MINEDUC

KICUKIRO DISTRICT
G S REMERA PROTESTANT

This handout contains 9 units of Senior

Four Entrepreneurship curriculum.

Academic year 2022-2023

A

K.JOHN
[email protected]

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 TABLE OF CONTENTS

Unit 1 INITIATION TO ENTREPRENEURSHIP................................................... Page 3

Unit2 BUSINESS IDEAS AND OPPORUNITIES ……….Page 7

Unit 3: ENTREPRENEURSHIP AS A CAREER…………………. Page 12

Unit 4: SETTING PERSONAL GOALS……. Page 13

Unit 5: LAWS IN BUSINESS OPERATIOS………………………Page 18

Unit 6: ROLE OF STANDARDS IN BUSINESS……………………..Page26

Unit 7: BUSINESS MANAGEMENT………………………………...... Page29

Unit 8: FINANCIAL MANAGEMENT……………………………. Page32

Unit 9: FINANCIAL INSTITUTIONS……………….. Page45

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UNIT 1: INITIATION TO ENTREPRENEURSHIP

 Entrepreneurship is a process, capacity, or ability of identifying the business opportunities

and taking the necessary risk and initiate to create new business enterprise`
 An entrepreneur is person who identify a business opportunity, takes risks, mobilizes
resources and start business enterprise.
 Intrapreneurship: is the process (practice) of creating new and self-financing departments or
products within an existing company.
 Intrapreneur: is a person who introduce new ideas, new products and services within an
existing enterprise.
Or is employee of an existing business organization who uses innovation and creativity to
create new product within that business.

How does a person become entrepreneur? / person can become an entrepreneur in the following
ways:

 Initiating or starting up his or her own business/enterprise.

 Inheriting an already existing business and assuming or taking risks.
 Buying an already existing business and assuming its risks.
 Buying shares in an already existing business and assuming ownership and risks in that
business.

Examples of successful entrepreneurs

1. Bill Gates, founder of Microsoft that makes Microsoft Windows, Microsoft Office and Internet
Explorer.
2. Steve Jobs, co-founder of Apple computers that makes Macs, iPods and iPhones and Apple TV.
3. Mark Zuckerberg, the founder of Facebook and bought Whatsapp.
4. SINA Gerard, the founder of Urwibutso Enterprise that deals with food processing.

Entrepreneurship process can be summarized into 5 stages namely: Discovery, concept

development, resourcing, actualization and harvesting

Step 1: Discovery. This is a stage at which the entrepreneur generates ideas, recognises
opportunities, and determines the feasibility of ideas, markets, ventures, etc.

Step2: Concept development: Develop a business plain: a detailed proposal describing the
business idea.
Step 3: Resourcing: gathering all resources needed to implement your business idea including
recruitment of workers, applying for loans, buying equipment and materials, etc.

Step 4: Actualisation: The stage in which the entrepreneur operates the business and utilises
resources to achieve its goals/ objectives.

Step 5: Harvesting: The stage in which the entrepreneur decides on business’s future growth/
development.

Reasons for studying entrepreneurship

Entrepreneurship is an important subject with a lot of benefits, it’s better to be studied at all
level, The following are reasons for studying Entrepreneurship:

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 − To enable learners, acquire basic knowledge and skills necessary to start, operate and manage
enterprises.

− It helps to create entrepreneurial thinking culture of job creation among learners. This shall
reduce on the mentality of seeking for white collar jobs.
− To enable learners, know that business is a career like other professions for instance: teaching,
accounting and many others etc.

− To impart knowledge and skills to learners to stimulate creativity of exploitation of idle

domestic resources within the economy.

− To reduce the dependence syndrome on the government. This is through encouraging creativity
among individuals to start up self-employment.

− To boost household incomes through encouraging creativity and production; hence reducing
poverty and unemployment, etc.

 Importance of intrapreneurship in a business organisation

There are lots of reasons why intrapreneurship is important. Among others:
• It encourages innovation
• It strategically guides an organization
• It leads to better decision making
• It leads to expansion of and growth in an organization.
• It speeds up innovation.
• It leads to a competitive edge over competition or competitors

 Diference between an entrepreneur and manager

It is true that an entrepreneur is a manager of his own enterprise but not all managers are
entrepreneurs,

the following tables shows the differences between an entrepreneur and a manager in an
enterprise;

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Qualities/characteristics of an entrepreneur
Here are some examples of traits/qualities/attributes or characteristics successful entrepreneurs
have in common:
 Hard working
 Financial discipline
 Creativity and innovation
 Information seeking
 Self-confidence: they are confident that they are able to achieve their goals.
 Risk taking, they are able to take over moderate risks in business, these include risk of
starting a business, risk of losses, risk of selling on credit.

 Persistence: they have passion for what they do. It is said that “winners never quit and
quitters never win” despite all the challenges an entrepreneur should not give up.

challenges of entrepreneur;
- bad location
- not enough capital
- lack of materials
- lack of skills
- lack of innovation and creativity
- risk
- lack of opportunity like supporters.

Types of entrepreneurs
The classification below was developed by Clarence Danhof. It is called Danhof’s classification of
entrepreneurs.
 Innovative entrepreneurs: These are creative entrepreneurs who see and exploit opportunities
for introducing new products, production methods or new markets. These are common in
developed countries.

 Imitative entrepreneurs: These are also referred to as adoptive entrepreneurs. These ones
imitate or adopt existing commodities and start their enterprises exactly in the same manner.
These are common in developing countries.

 Drone entrepreneurs: Are also called conservative entrepreneurs, they do not accept
changes.

 Fabian entrepreneurs: These tend to be very cautious in adopting and accepting changes and
innovations.

In addition to categories by Danhof above, below are additional classifications of entrepreneurs:

* Business entrepreneurs: also called trading entrepreneurs. They undertake buying and
selling as their core business activity.

* Industrial entrepreneurs: These ones are engaged in converting raw materials into usable
finished products.

