DEVELOPMENT PARTNERS ROUNDTABLE MEETING ORGANISED BY USAID and BILL & MELINDA GATES FOUNDATION

1. DEVELOPMENT PARTNERS ROUNDTABLE MEETING ORGANISED BY USAID and BILL & MELINDA GATES FOUNDATION LANDSCAPE FOR REGIONAL FINANCIAL INTEGRATION IN EAST AFRICA The EAC Financial Sector Development and Regionalization Project (FSDRP) Arusha, Tanzania 12th April, 2016

2. Outline • Historical Background • FSDRP Structure (Six Components) • Scope of FSDRP • Description of FSDRP activities • Summary of achievements • Way forward

3. Historical Background • The EAC Secretariat in collaboration with the World Bank and other development partners established the Financial Sector Development and Regionalization Project (FSDRP) in 2011to create a foundation for financial sector integration among EAC Partner States. • The higher-level objective is to support the broadening and deepening of the financial sector through the establishment of a single market in financial services among EAC Partner States, with a view to making a wide range of financial products and services available to all at competitive prices. • Remarkable progress has since been achieved towards development and regionalization of the EAC financial sector.

4. Historical Background • Under the Common Market Protocol, the Partner States undertake to co‐ordinate and harmonize their financial sector policies and regulatory frameworks to ensure the efficiency and stability of their financial systems • FSDRP covers all the financial sub-sectors: Banking, Capital Markets, Insurance, Pensions, and Microfinance & SACCOs

5. FSDRP Structure • The FSDRP I is structured into six components aimed at creating a single market for financial services. These are: • Financial inclusion and strengthening market participants; • Harmonization of financial laws and regulations against common standards; • Mutual recognition of supervisory agencies; • Integration of financial market infrastructures; • Development of a regional bond market; and • Capacity building of financial sector regulators and market practitioners as well as the general public through mass education.

6. Scope of FSDRP • During the first phase, the project undertook diagnostic work aimed at addressing identified constraints to the integration of financial markets in the region. • All decisions arising from the Project’s interventions are channeled to the Council of Ministers through CMIPC (for Capital Markets, Insurance and Pensions sector) & MAC (Banking, Microfinance), and through the SCFEA.

7. Capital Markets • Development of EAC Securities Market Legal and Regulatory Framework • Significant progress has been achieved with seven (7) Council Directives adopted by the Council and gazette. Another set of seven (7) was approved by Capital Markets Insurance and Pensions Committee (CMIPC) and SCFEA, and is under consideration by the Sectoral Council on Legal and Judicial Affairs (SCLJA). The last set of six (6) will be presented at the next meeting of SCFEA.

8. Capital Markets (ctd) • Risk Based Supervision • Aregional study on Risk Based Supervision (RBS) in the East African Community (EAC) securities market was commissioned to inform the appropriateness of risk based supervision and relevant model for market intermediaries in the EAC. The objective of the regional RBS study was to guide securities regulators on: • Appropriateness of risk based supervision for EAC securities market; • Make recommd risk based capital adequacy requirements for the region; and • Recommend an implementation mechanism. • The study identified three options for implementation of RBS in the EAC Partner States. A gradual approach was adopted (RBS Lite) to be implemented over a five year period leading to a fully automated RBS.

9. Capital Markets (ctd) • Burundi Securities Market • Burundi has neither a securities regulator nor a securities market. Her sister states Kenya, Uganda, Tanzania and Rwanda have well-functioning and regulated securities markets. In this regard, EAC Secretariat commissioned technical assistance to support the Republic of Burundi in development of the institutional, legal and regulatory framework that will facilitate the emergence of securities industry in Burundi. • The technical assistance was completed successfully and draft bills and regulations developed. These are awaiting legislation in Burundi to pave way for operationalization of the capital market.

10. Capital Markets Infrastructure (CMI) • At the CMIPC meeting held on 20th October 2011 in Kampala, Partner States agreed that the model of integration of the Regional Stock Exchange would be by linking the national trading platforms and central securities depositories. • FSDRP together with the CMI TWG successfully developed the technical specifications and the CMI Bidding Document leading to procurement of the vendor to supply and install the CMI. • The CMI vendor has since accomplished two key milestones including delivery of the Hardware and installation of the CMI Software and the project is scheduled to go live by May 2016.

11. Compliance with IOSCO Principles • Assessment against IOSCO Principles was designed to complement FSDRP1 components on harmonization of financial laws and regulations against common standards and mutual recognition of supervisory agencies in the EAC securities markets. The assessment reviewed the status in four Participating Partner States – Kenya, Rwanda, Tanzania and Uganda in respect of each of the new IOSCO Principles as well as IOSCO Principle 38. • A separate assessment was done for Rwanda against the original IOSCO principles   • Policy recommendations and multi-year action plans at the EAC level and individual Partner States were adopted by CMPIC and SCFEA for implementation. The SCFEA further directed the Secretariat to source funds for implementation of the recommendations.

