The republic of Rwanda has enacted the new Law n° 062/2021 of 14/10/2021 governing collective investment schemes.

It defines a Collective Investment Scheme (CIS) as a type of scheme where there is an arrangement for collecting and pooling funds from investors or participants for the purpose of investment in the interest of each participant or investor represented by his or her proportional ownership in the scheme.

Types of CIS

The following are the types of CIS provided for under the newly established law:

• Unit trust scheme is a collective investment scheme established by a trust deed executed between the operator and the trustee.

It has the following forms:

a) a single scheme that may be an open- ended or interval scheme.

b)an umbrella scheme where the sub-schemes are open-ended or interval schemes.

Establishment

The operator who intends to establish a unit trust scheme does so by use of a trust deed.

A unit trust scheme must:

1° be registered according to the Law governing trusts;

2° be approved by the regulatory authority and comply with the requirements set forth in licensing regulations.

A unit trust scheme shall not have legal personality.

• Investment company scheme is a collective investment scheme established either as an investment company with variable capital or an investment company with fixed capital.

It may also be established as:

a) an investment company with fixed capital which must be a single scheme;

b) an investment company with variable capital which may be a limited or indefinite life scheme;

c) a protected cell company;

Establishment

Subject to the provisions of the Law governing companies, an investment company scheme must:

1° be incorporated as a limited liability company;

2° have a memorandum and articles of association as provided for by the Law governing companies;

3° be approved by the regulatory authority and comply with the requirements of licensing regulations;

4° be a protected cell company, a single scheme or an umbrella scheme with sub-schemes which do not exist as separate legal entities to such an extent that in the event of any sub-scheme being unable to meet its liabilities, these may be met out of the assets of the other sub-schemes.

An investment company scheme with fixed capital must:

1° state the amount of capital of the company in its memorandum and articles of association;

2° be a closed-ended scheme with fixed or indefinite life time. Where the life time of the scheme is longer than five (5) years, it may be required to be listed on stock exchange in Rwanda.

An investment company scheme with variable capital must:

1° have a variable capital;

2° have one of the following forms:

a) an umbrella scheme that is an open-ended scheme or an interval scheme;

b) a single scheme that is an open-ended or an interval scheme.

The registered memorandum and articles of association of an investment company scheme or its amendment are subject to the approval of the regulatory authority.

Prior to approving any proposed amendments, the regulatory authority must ensure the following:

1° compliance with the Law governing companies on amendment of the memorandum and articles of association;

2° participants in the scheme must not be prejudiced by the amendments.

An investment company scheme only issues ordinary shares of the same class or shares with different classes and with different rights attaching to the shares of a particular class that relate only to the following:

1° the accumulation of income by way of periodical credit to capital rather than making a distribution to participants in the scheme;

2° charges and expenses that may be taken out of scheme assets or payable upon entry to or exit from the scheme by shareholders;

3° the currency in which prices or values of scheme shares are expressed or payments made.

The sale and purchase of shares of an investment company scheme are based on their net asset value and subject to such initial charges or exit charges as may be prescribed in the scheme prospectus.

• A partnership scheme is a collective investment scheme formed under a partnership agreement between partners.

With reference to the relevant provisions of the Law governing partnerships, a partnership scheme must:

1° be established by registration as provided for by the Law governing partnerships;

2° be a limited partnership.

The Law however provides that the regulatory authority may issue regulations authorizing other types of partnerships to operate as a collective investment scheme.

3° be approved by the regulatory authority and comply with the requirements of licensing regulations.

• A contractual scheme is a collective investment scheme established by an agreement concluded between the operator and the depositary.

Itmay have the following forms:

a) an umbrella scheme where the sub-schemes are open ended or interval schemes;

b) a single scheme that may be an open-ended or interval scheme.

Establishment

It is established by a scheme agreement concluded between the operator and the depositary.

The contractual scheme agreement must at least have the following items:

1° the name of the scheme;

2° the name and particulars of the scheme operator;

3° objects of the scheme;

4° the duration of the scheme;

5° governing Law;

6° the appointment of an investment manager;

7° the name and particulars of the scheme investment manager;

8° the appointment of depositary;

9° the appointment of a custodian, its name and particulars;

10° eligible investors, classes of units, the creation of units;

11° the investment policy of the scheme;

12° the valuation and pricing of the assets of the scheme;

13° suspension, termination, and winding up of the scheme.

The scheme agreement must comply with the requirements of CIS licensing regulations.

A contractual scheme must not have a legal personality and its assets are held by the depositary or the custodian for the benefit of the participants as tenants in common.

Licensing of a CIS

Every CIS must apply to the regulatory authority for a license to operate or to be recognized by the regulatory authority. The regulatory authority grants the application by a CIS and service provider of CIS after fulfilment by the CIS of the requirements for licensing.

The regulatory authority which is the public institution responsible for the capital market reviews and considers the application for a license after which it may accept or deny it.

In the event it accepts the application, it issues a license to the operator authorizing him or her to establish the scheme. Such a license is valid from the date of issue up to a period that is determined in the regulations governing CIS.

Exemptions

Upon request by a CIS or an operator, the regulatory authority may grant an exemption from some or all of the licensing requirements on the following conditions:

• When a scheme is restricted and has the following sophisticated investors:
• Government of Rwanda; b) statutory authority or an agency established by Law for a public purpose; c) a company with shares owned by the Government of Rwanda or the body specified in item (b); d) the government of a foreign country or an agency of such a government; e) a bank; f) an insurer; g) an investment adviser; h) an investment dealer; i) a person declared by the regulatory authority to be a sophisticated investor;
• When a scheme is private;
• When a scheme is an expert fund;
• When a scheme is specialized to invest in real estate, private equity, derivatives, commodities or another product or asset authorized by the regulatory authority.

The regulatory authority may accept to grant an exemption to other types of schemes. An exempted CIS or an exempted scheme service provider that intend to operate in Rwanda or those from Rwanda who intend to operate from outside Rwanda cannot operate without being approved by the regulatory authority as required by Law.

Conclusion

The newly established law broadly covers issues such as governance and management of CIS, offer, promotion, prospectus and participation in the CIS, investment, valuation and pricing, accounting rules, information, inspection and intervention in scheme assets, amalgamation, takeover and termination of a CIS, administrative faults and related sanctions, offenses and penalties, among other important aspects.

It is important to note that these impressive and progressive legislations, coupled with the operationalization of the Kigali International Financial Centre will eventually set Rwanda to the path of an emerging financial powerhouse.