* Agricultural entrepreneurs: These are engaged in agricultural activities. E.g. growing

crops, rearing animals, poultry etc.

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CREATIVITY,INNOVATION AND INVENTION

CREATIVITY: Is thinking new things, ability to develop new ideas and to discover new ways of looking
at problems and opportunity. Or is ability to think and act in ways that are new and fresh.
INNOVATION: Refer to development of new processes, method, product and services for something
that already exist.
INVENTION: Is creating something that did not exist before. (creation of product or introduction of a
process for he first time.

Benefits of creativity in entrepreneurship

- Competitive advantage
- Product development
- Developing new method
- Utilization of potential employee
- Changing the status quo (thing outside of the box, thinking the unthinkable)
Obstacles/challenges of creativity
- Fear of failure
- Lack of sufficient funds
- Excess dependence
Types of innovation
- service innovation
- Product innovation
- Market innovation
- Process innovation

Relationship between creativity, innovation and invention

Creativity is related to “imagination” but innovation is related to “implementation”

Innovation: This refers to the development of new processes, methods, products, and services for
something that already exists. putting creative ideas into action is innovation.

Invention is creating something that did not exist before.

There are two kinds of creativity: innovation and invention therefore, the three terms are related in
a way that both innovation and invention originate from creativity.

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UNIT 2: BUSINESS IDEAS AND OPPORTUNITIES

A business refers to any economic activity done expecting to get profit.

Or A business is any activity undertaken with the aim of getting profit.

A business idea is a thought about the possibility of a business.

Or A business idea refers to any thought that an entrepreneur may come up with as a result of
scanning the environment with the possibility of developing it into a business opportunity.

A business opportunity is an identified situation that can be turned into a real and profitable
business. or refers to favorable situation or chance that creates a possibility to implement your
business idea.

Qualities (characteristics) of a good business idea

A good business idea has the following characteristics:

1. They solve real problems.

2. It is highly profitable.
3. Be legally accepted.
4. Be socially accepted.
5. Satisfy the needs of society.
6. Should have competitive advantage.
7. Should be unique.

Sources of a good business idea/opportunities

Before you start a business, you must decide on the business you want to be engaged in.
You must have a business idea.
The sources of business ideas are as follows:

1. Personal skills and experience.

2. Interviewing people about their needs and complaints
3. Observing social and political changes
4. Family members influence and friends.
5. Visiting other businesses and entrepreneurs.
6. Information from the media like news papers, magazines, radios, television, etc.

Factors influencing choice of a business idea/opportunity

The factors influencing choice of a business are:

1. Inheritance: They inherited their businesses from their parents.
2. Level of profitability: Some people decide to do certain kinds of business based on what they
think is very profitable.
3. Availability of resources: Some people are doing certain businesses because they had the
resources for such businesses.
4. Customs and traditions: Some people do certain businesses because of certain customs and
traditions.
5. Government policy: People normally end up doing businesses that are encouraged and
promoted by the government and that are legal.
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6. Religious beliefs: Religious beliefs influence what business you can do and what you cannot.
7. Copying existing businesses: Most people start businesses by copying existing businesses.

Evaluating business ideas

It is wrong to implement a business idea without serious analysis.

CRITERIA CONSIDERED IN EVALUATING VIABLE BUSINESS IDEAS

 Legality of the business: Is the business legal? When what you want to do is illegal, PLZ,
STOP!
 Entry barriers: What are the entry barriers? You need to know if there are some specific
requirements and barriers that may stop you from doing the kind of business. Eg: License,
other professional requirements, …
 Problem to be solved: What is the need you will be solving?
 Potential customers: Do have ready customers willing and able to buy your products?
 (USP) unique selling proposition: What makes you different from the other businesses selling
similar products / services?.
 Competitor analysis: Analyze your current and potential competitors.
 The returns on investment (ROI): When will the business starts making profits? When will it
break even?

Qn. Explain the factors for evaluation of business opportunities.

Answer:
Factors for evaluation of business opportunities are as follows:
1. Availability of market for business products: The number of able ices. and willing buyers
should be large enough to ensure that the business will be profitable.
2. Availability of resources (inputs): The entrepreneur should be able to obtain the required
resources (inputs) such as capital, labor, raw materials, etc.
3. Availability of skills required i.e skilled manpower should be available and at affordable price.
4. Availability of technology required: The technology required to start and operate the business
should be available.
5. Acceptability by the community: A good business opportunity should be accepted by the
community where it is located.
6. Availability of social economic infrastructures.
7. Government policy i.e if the government policy favours the operations of a business
opportunity.

Using SWOT analysis to evaluate business ideas

The SWOT analysis is a tool of analysis that can be used by a business person to asses the
strengths, weaknesses, opportunities and threats of the business.
SWOT analysis is used to identify the important internal and external factors that affect a
business.

1O S : Strengths:

These are internal factors that increase the chances of success to the business.The
strengths are factors that are helpful in achieving its objectives.

Examples of business strengths:

o Enough capital.
o Skilled manpower.
o High quality products.
.
o Innovative capacity.
o Better technology.

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 2O W: Weakness:

These are internal factors that prevent the chances of success for a business. They
are factors that are harmful in achieving the business objectives.

Examples of business weaknesses:

o Inadequate (little) capital.

o Shortage of skilled labor.
o Poor management.
o Few customers.
o Bad location of the business.
o Poor marketing skills.
o Lack of management skills and experience.
o Distribution problems.

3O O: Opportunities:

These are external factors that give the business more chances of success. These
are factors that are helpful in achieving the business objectives.
Examples of business opportunities:

o Reducing number of competitors in the market.

o New external markets.
o Peace and security.
o Presence of loans from banks to increase capacity.
o Growing population.
o Government policy.

4O T: Threats:

Threats are the external factors that cause problems for the business and limit
chances of success.These are factors that prevent the business to achieve its
objectives. They originate outside the business.

Examples threats to a business:

o Excessive competition.
o Higher taxes.
o Entry of new and bigger firms in the market.
o Scarcity(shortage) of raw materials.
o Lowering prices by competitors.

