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Capital Markets Infrastructure adding value to East Africans

The Capital Markets Infrastructure (CMI) is a technology platform designed to link the Capital Markets of the East African Partner States.

The Financial Sector Development Regionalization Project 1 (FSDRP1) is currently implementing the CMI initiative. The development objective of the Project is the establishment of a solid foundation for the financial sector integration in the EAC region.

The CMI aims at simplifying the process of trading across the borders of the East African Community’s Partner States. Investors have a larger number of instruments including Equities and Bonds from all Partner States within reach. Likewise companies seeking capital are able to reach a wider audience of the regions Capital Markets.

Efficiencies brought about by automation include the use of an Automated Trading System (ATS), a computer program specially designed for trading at an exchange. The CMI provides an ATS for those Capital Markets that did not have one prior to the initiative, such as the Rwanda and Burundi Capital Markets, hence bringing the region up to the same standard.

Likewise it is possible to link the Capital Markets Infrastructure with Capital Markets that already have trading systems like the Uganda and Tanzania Capital Markets. In this case users of the CMI are able to participate in those markets without having to physically be in that country.

Automation provides risk management during trading using Straight-Through Processing (STP). STP enables the trade process for capital market and payment transactions to be conducted electronically without the need for manual intervention. Ease of administration, reporting and surveillance are other benefits the automation provides.




1. Uganda Securities Exchange
UAP Nakawa Business Park,
Block A, Fourth Floor. North Wing.
Telephone: 0312 370815, 0312 370817,0312 370818

2. Dar es Salaam Stock Exchange,
14th Floor, Golden Jubilee Towers,
Ohio Street. P. O. Box 70081,
Dar es Salaam, Tanzania Tel: 255 22 2123983, 2128522

3. Rwanda Stock Exchange limited
Kigali City Tower Building 1st Floor,
Avenue du Commerce P.O Box 3268 Kigali Rwanda

4. National Bank of Rwanda
KN6 Av 4, P.O Box 531
Kigali – Rwanda

5. Bank of the Republic of Burundi
1 Avenue of the Government
BP 705 Bujumbura

6. Infotech Private Ltd


Frequently asked Questions


Q: What is a Capital Market?

It’s a market like any other, but specifically one created for buying and selling of equity debt instruments.


Q: What is an Exchange?

An exchange is the place where debt and equity instruments are traded.


Q: How many Exchanges do we have in East Africa?

Currently there are four exchanges and one being established;

1. Nairobi Securities Exchange 2. Dar es Salaam Stock Exchange 3. Uganda Securities Exchange 4. Rwanda Stock Exchange 5. Burundi Stock Exchange (being established)


Q: Which markets are currently available via the Capital Markets Infrastructure?

1. Dar es Salaam Stock Exchange
2. Rwanda Stock Exchange and;
3. Uganda Securities Exchange are currently linked to the CMI.

There are future plans to link the markets of Kenya (the largest by capitalization in the region) and Burundi once it is established.


Q: What is a Central Securities Depository (CSD)?

A CSD is an institution charged with the safe custody of financial instruments. For the purpose of the CMI, the depository systems hosted at the institution will be referred to as the CSD.


Q: How many Central Securities Depositories do we have in East Africa?

There are eight (8) Central Securities Depositories in the EAC region: Kenya, Uganda and Tanzania have two (2) CSD’s each, while Rwanda has one (1) and Burundi is currently establishing one.


Q: What is the Capital Markets Infrastructure (CMI)?

The Capital Markets Infrastructure (CMI) is a technology platform linking the Capital Markets of the East African Community (EAC).


Q: Why do we need to link the markets of the EAC?

In the run-up to achieving a single currency, the EAC Partner States aim to harmonize monetary and fiscal policies; harmonize financial, payment and settlement systems. Linking the Capital Markets of East Africa is a key milestone towards achieving these objectives.


Q: How does it work?

The CMI connects the Exchanges and Central Securities Depositories of East African countries. It enables participation in the Capital Markets regardless of physical location. To achieve this, the CMI is comprised of three (3) subsystems;

1. The Smart Order Router (SOR)
2. Central Depository Systems Interface (CDSI) and;
3. A secure messaging layer over which communication happens based on FIX and SWIFT.


