role of institutions toward the development of capital market.Whether households savings will make a real impact on the overall performance, liquidity, and market capitalization of the capital market in Rwanda.1.5 Research questionsThis thesis is mean to answer the following questionsIs a capital market an alternative towards the economic growth of least developed countries in general and for Rwanda in particular?Will institutions be vital for the performance of capital market in Rwanda?Will domestic savings in Rwanda have a role to play in the capital market?1.6 Scope of the studyThis study presents the different views as to the link between capital markets and economic growth, and the role that institutions play in the performance of capital markets. The focus being the capital market in Rwanda it also investigates the impact of households savings on capital market in Rwanda.1.7 Significance of the studyThe researcher intends to collect data in order to analyse the link between capital market and economic growth in Rwanda.This study will examine the role of institutions toward the development of capital market as well as the impact of the households (savers) in the capital market in Rwanda.Additionally, this research is to fulfill the want of the Masters degree in Business Administration.1.8 Definitions of termsFinancial sector The Reserve Bank of Australia (www.rba.gov.au/ polish/text_only.asp), defines financial sector as the sector of the economy that comprises financial institutions and financial markets.Financial institution A company whose primary function is to intermediate between lenders and borrowers in the economy. (www.rba.gov.au/Glossary/text_only.asp).Institutions in this proposed study institutions could be defined as follows Definition 1 (Businessdictionary.com)Establishment, foundation, o r organization created to pursue a particular type of endeavor, such as banking by a financial institution. Definition 2 (Businessdictionary.com)Consistent and nonionised pattern of behavior or activities (established by law or custom) that is self-activating in accordance with generally accepted norms. For example, political institutions are complex with (and regulate) competition for power and economic institutions (such as markets) encourage and regulate intersection and distribution of goods and services.Least Developed Countries (LCDs) In its latest triennial reassessment of the list of Least Developed Countries in 2003, the Economic and Social Council of the United Nations used the following three criteria for the identification of the LDCs, as proposed by the committal for Development Policy (CDP)a low-income criterion, based on a three-year total estimate of the gross national income (GNI) per capita (under $750 for inclusion, above $900 for graduation)a human resource weakness criterion, involving a composite Human Assets Index (HAI) based on indicators of (a) nutrition (b) health (c) education and (d) adult literacy andan economic vulnerability criterion, involving a composite Economic Vulnerability Index (EVI) based on indicators of (a) the derangement of agricultural production (b) the instability of exports of goods and services (c) the economic importance of non-traditional activities (share of manufacturing and modernistic services in GDP) (d) merchandise export concentration and (e) the handicap of economic smallness (as measured through the state in logarithm) and the percentage of population displaced by natural disasters.REFERENCES LISTDemirguc-Kunt, A., Maksimovic, V. (1996). Stock Market Development and incorporate Finance Decisions. Finance Development, 33(2), 47-50.North, D. C., Weingast, B. R. (1996). Constitutions and Commitment The Evolution of Institutions Governing Public select in Seventeenth-Century England. In L. J. Alston, T. Eggertosson D. C. North (Eds.), Empirical Studies in Institutional tilt Cambridge University Press.Nyong, Michael O. (1997) Capital Market Development and Long-run Economic Growth Theory, manifest 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 tidy sum 10 Number 2.Saunders, A., Cornett, M. M. (2004). Financial Markets and Institutions (2 ed.). New York Mc Graw-Hill/ Irwin.Senbet, L. W., Otchere, I. (2006). Financial celestial sphere Reforms in Africa Perspectives on issues and policies. In B. Francois B. Pleskovic (Eds.), Annual World Bank host on Development Economics Growth and Integration (Senegal Proceedings). Washington, D.C. The World Bank.www.rba.gov.au/Glossary/text_only.aspRwanda financial sector development program (2007). Retrieved January 12, 2011, from www.bnr.rw/www.cmac.co.rwBusinessdictionary.comhttp//www.un.org/special-rep/ohrlls/ldc/l ist.htm