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 Example: A SWOT analysis of a bakery

Internal Strenghts Weaknesses

factors  Enough capital.  Inadequate (little) capital.
 Skilled manpower.  Small sales team.
 Better quality products.  Bad location of the
 Superior packaging. business.
 Increasing sales.  Poor marketing skills.
 Strategic location.  Few customers.
 Experienced  New on the market and
management. not yet known.

Opportunities Threats
External  Increase in hotels and  New bakeries being set
factors restaurants. up.
 Merge with a competitor.  Higher taxes.
 Reducing number of  Scarcity of raw materials.
competitors.  Lowering prices by
 New external markets. competitors.
 Peace and security.  Reduction in the
population thus reduction
in the market.
 Excessive competition.

basis of identifying business opportunities

Business opportunities will be identified basing on:
- Prevailing consumer/customer needs/people needs
- Available resources/based on resources in the community

Abraham Maslow's hierarchy of needs

Human needs have different categories. The most useful categorization was developed by Dr Abraham
Maslow, an American Psychologist.

According to Abraham Maslow, needs are classified under 5 categories into a sequential priority from the
lower to the higher level as follows:
1. Physiological/Basic needs: These are basic needs to human life and one cannot survive
2. without them, they include: food, drinks, air, shelter, sex, sleep, etc.
3. Security/Safety needs: These needs involve one's protection from danger and a provision of a secured
environment, they include: protection, security, order, law, stability, etc.
4. Social/Psychological needs: These include the need for love, affection, family, relationship, etc.
5. Esteem/Ego needs: These include the need for status, respect, independence, responsibility,
reputation, etc.
6. Self-actualization needs: This the maximum level of human needs. At this stage, people want to
engage in activities that benefit their communities e.g sponsoring activities like games and many
others. These needs involve also personal growth and self-fulfilment.

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S1 ALL
Or
You can explain the Abraham Maslow's hierarchy of needs using a triangle.

5. Self-actualization needs: personal growth and

self-fulfilment.

4. Esteem needs: status, respect, independence,

responsibility, reputation, etc.

3. Social/ Psychological needs: love, affection, family, relationship, etc.

2. Safety needs: protection, security, order, law, stability, etc.

1. Physiological needs: food, drink, air, shelter, sex, sleep, etc.

Business opportunities based on the available resources

Resources refer to endowments that may exist in an area or a locality.
- Human resources: both skilled and unskilled labor
- Material physical resources for example minerals, water, trees, animals, building, etc
- Time: having time available for carrying out a specific activity
- Technology: the machines, equipment, tools and the general know how
- Information i.e. knowledge about different business activities
- Financial resources the physical money or near money that can be used to acquire all the required
business inputs

UNIT3: ENTREPRENEURSHIP AS A CAREER

A career is a job or profession that you do for a long period of your life for survival which enables you to
achieve your objectives.
Career choice process of choosing a career path which can involve choice regarding education and training
for given career.

Entrepreneurship as career: entrepreneurs work to develop ideas, create and refine product and services
and grow company.

The following are some of the FIELDS OF CAREER OPPORTUNITIES AND careers that one can
pursue:
Career opportunity Job careers
Education Teacher
Health Doctor, Nurse, Mid wife
Security forces Soldier, Chief
Law Lawyer
Media Journalist
Hotel and tourism Waiter/ waitress, tourist guide
Commercial and manufacturing Business person, Accountant

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 Cashiers
Construction Engineer
Agriculture Agriculturalist
Arts Musician, Artist

SOURCES OF CAREER INFORMATION:

1. Schools: Through career day events, learners interact with professionals and ask questions and get to
understand about their career of interest.
2. Media: Newspapers, TV, radios…)
3. Potential workplace: information can also be got from those who are already employed in that career.
4. People you know like entrepreneurs
5. Guidance and career counselors
6. Professional societies, trade groups and labor unions

FACTORS THAT INFLUENCES A PERSON’S CAREER

1. Parents
2. Schools and institutions attended
3. Peer pressure and friends
4. Personal interests
5. Financial expectation
6. Government policy

CAREER TRAJECTORY OR PATH

Career trajectory is a path a person follows in pursuing professional growth throughout their working life. Or
the process that one goes through to qualify in a given work.

Career pathing involves clearly understanding the specific knowledge, skills, personal characteristics, and
experiences that are required for an employee to progress in the chosen career.

Stages to follow when preparing to choose a career/entrepreneurship career path

1. Assess yourself: understand yourself

2. Make a list of potential occupations: investigate what options are available
3. Explore the options: For all careers known to you, identify those that you have possibility of taking up.
Get as much information as you can about the selected career.
4. Narrow down your list: Once you have narrowed down your research to a specific career, talk to
someone practicing that career, about its elements, time demand, skills needed,…
5. Set personal goal: What is your long term goal? Which position do you want to occupy,…?
6. Create a career action plan: Link your effort to what you want in life. Think of your personal growth
7. Obtain trainings: Decide whether you are dedicated to lifelong learning in your career or whether you desire
to learn the skills necessary to accomplish your job and then focus on personal interest.

CAREER GUIDANCE
Career guidance is the process of assisting and helping a person to choose a career. This is normally done by
parents, school teachers and career guidance counselors.
a. Teachers: Teachers provide best source of career guidance to learners because they spend most of
their time with learners hence they understand their strengths, weaknesses, talents and skills.
b. Parents: Some families influence their family members to either take or leave certain career.
c. Counselors: These are professionals trained to help people assess their strength and weaknesses,
evaluate their goals and values and determine what they want in a career.

CAREER OPTION /TYPES OF EMPLOYMENT/ EMPLOYMENT OPTIONS:

There are basically two forms of employment:

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 1. Paid employment
Paid employment is when you work for someone else who pays you a salary or wage at the end of the month/
day/week... The salary is paid by the person, company or government department that is employing you.