Q: Where will the Capital Markets Infrastructure be accessible from?

The CMI is accessible online, therefore the location is not important, just a good Internet connection. What is beneficial is that all East African Markets are accessible in a single view.


Q: When will the Capital Markets Infrastructure be available?

The CMI is currently live, access is granted to all licensed participants within the East African Region.

Rational for Regionalisation of Capital Markets

The capital markets of the East African Community, even when combined, remain small by comparison with other African markets.

The key objective in regionalisation of EAC capital markets is to make them more attractive both to issuers and to investors and, as a result, to expand those markets. The creation of a single EAC capital market would offer domestic investors greater choice and domestic issuers greater potential to raise larger amounts of capital from a wider range of investors, enabling the economy and employment to expand.

The development of a single efficient and reliable EAC capital market infrastructure is also expected to not only improve capacity to complete transactions for issuers and investors; but also offer improved reliability and economies of scale and thus greater cost-efficiency.

The combination of a wider and deeper market and improved transaction efficiency and reliability should also result in the ability to attract a higher level of foreign portfolio investment than has previously been the case.

There is no shortage of demand from institutions or individuals, either domestic or international, who wish to invest in East Africa. As an illustration of this, at the end of 2007, it is estimated the total funds under management by insurance and pension funds in the three original EAC Partner States was US$ 15.7 billion compared with the estimated total market value of the float1 of securities in all three markets, including government bonds, of less than US$ 10 billion.

This excludes the value of both unit trusts and other investment funds, which are developing in all three original Partner States2, and of investments by private individuals or investment clubs3. The inflows to both public and private pension funds from contributions made by members and their employers are swelling this value regularly. Clearly the value of these institutional portfolios is not all available for investment in capital markets, but there is certainly both capacity and desire to increase this.


Domestic Demand

Added to domestic demand, there is an awakening foreign interest in sub-Saharan Africa as a destination for investment. While this may be temporarily reduced owing to the recent climate of uncertainty in world markets generally, it will, revive when conditions become more settled.

Therefore,the greatest constraints on further development of market depth and breadth, which would be enhanced by the integration of EAC markets, lies in the availability of investments, both bonds and equities. A key objective of integration, therefore, must be to encourage more issuance of securities of all types by enhancing the ability of issuers in all Partner States to access the deeper pool of capital available in the EAC market as an integrated whole. It is noteworthy that when markets’ size and liquidity increases, the incidence of new IPOs also increases.

This would be particularly valuable to issuers in the smaller markets, notably the new members in whose countries capital markets are in their infancy. The combined market capitalisation of the three original EAC Partner States would place an integrated EAC market 4th in size in sub-Saharan Africa, ranking after only South Africa, Zimbabwe and Mauritius as opposed to 7th (Kenya), 14th (Tanzania) and 16th (Uganda) if the markets remain separate.

The EAC has set out a strategy and plan to achieve an EAC capital markets regime which permits capital to flow and participates to operate freely across EAC borders and which becomes increasingly attractive to foreign as well as regional investors.

The result of the proposed regionalisation process would be that:

  • Market intermediaries should be able to offer their services and deliver them in each of the EAC countries;
  • EAC investors should be able to invest in any security throughout the EAC through a single point of access;
  • EAC issuers should be able to seek investors in any part of the EAC ; and
  • Transfer of funds and securities across EAC borders would be quick, easy, secure and cost effective


1 Float describes the value of securities available to be traded in the secondary market, and excludes holdings of controlling shareholders and governments.

2 Neither Rwanda nor Burundi have initiated collective investment schemes yet

3 The latter are popular in Uganda and Kenya and are being encouraged by government and the banks

Trading Bonds in East Africa

The bond markets in the EAC Partner States, Kenya, Tanzania, Uganda and Rwanda are small and thin. There are few listings in the primary market and the turnover in the secondary market is insignificant. There are several reasons behind this and many of the more significant ones are not related to the model for trading, clearing and settling of bonds, but instead related to lack of some fundamental business drivers which is the foundation of any market.