12. Development of Regional Bond Market • Ongoing Activities: • Technical Support to assess the feasibility of a Primary dealer system for Rwanda • Transaction Support to Uganda Development Bank, National housing corporation (Kenya), Kenya Wildlife service and Kenya Roads Board on financing options analysis • Technical support to Insurance Regulatory Authority (Kenya) in development of insurance investment guidelines and a study on the potential issuance of a Social Real Estate Investment Trust • Roundtable discussions have been held in Rwanda and Tanzania to identify a pool of potential bond issuers with a view to developing a primary Bond Market • Note:All the activities are undertaken by the Efficient Securities Markets Institutional Development (ESMID) program

13. Capacity Building Completed Activities: • Technical Assistance for the Pension Sector Study • Assessment and strengthening regulators and market participants via capacity building curriculum at the College of Business and Economics (CBE) in Rwanda and Light University of Bujumbura (Burundi). • Development of Centralized Database for capturing cross border financial flows within the region. • Procurement of technical staff to manage the Capital Markets Infrastructure Project Various Capacity building trainings/workshops for the financial sector stakeholders in the region. Ongoing Activities: • Support to Harmonization of Monetary, fiscal and financial statistics • Payment systems training • Support to workshops on Mobile and Financial Services

14. Summary of Achievements • The completed activities of FSDRP account for 92 % of the total cumulative FSDRP work since its inception in 2011. • For some activities, implementation of policy recommendations of the diagnostic studies and actions plans have already started. These include: • Assessment of pension structure in the EAC from perspective of regionalization • Assessment of insurance sector from the perspective of EAC regionalization, • Assessment of Capacity needs for Light University of Bujumbura and College of Business and Economics (Rwanda) to scale up capacity of financial sector stakeholders in the Republics of Burundi and Rwanda, • Development of Burundi Securities Market Legal and Regulatory Framework

15. Summary of Achievements • Financial Inclusion; • Multi-year action plans have been developed to implement the strategies that aim to increase the access to finance by underserved communities and small businesses; • Policy recommendations on interoperability of card switches and cross border mobile payments have been submitted to MAC (Payment systems sub-committee) for consideration; • Action plans to implement the regional certification programs for banking and insurance have been developed; • Policy considerations have been presented to MAC arising from FSDRP research on financial inclusion (Mobile banking as a new avenue for financial inclusion; strategies to promote household savings mobilization within the EAC region).

16. Summary of Achievements • Harmonization of Financial Laws and Regulations: • Identification of critical issues that need to be addressed in order to harmonize the legal, regulatory, institutional and supervisory frameworks across the EAC Partner States; • Development of EAC Council Directives for Securities Markets; • Development of draft EAC Insurance policy and implementation strategy; • Development of draft EAC Pension Policy and implementation strategic plan; • Development of Development of draft EAC Microfinance policy and implementation strategy.

17. Summary of Achievements • Mutual Recognition of Supervisory Agencies • Assessment of compliance of securities market legal and regulatory frameworks with IOSCO principles; • Development of Multi-year action plans towards compliance with IOSCO principles; • Assessment of compliance of insurance industry legal and regulatory frameworks with Insurance Core Principles (ICPs) • Development of Multi-year action plans towards compliance with ICPs principles; • Development of Multi-year action plans to achieve risk-based supervision (insurance and securities markets); • Draft policies for insurance, pension and Microfinance aligned to international principles; International Organization of Pension Supervisors (IOPS) and Consultative Group to Aid the Poor (CGAP) principles, respectively • The EAC Council Directives for Securities Markets are in line with IOSCO principles.

18. Summary of Achievements Integration of Financial Markets Infrastructure; • Support to the CMI Technical Working Group while undertaking consultations to design the process of implementing the CMI; • Development of Multi-year action plan to achieve demutualization of Uganda Securities Exchange; • Technical Assistance on automation of Rwanda Stock Exchange; • The CMI project which was initiated in June 2015 is due to go live by May 2016.

19. Summary of Achievements • Development of a Regional Bond Market • The program is supported by the Efficient Securities Markets Institutional Development and the following activities are in progress: • Technical Support to assess the feasibility of a Primary dealer system for Rwanda • Transaction Support to Uganda Development Bank, National housing corporation (Kenya), Kenya Wildlife service and Kenya Roads Board on financing options analysis • Technical support to Insurance Regulatory Authority (Kenya) in development of insurance investment guidelines; • Study on the potential issuance of a Social Real Estate Investment Trust

20. Summary of Achievements • Capacity building: • By the close of 2015, 35 capacity building workshops had been undertaken (for all financial sub-sectors) to benefit regional stakeholders as well as staff of EAC; • Development of Multi-year action plan to support capacity of financial sector stakeholders in the Republics of Burundi and Rwanda via Light University (LU) of Bujumbura and College of Business and Economics (CBE) in Rwanda; • National Advisory Committees and financial sub-sector TWGs have been constituted to spearhead the capacity building interventions for LU and CBE;

21. Way Forward • Given the just completed diagnostic work and the policy recommendations adopted, due attention ought to be given to both the supply and demand side aspects of financial sector development and regionalization. • Within the provisions of a robust regional legal and regulatory framework for all subsectors, there will be need to address cross cutting issues from increased regional integration including Money Laundering and Countering Financial Terrorism and financial stability as well as provide support for further institutional development in the Partner states. • The increased development and integration of the markets in the EAC calls for the development of a framework that identifies potential sources of systemic risks and addresses issues at both national and regional level, for all subsectors. • The FSDRP implementation phase will consider the implementation of the study recommendations from the outgoing diagnostic strategic interventions.

22. Key Building Blocks • Full participation and commitment of all Partner States in the regional integration projects; • Funding is a key constraint; more financial resources are required to support timely and effective implementation of the findings and recommendations made under the diagnostic phase of FSDRP; • Further engagement with the World Bank and other development partners will be important to generate substantial financial resources to support the implementation of the findings and recommendations made under FSDRP1; • Need to harmonize and adopt common standards within the Partner States markets.

23. THANK YOU FOR YOUR ATTENTION