Benefits of being employed (Benefits of Paid employment)

- Income is specific and regular (steady income)
- Favorable hours of work: Fixed time of work - spare time for leisure
- Fringe benefits may be got: You can enjoy other benefits which are not part of a salary. Eg: medical
care, free transport, …
- Pension on retirement
- Defined specific tasks
- It is easy for the government to collect taxes. Eg; PAYE(Pay As You Can) tax,

 Challenges of being employed / Challenges of paid employment

- Fixed income even when output increases

- Lack of independence
- Relatives cannot be made part of business
- Limited freedom of expression
- Limited decision making
- High level of job insecurity

2. Self employment

This is where an individual privately utilizes his/ her own resources to start and operate his/ her own
business. When you are self-employed, you work for yourself. You are the owner of the business. You are the
entrepreneur. You do not get a salary or wage but rather you get profits from the business.

 Benefits of being self- employed (Self-employment)

- You become your own boss and therefore you are independent
- You determine your own time of work
- More income from profits
- Higher status in society
- Better standard of living because of better income
- High degree of job security
- Improved creativity and innovation

 Challenges of being self- employed

- Risk of losses
- Income is not very certain. It varies depending on variation of profits
- Long and irregular hours of works: Most entrepreneurs work -on weekends, nights and public
holidays.
- No defne tasks: No well-defned job description. You find entrepreneurs doing all kind of jobs
in their enterprise.
- No fringe benefts: Entrepreneurs do not enjoy extra benefits from the company.

UNIT 4: SETTING PERSONAL GOALS

PERSONAL DEVELOPMENT- IDENTIFYING PERSONAL VALUES, SKILLS AND QUALITIES NEEDED

Personal development: This means an everyday activity aimed at enriching knowledge, acquiring new skills
to boost productivity, to improve self-organization and to master communication with people. It can also mean
all activities done to support human development.

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Personal qualities: are personal characteristics of an individual such as patience, kindness. They are what
make up that person’s personality.

Person values: are the ideal that we give attention to and consider important to us. Ex honest, truthful

Person skills: are the ability you possess to do certain things.

A goal is what you are trying to do or achieve.

Goal setting: is the process of identifying something that one wants to accomplish and establishing
measurable goals and timeframes.

Personal goals are short- or long-term goals that can apply to your work, family life or lifestyle.

They are meant to motivate you to achieve what you want in life.

Example of personal qualities are:

• Friendliness.
• Respect,
• Intelligence,
• Honesty,
• Caring,
• Self-reliance,
• Integrity,
• Accomplishment

Identifying values, skills and personal qualities

We need Values TO BECOME...

We need Skills TO DO...

IMPORTANCE OF HAVING PERSONAL VALUES

1. Help you to find your purpose
2. Help you to make decision
3. Improve quality of life
4. Values can assist you in setting your goals
5. Help you to increase your confidence
6. Help you to choose the right career

Personal qualities in relation to Entrepreneurship: personal qualities affect success in becoming an

entrepreneur.

• Creativity: ability to come up with clever and workable solution.

• Determination: the ability to continue trying to do something, although it is very difficult
(simply not giving up).
• Ability to make decisions: the talent to analyse the complex situation and draw conclusions
that will make the business succeed.
• Independence: the desire to be his or her own boss.
• Confidence: having a firm belief in his or her own capabilities and chances of success.
• Communication skills: the ability to express himself or herself and to understand the other so
that the ideas can be shared.

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 • Persistence: never showing discouragement, always thinking of new ways to approach a
problem and acting on his or her ideas.

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Personal qualities in relation to the personal development: personal qualities
enhance our personal development enabling us to be better people in the society. Personal
qualities for personal development include:

• Goal setting,
• Responsibility,
• Responsibility,
• Commitment,
• Patience
• Positive attitude
• Self-control.
• respect
• Tolerance,

Personal qualities in relation to the work in school: the following are personal qualities in
relation to work at school.
- Team work
- Respect
- Truth
- Honesty
- tolerance

Personal qualities in relation to Engagement with society: the following are personal
qualities that guide us in our interactions with each other in the society.
1.Involvement: participating in an event or activity. We should be ready and willing to
participate in communal activities such as cleaning our environment, building terraces,
constructing schools or constructing houses for needy families.
2. Honest and trustworthiness
3. Attentiveness
4. Communication,
6. Tolerance
7. respect
personal qualities and skills in relation to work place.

Work place. Is where many people spend their time the whole day.

- Respect
- Communication skills
- Honesty
- Flexibility
- Hard work
- Self confidence
-Cooperation

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SMART Goal

A good goals should possess the following characteristic/qualities

S: specific

M: Measurable

A: Achievable

R: Realistic

T: Time bound

S: Specific; is key to achieving goals.

What exactly do you want to achieve? The more specific your description, the bigger the chance
you'll get exactly that.

Questions you may ask yourself when setting your goals and objectives are:

• What (what do I want to achieve?

• Where? (identify location)
• When? (Establish time frame)
• Which? (Identify requirement and obstacles)
• Why? (Specify reason benefit of accomplish the goal)

M: Measurable; goals should be measurable, provide tangible evidence that they have been
achieved. Ask that questions
How much?

How many?

How will I know when it is accomplished?

A: Achievable(Attainable) ; goals should be achievable.

Questions: can it be done? Do I have resources?

Is your goal attainable? That means investigating whether the goal really is acceptable to you. If
you don't have the time, money or talent to reach a certain goal you'll certainly fail and be
miserable

R: Realistic; goal should be within ability of goal setter. Am I willing and able to do it?
Is reaching your goal relevant to you? Do you actually want to run a multinational, be famous,
have three children and a busy job? You decide for yourself whether you have the personality
for it, or your team has the bandwidth.

T: Time-bound: goals should be grounded within a timeframe.(starting and ending point).

Time is money! Make a tentative plan of everything you do.

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Ways to achieve SMART goals/steps for setting SMART goals

Step1.Making goal specific

-deciding what goal setter want

-who is involved

-asking what goal setter want to accomplish.

Step2.make them Measurable

-criteria of success

-asking questions

Step3.Make them Achievable.