The following issues are considered to be preventing development of the bond markets:

  • Highly liquid banks creating a disincentive to issue bonds

Banks in East Africa, bearing a dominant position in the financial market, have little or no incentive to encourage corporations to issue bonds. Neither do they see any need to develop a more widely distributed investor segments. Current business with deposits from the retail segment, building over-liquidity that can be lent directly to the corporate segment is profitable. Increased competition in this segment will most likely over time force the players to increase the service level towards both issuers and investors.

  • Corporations not prepared to meet information disclosure requirements

The number of corporations with the financial and organisational procedures in place to disclose appropriate and required information to the market on a regular basis is limited. The situation is better in Kenya but coming from a barter economy, the steps to fulfil the requirements set up by professional investors and executed through legislation and rules by market organisers are many. The ease with which funding can be raised through bank borrowing does not create the incentives to go to the market.


  • Investor concentration, lacking institutional inventors (pension funds/mutual funds)

The institutional investor segment needs to be developed in especially Tanzania and Uganda where there also is a potential to further develop the pension system. Without a diversified investor segment, with diverting risk and placement preferences, all participants in the market will apply a “follow the herd” behaviour. The prevailing investor behaviour among professional investors is to buy and hold the security which is creating a vicious circle for the secondary market of any security.


  • Understanding of fixed income markets

The knowledge of fixed income instrument and markets are limited and fragmented among market participants, which is hampering the development. The banks, trading government securities have an advantage over the brokerage firms. However some brokers in Kenya have chosen to take a special interest in fixed income markets and by that achieved a position in the segment. Similar initiatives would be beneficial for the development of the bonds markets in Uganda and Tanzania as well.

Capital Markets - An Overview

Historical Background

The capital markets in the East African Community (EAC) date back to the 1950’s with the establishment of the Nairobi Stock Exchange (NSE) in 1954 in the then East African British Protectorate. The NSE was the stock exchange for the entire East African British Protectorate with listed companies from the present day Uganda, Kenya and Tanzania.

With the collapse of the EAC in 1977, the NSE remained a Kenyan outfit with all the non-Kenyan companies delisted and nationalised in their respective countries of Uganda and Tanzania. It was not until the 1990’s that Uganda and Tanzania established their own national stock exchanges; the Uganda Securities Exchange (USE) and the Dar es Saalam Stock Exchange (DSE) respectively.

Rwanda the other EAC Partner State, was later to follow with the Rwanda Stock Exchange (RSE) in 2011.

Burundi is the only EAC Partner State yet to establish a capital market but plans are already underway to develop a capital markets development framework that will pave the way for the establishment of a capital market in Burundi.


Snap Shot of the EAC Capital Markets

The EAC has four operational stock exchanges; the NSE, RSE, DSE, USE in Kenya, Rwanda, Tanzania and Uganda respectively. A total of 110 companies are listed on the four exchanges; 62 on the NSE, 9 on the RSE, 21 on the DSE and 18 on the USE. by the end of 2011, the four EAC stock exchanges commanded a combined equity market capitalisation of US$ 22 Billion for which NSE accounted for 55% with a market capitalisation of US$ 12 Billion.

In relation to the significance in their respective economies, the NSE equity market was most significant, accounting for 36% of Kenya’s Gross Domestic Product (GDP)


Market Infrastructure

There is a total of four (4) trading platforms in the EAC capital markets trading in both equity and fixed income securities; the NSE in Kenya, RSE in Rwanda, DSE in Tanzania, and USE in Uganda. The NSE and DSE are both automated while the USE and RSE are still manual using the open-outcry trading system. Unlike the other three Partner States, Uganda also has an Over-the- Counter-Market (OTC) for government bonds though the same bonds are also listed on the USE.

With respect to clearance and settlement of securities, all the four capital markets in the EAC have Central Securities Depositories (CSD).

In Uganda and Kenya there are two CSDs one for equities and bonds listed on the exchanges and one for government bonds. In the other two markets of Tanzania and Rwanda there is one CSD that clears and settles all securities government bonds and equities as well as corporate bonds listed on the exchanges. In terms of the trading and settlement cycle, all the markets have a T+3 settlement cycle with the exception of Rwanda that recently moved to a T+2 settlement cycle.