-assessing limitation

- assessing commitment

-setting achievable goal.

Step4. Make them Realistic

-relating on present reality

-consider other goal and challenges

Step5.Make them Time-bound

-choosing time frame

-focusing long term and short term.

Step 6. Prioritise

Step 7. Set clear vision

Types of goals

-short term goals: is goal that you achieve using short period of time. (within one year)

-medium term goal: is goal that you achieve using medium period of time.(between 2 year)

- Long term goals: is goal that you achieve using long period of time. (above 2 year)

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 Achieving my goal
Long term goal ;by end of 3 year, I want to graduate from junior secondary school.
Short term goal 1: by end of year1, I want to get grade B in all subject.
steps By when resources cost
th
I will study for 1h 10 nov2017 room none
every evening
Short term goal 2: by end of year 2 I want to get A In all subject.
steps By when resources cost
I will engage and seek 14th nov2018 teacher none
extra help from my
subject teacher.
short term goal3;by endof3year, I want to find entry level position in my chosen career
steps By when resource cost
I will engage my 14th 2019 Career counsellor none
school career
counsellor for advice.

Why set goals? Importance of setting goals.

- Goal help one to be what he or she want to be

- Goal increase confidence
- Goal provide sense of purpose
- Goals make one self-reliant
- Encourage decision
- Turn the impossible into possible
- Increase satisfaction.

Steps in setting SMART goals

- Identifying priority, start and endpoint.

- Analyzing one skills and interest
- Checking available opportunity
- Setting strategy to achieve goal
- Identifying possible obstacles.

UNIT 5: LAW IN BUSINESS OPERATION

Law: a system of rules that a particular country or community recognizes as regulating the
actions of its members.

Business laws: are laws that govern business operations. These laws protect the consumers,
the community, the environment and the businesses themselves.

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Important business laws applicable in Rwanda:

Here below are some of the main business laws applicable in Rwanda;

Licensing law: In order to start and operate a certain kind of business; license is required. A
“License” gives an entrepreneur a permission to carry out a defined business activity.

Employment law: Employment laws are put in place to regulate working conditions of
workers.

Environmental law: These laws are put in place to protect environment and make sure the
business activities do not destroy the environment.

Commercial laws: Commercial laws relate to the buying and selling of goods and services and
regulating how it is done.

Consumer protection laws: Laws intended to protect consumers from fraud and from
harmful products.

food and drugs law: This law seeks to protect customers by ensuring the quality and quantity
of food and drugs.
Land act: The law that provides for tenure, ownership and management of land.

IMPORTANCE OF BUSINESS LAWS:

 Business laws help to instill discipline in business operations

 Protection of customers’ environment
 They provide guidelines and regulate every area of the business
 Its helps to eliminate the Traders using wrong measures and weights
 Its helps to eliminate Manufacturers producing sub standards goods
 Its helps to eliminate Business people failing to pay right taxes,
 Laws protect the environment
 Laws reduce conflicts among people

LEGAL INSTITUTIONS RELATED TO BUSINESS IN RWANDA

1. COMMERCIAL COURTS
These are the courts specialized in handling cases relating to business conflicts in Rwanda. In
Rwanda, the supreme court is the highest court of the country.

As seen, the commercial courts have been established to handle business related cases and
settle business disputes. The handle claims that relate to the following:
 Exports and import of goods
 Business documents and contracts
 Banking and financial services
 Operation of markets
 Purchases and sales of goods

2. RRA (RWANDA REVENUE AUTHORITY)

RRA is the body that is responsible for assessing, collecting and enforcing tax laws.

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RRA has an objective to collect government taxes and revenues and to enforce tax laws through
its different departments. RRA has the task of financing the national budget through revenue
mobilization. so as to:
 Finance development activities and poverty alleviation in the Rwandan society
 Empower the government of Rwanda to fund its own essential expenditure

3. RDB (RWANDA DEVELOPMENT BOARD)

Rwanda Development Board is an institution concerned with registering any form of new
business organizations. It is a principal government agency responsible for facilitating investors
to realize their investment projects in Rwanda Roles of RDB:

1. It gives technical support and logistics to both domestic and foreign investors
2. It promotes Rwanda tourism
3. It ensures good service delivery
4. It ensures entrepreneurship skills development

4. RCRSA (Rwanda Commercial Registration Service Agency)

The RCRSA is an institution that serves the purpose of proving registration information to both
new and existing business.

5. RURA (Rwanda Utilities and Regulatory Agency)

This is a government department that monitors and controls services and goods for example
transports, energy, agricultural products, telecommunication.

Mandate of the RURA

a) To set up necessary guidelines in order to implement the laws and regulations in force.
b) To protect and promote consumer interests
c) To promote the availability, accessibility and affordability of regulated services to all
consumers
d) To protect the rights and obligations of consumers and service providers

6. PSF (Private Sector Federation AKA Lobby group)

LEGAL FORMS OF BUSINESS ENTERPRISE / BUSINESS UNIT/ OWNERSHIP

The following are the legal forms of business organization (in PRIVATE SECTOR):

1. Sole proprietorship
2. Partnership
3. Joint stock company
4. Cooperative

1. SOLE PROPRIETORSHIP

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Sole proprietorship is a business started and owned by one person, the sole proprietorship
makes a decision alone takes all the business profit and in case of losses he/she suffers them
alone. Eg: Restaurant, Internet cafes, etc

Characteristics of a sole proprietorship:

 The trader owns the business alone
 He/ she is responsible for financing the business alone
 Decision making is by one person
 Limited government interference
 The business is very flexible
 Advantages (merits of sole proprietorship)
1. He enjoys profits alone
2. It requires little capital to operate
3. There is close contact between the owner and the customer
4. There is independence i.e. no need to consult any one when making decisions.
5. The sole proprietor is self-motivated
6. They have enough time for the business

 Disadvantages (Demerits)
1. Chance of expanding are minimal due to limited capital
2. The business may be closed when the owner is sick or dead
3. He suffers from long hours of work for holiday.
4. It is difficult to obtain loans from banks due to lack of collateral security
5. He cannot easily compete with large companies which may charge low prices
6. Personal attitude affects the business

2. PARTNERSHIP
A partnership is a business unit formed by two or more individuals (ranging from 2 to 20
people) with the aim of making profits.

Characteristics of a partnership
 It is owned by more than one person,
 Profits are shared among partners
 Capital is contributed by partners
 Members are responsible for all business losses
 The burden of running the business is shared by all partners
 The admission of a new partner requires general consent.

Types of partners

1. Active partners
Partners who contribute capital and participate in daily running of the business
2. Dormant partners
Partners who contribute capital but do not participate in the daily running of the business
3. Minor partners
Partners who are below 18 years of age.
4. Major partners
Partners above 18 years of age
5. Real partners
Partners who contribute capital to the partnership share profits and losses and is also
responsible for the liabilities of the business.

6. Quasi partner

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Partners who do not contribute capital to the business but allow their name to be used by the
business.

 Advantages of a partnership business

1. Encourages specialization (division of labor)

2. More capital is raised
3. Continuity of the business
4. Wise decisions are made
5. More skills applied and there is specialization
6. Losses are shared by all partners.

 Disadvantages of partnership

1. There is no secrecy in the business because all the partners have access to all business
documents and records.
2. Profits from the business are shared
3. In case an active partner dies, the business may be greatly affected
4. Misunderstandings can easily come up.

Partnership deed (Deed of partnership)

Partnership deed. It refers to the written document starting the terms and conditions of
partnership. The deed is useful in case of disputes and misunderstanding during the course of
business.
The main contents of a partnership deed are:
1. Name of the business & its location
2. Name and address of each partners
3. Status of each partner. (dormant, active, minor etc)
4. Physical and contact address of the business
5. Purpose for which the partnership is being started
6. Capital to be contributed by each of the partners
7. Responsibilities, rights and duties of each partners
8. Salary and benefits payable to each partner
9. Duration of partnership-whether it is a permanent or a temporary partnership.
10. Procedures of settling disputes

 Dissolution of partnership
Dissolution of partnership is the ending or termination of a partnership.

1. If the partnership is temporary and the period, it was formed for has expired.
2. If there is misunderstanding between the partners
3. If the partnership business become illegal and put to an end by the law.
4. If one of the partners becomes mad or dies.
5. If one or more partners leaves the partnership.

3. JOINT STOCK COMPANY

A joint stock company is at times called a limited liability company or simply a company.
A joint stock company is a type of business formed and owned by a group of people called
shareholders who have a legal identify diferent from that of the business. The company is an
artificial person created by law with capital divided into transferable shares.

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  Characteristics of a joint stock company
1. Legal personality: a company is an artificial person created by law.
2. Capital divided into transferable shares.
3. Long life: The death or retirement of a shareholder will not affect the company.
4. Great number of members
5. Can raise capital through shares

Types of joint stock companies:

1. Statutory companies: These are companies which are owned by the
State and are created under Act of parliament.

2. Registered companies These are formed by shareholders and

registered with the Registry of companies
under the Company’s Act.

 Private Limited Companies  Public Limited Companies

 2 to 50 shareholders  7 to unlimited numbers of
 It doesn’t invite the public to buy shareholders
shares  It invites the public to buy shares
 Not separate from its members  Separate legal entity from its owners
 It can start immediately on  Can’t start until it has obtained a
incorporation/ registration. certificate of trading.
Similarities between Private ltd companies and Public ltd companies:
1. Shareholders have ltd liabilities
2. Continuity in case of the death of a shareholder
3. Greater status
4. Long legal formalities involved in establishing the business

Advantages of a limited company

 Boosting the economy: Companies pay more taxes

 Shareholders are safeguarded against frauds
 More job opportunities
 Higher profit
 Large scale production
 Probability to raise huge capital

Disadvantages of a limited company:

 Long procedures to start: The Company requires many documents to start.
 Excessive government control
 Delays in decision making because of several management levels
 Lack of secrecy: It is necessary for companies to disclose and publish all information
about its operations to the public
 Lack of motivation since the management is separate from the ownership.

Formation of a joint stock company

Any person desiring to form a joint-stock company is required to go to the registrar of
companies with the following:

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 - Memorandum of understanding: [details relationship between the company and
the public, powers and limitations of the company (address clause, objective
clause, capital clause, liability clause Name, declaration clause)]
- Article of association: It sets out the rules and regulations governing the
company’s internal management.
- Declaration that all requirements of the registration with the registrar have
been made
- A list and statement of directors

5. CO-OPERATIVES
A co-operative enterprise or a society is a form of business made by a group of people who
join efforts in the production or distribution of goods and services with the purpose of sharing
profits among themselves. Or cooperative is organization owned by the people who work in it
and share the profit (with the purpose of benefiting members).

Features of a co-operative society

 The association operates in a democratic way.
 Each member has rights as per the partnership deed.
 All members have one vote at important meetings.
 Members can contribute to the running of the business.

TYPES OF CO-OPERATIVES:
1. Consumer co-operatives: They enable consumers buy / acquire goods and services at
a fair cost.
2. Producer co-operatives: They aim at collectively marketing their products at
competitive prices.
3. Savings and Credit co-operatives (SACCOs): They carry out savings for their members
and also provide credit facilities to them eg: Umwalimu SACCO
4. Transport co-operatives
5. Workers co-operatives, etc

PROBLEMS FACED BY CO-OPERATIVE SOCIETIES IN RWANDA

 Disputes and misunderstanding between members

 High competition from similar co-operatives
 Lack of government support
 Mismanagement of funds
 Lack of storage facilities

CONTRIBUTIONS (IMPORTANCE) OF CO-OPERATIVE SOCIETIES TO THE SOCIO-

ECONOMIQUE DVPT

a. Creation of employment opportunities

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 b. Increasing savings and investments
c. Encouraging people’s teamwork spirit
d. Increase of government revenue since they pay taxes
e. Improving social and economic well-being of people
f. Educating their member.