Legal and Regulatory Structure

All the four capital markets have similar laws governing the capital markets with few divergences arising out of mainly differences in the level of market development. The legal and regulatory framework in the EAC capital markets provides for trade in equity, fixed income securities, collective investment schemes as well as fund management services.

Kenya, Uganda and Tanzania are members of the International Organisation of Securities Commissions (IOSCO), the international body that sets standards and best practices in securities regulation. Kenya and Tanzania are already Appendix A signatories of the IOSCO Multi-Lateral Memorandum of Understanding (MMoU) on information sharing and cooperation amongst securities regulators while Uganda is still in Appendix B but working towards progressing to Appendix A. The three EAC Partner States; Kenya, Tanzania and Uganda have also undertaken a full self-assessment of their laws against the IOSCO principles of securities regulation and are currently in the process of amending their laws to fully comply to these principles. Rwanda though not yet a member of IOSCO, has developed its laws in compliance with the IOSCO principles and plans to lodge an application to become a member of IOSCO as well as Appendix A signatories of the IOSCO MMoU.


Regional Integration

Issues related to EAC capital markets integration are addressed by the EAC capital markets sub-committee under the Capital Markets Insurance and Pensions Committee (CMIPC). Nevertheless the EAC securities regulators and market participants have each formed regional associations to progress issues of capital markets integration; the East African Securities Regulatory Authorities (EASRA) for securities regulators and the East African Stock Exchanges Association (EASEA) for market participants. The work of EASRA and EASEA feeds into the overall EAC regional integration agenda through the CMIPC. The most outstanding achievement in terms of EAC capital markets integration so far has been the cross listing initiative that has made it possible for seven, five and three companies to cross list from the NSE to the USE, DSE and RSE respectively. A road map for the integration of the EAC capital markets has also been developed to guide the integration process in the EAC capital markets industry in light of the EAC Common Market Protocol and in preparation for the proposed East African Monetary Union.

Regional Banking - An Overview

The overall objective of the EAC Financial Sector Development and Regionalization Project (FSDRP) is the establishment of a single market in financial services. In this regard, the main objective of the EAC policies regarding the banking sector is to attain a single market in banking services as a means to promote sustainable economic growth in the Partner States and higher levels of financial inclusion.


Banking Sector

The banking sector is playing a major role in propelling regional financial integration in the EAC region by adopting a regional business model motivated by a range of factors including client-demand and opportunities perceived along the regional trade corridors.


Commercial Banking

The commercial banking industry in Kenya is the fourth largest in Sub Saharan Africa after South Africa, Nigeria and Mauritius with 43 commercial banks and 2 mortgage finance institutions. The Tanzania Banking system has 26 commercial banks whereas there are 21 commercial banks in Uganda. The Rwanda banking system has 8 commercial banks, 1 development bank and 1 mortgage bank. The Burundi banking industry is comprised of 7 commercial banks, 1 development bank and 1 housing fund.


Cross-Border Expansion

Cross-border expansion of banking in the region started in the 2000’s with Kenyan banks setting up in other EAC Partner States. As at the end of 2012, Kenyan banks had set up a substantial branch network with 251 branches in the EAC (and also 31 branches in South Sudan). A total of 11 multinational and Kenyan owned banks are performing with cross-border banking business in the EAC.

Five (5) Kenyan banks with branches within the region include Kenya Commercial Bank (KCB), Equity Bank, Fina Bank, Commercial Bank of Africa. Interest from banks domiciled in other EAC Partner States in cross border expansion is increasing with CRDB Tanzania setting up a branch in Burundi in 2012.


Bankers’ Associations

In all EAC countries, the commercial banks established national umbrella bodies, known as Bankers’ Associations to promote member banks’ interests and endeavour a reputable and professional banking sector.

From the perspective of EAC regionalization, an efficient and stable banking sector is a prerequisite for achieving sustainable growth in EAC countries where the majority of financial intermediation takes place through commercial banks.

With this regard, moving towards legal and regulatory harmonisation against the international standards known as the Basel Core Principles (BCPs) is critical to achieve an effective functioning of a single market in banking services.

East African Community
EAC Close
Afrika Mashariki Road
P.O. Box 1096
United Republic of Tanzania

Tel: +255 (0)27 216 2100
Fax: +255 (0)27 216 2190
Email: eac@eachq.org