BUSINESS FORMATION AND REGISTRATION ACCORDING TO THEIR FORMS

You can register your business ONLINE or at the office of the Registrar General which is a
department within the RDB located in Kigali, the capital city of Rwanda.

Registering a business in Rwanda

Rwanda has the shortest procedure and or fastest processes in the whole of East Africa and
possibly the world to register and start a business.

A. Registering as a Sole proprietorship

A sole proprietor is required to submit:
 An application letter indicating personal names,
 Place and date of birth, Residence,
 Nationality, sex, marital status, in case married, name of the spouse and their
matrimonial regime,
 Name of the business enterprise and trade mark if applicable,
 Commercial activities to be carried out,
 The headquarters of the business enterprise
 Two passport photos

B. Registering a Company
 For a Limited liability company: it requires a minimum initial share capital of Rwf
500,000 equivalent.

A limited liability company cannot have less than 2 shareholders or more than 50.
Private companies cannot engage in the business of banking, insurance, finance and
leasing. Investors wishing to participate in these sectors are required to set up public
companies.

 Public limited company: It requires a minimum initial share capital of a hundred

million Rwandan francs (Rwf 100,000,000).

A public limited company has no limitations on: the type of business in which it may
engage in, the number of shareholders but shareholders cannot be less than seven.

Benefits of registering a business:

 Obtaining licenses and permits

 It helps a business to protect its brand: Trademarks are patented.
 It safeguards the business name.

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  The business has continuity entity
 It avoids penalties.

Consequences of not registering the business:

 Penalties and fines may involve

 The government may close down such a business
 Disputes between a business and the Government
 The business may not be in position to access funds from financial institutions for
investment

UNIT 6: ROLE OF STANDARDS IN BUSINESS

Standard: This is a document established by a recognized body (Gvt) that gives rules,
guidelines, or characteristics of activities aimed at producing a common product.

Substandard products: These are products which do not meet the customers’ needs or
purpose of their consumption.

Standardization: This refers to the process of developing and implementing technical

specifications.

TYPES OF STANDARDS:

 Basic standards: These are essential facts or principles that have to be maintained in a
product or in a service provision.
 Product standards: these are established requirements/ qualities/ methods of testing,
grading and making a product to ensure that it will serve its purpose effectively.
 Test and measurement standards: This defines the process of measuring the
properties of performance of a product.
 Service standard
 Process standard
 Ethical standards: moral principles that if respected, promote values like trust,
fairness, kindness, good behavior,..
 Design standards: They define characteristics or how a product is to be built.

IMPORTANCE OF STANDARDS:

1. It helps to meet the requirements of the purchasers.

2. It strengthens and harmonizes national metrology systems. (Metrology: scientific
process of measurement)
3. It leads to better public health.
4. Environment protection.

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 5. It leads to economic growth.
6. It improves standards of living.

IMPORTANCE OF STANDARDS TO AN INDUSTRY:

1. It leads to lower costs of production since errors have been minimized.

2. It helps industry products, services and personnel to cross borders.
3. They improve industry efficiency and remain competitive.
4. Standards earn customers’ loyalty to the industry because they want high quality.

IMPORTANCE OF STANDARDS TO CUSTOMERS AND SOCIETY:

1. Purchase of quality products

2. Customers are protecting from being over exploited by entrepreneurs
3. Improved choice
4. Its improves standards of living.
5. Improved health
6. Standards provide confidence in products and services to the users.

IMPORTANCE OF STANDARDS TO THE GOVERNMENT:

1. Government earns revenue through tax

2. It protects its citizens from buying poor quality products
3. Standardization is a source of security
4. It promotes good relationship among countries
5. It is a source of job opportunities.

THE PROCESS OF STANDARDIZATION IN RWANDA

 Identification of need
 Proposal for acceptance for the development of the new standard.
 Collection of reference materials and drafting
 Discussion of the draft standard by the technical committee experts
 Public review (including other entrepreneurs who did not attend the technical
committee meeting)
 Incorporation of comments in the draft, if any
 Approval
 publication

INSTITUTIONS INVOLVED IN INSPECTION OF ACTIVITIES IN DIFFERENT FIELDS OF

STANDARDIZATION IN RWANDA:

1. The Rwanda Standard Board - RSB

2. The agency of Ministry of Agriculture and animal resources
RARDA: Rwanda animal resources development authority
RADA: Rwanda agricultural development authority
RHODA: Rwanda Horticulture development authority
3. The ministry of health

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 4. Ministry of Infrastructure - MININFRA
5. Rwanda National Police – RNP
6. Rwanda Development Board - RDB

LEVELS OF STANDARDIZATION:

 International standardization
 Regional standardization
 National standardization

Certification mark: this is a symbol awarded by a certification body to mean that product has
fulfilled all requirements to be good quality.

Product Certification’s check that product conforms to specific characteristic and meet
criteria of certification. (after checking all steps and tests, the producer is awarded a
standardization (S mark) that can be displayed to the certified product.)

system certification: Rsb check that organization follow quality management systems.

Product Certification Process

*Filling –in application form

*Certification fee payment

*To conduct audit of the production line and take samples.

*Product sampling and testing.

*Submission of audit report to client

*Closure of corrective actions (if any)

* Certification decision by independent committee

*Issuance of certificate of conformity.

*Surveillance audit.

*Market surveillance

*Re-certification (after 2 years)

System Certification process

*Filling-in application form

*Certification fee payment

*Stage 1 audit (desk audit &on site visit)

*Stage 2 audit (full audit)

*Submission of audit report to client

*Closure of corrective actions (if any)

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*Certification decision by independent committee

*Issuance of certificate of conformity.

Importance of quality management and certification

 Helps organizations to make continuous review of procedures and strategies to be in

the market with a good name.
 Builds more clientele as it builds confidence in both the customers and new project
leaders to emerge with you.
 Helps organization in carrying out internal audits.
 Maintaining quality and standards in products and services.
 It also increases the efficiency of workers in the organization.

UNIT 7: BUSINESS MANAGEMENT

Business: this refers to any economic activity done with an aim of making profits.

Management; This is the process of getting things done by using other people and resources
like capital, raw materials and time.

Business management: This refers to the process of planning, organizing, coordinating and
controlling activities of an enterprise to achieve defined objectives.

Importance of management in business

1. Reduce wastes of resources

2. It helps to coordinate factors of production
3. It helps to portray a good image to the public
4. It helps to build commitment among workers
5. It helps to ensure discipline in the organisation.
6. It helps to solve conflicts
7. It is essential in handling public relation

Managerial functions:

These are special activities that are designed for a manager to perform in order to achieve the
goals and objectives of an enterprise.
1) Planning: it is a process of selecting goals and determining who, when and how
to achieve them.
2) Organizing: this refers to the coordination and supervision of factors of
production particularly land, capital and labor. Organizing includes: Identifying tasks,
assigning tasks to workers and Developing work plans.
organization chart is one of the tools managers use to organize the people in
business.
3) Leading: this involves directing/ influencing or inspiring the work of
organizational members towards organizational goals.

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 4) Controlling: this refers to the evaluation of achievements compared to the plans
and taking measures towards success of organizational goals/objectives.
5) Budgeting: this refers to the transformation of all plans in financial statement
showing the revenue expected and the expenses assumed/ projected.
6) Motivating: Managers should inspire and encourage their worker.
7) Communicating: This involves passing on information between people and
departments.

Stakeholders in business

- Shareholders/partner
- Employees/workers
- Service provider/suppliers
- Government

SELECTION OF EMPLOYEES FOR AN ENTREPRISE

The employees in the various departments of the enterprise determine whether the enterprise
succeeds or fails.

Factors to consider when recruiting employees:

 Sex of the employee

 Age of the employee
 Cost of the employee
 Experience
 Qualification
 Marital Status
 Skills, vision
 hardworking

. ORGANISATION STRUCTURE / Organisational chart / Organogram

Organizational structure refers to the way a business is divided into departments or units,
each with specific functions aimed at helping the organization achieve its objectives.

Department: A department is also known as a section, Division or a single unit (special unit)
within an organization which has a specific functions that help the entire firm to achieve its
goals.

An organizational chart is a graphic representation of a firm’s hierarchy of authority.

Note that an organizational structure is primarily represented by an organizational chart. It

shows how different people and departments are linked together in the organization..

Examples:

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Roles of an organizational structure

1. Facilitate the use of available resources

2. It facilitates a company to easily achieve its objectives
3. It leads to specialization and coordination
4. It maintains the relationship between all organizational resources.
5. It facilitates managers to arrange and locate different works
6. Ease flow of information
7. It reduces the work load.

The structure department

Any organizational structure must be departmentalized i.e subdivided according to

responsibilities.

Departmentalization can be done through 4 ways such as

1. By functions 2. By product 3. By geography 4. By type of customers

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The following are some the department that may be found in different organizations:

Types of departments Meaning and Functions

Administration department Undertaking the overall management of the business. Coordinating
all the departments to ensure that all activities are aimed achieving
the objectives and goals of the business.
Production department Responsible for turning inputs into finished products (outputs)
through a series of production processes. This department makes
adjustments on product design, determination of methods of
production, converting inputs into outputs.
Accounting & Finance / Preparing budget, receiving payments, Keeping financial records,
Accounts department Banking all the cash, Paying taxes, Monitoring the movement of
financial resources and production of financial statements.
Human Resource / Personnel This deals with matters related to employees of an organisation.
department Recruiting and training new workers, controlling workers, Preparing
job description, Disciplining workers, Managing the payroll, Keeping
staff record, Motivating workers and negotiating with trade unions.
Sales and Marketing This department generates revenues by selling goods and services.
department Conducting market research, developing and implementing market
plans, liaising with media, developing pricing strategies and
marketing materials,..
Research andDevelopment Deals with constantly research so that the business be able to
(R&D) develop new products and services and also improve on existing
department products.
Customerservice department It supports customers who need help with the goods or services of
the business.
Procurement department This is responsible for acquiring goods and services necessary for the
business
Store department This is responsible for stocking all the necessary tools, raw materials
and equipments required to service the manufacturing process.

UNIT 8: FINANCIAL MANAGEMENT

Finance: The term finance is the science on the study of the management of funds.
Financial management: Financial management refers to the routine functions and activities
that are performed within an organization to ensure efficient use of funds.
Financial system: is the system that covers financial transactions and the exchange of
money between investors, lender and borrowers.
Money: something generally accepted as medium of exchange for goods and services
Money is not what it is? Is what it does?
OBJECTIVES OF FINANCIAL MANAGEMENT
a) Profitability: Financial management ensures that an organization maximizes
profits which satisfy shareholders and expand the business.
b) Efficiency: Financial management aims at ensuring that the business minimizes
costs so as to maximize profits.

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 c) Return on capital; Financial management ensures an adequate return to
shareholders in form of dividends.
d) Safety of investment; It also aims at ensuring the safety (security)of all business
investments.
e) Managing risks; Financial management enables an enterprise to identify, assess
and manage business risks.
Importance of financial management
 Ensuring the use of available resources
 Eliminating fraud and misuse of resources
 Determining the profitability of the business.
 Repaying all borrowed funds
 Ensure proper usage of resources
SOURCES OF BUSINESS CAPITAL
1. Merging of businesses: This refers to the combination of 2 or more businesses’ resources
so as to become one big firm.
2. Gifts and donations: These are Grants from various people; friends, parents, government,
3. Personal savings: Saving refers to that activity of putting aside some money so as to use it
when future needs arise. People get money for starting their business from their savings.
4. Inheritance: This refer to the properties inherited from parents, relatives,
5. Bank loans
6. Capital from partners
7. Retained profits: When a business earns a profit, it can put the profit back into the
business and this in turn serves as capital.
8. Loans: These are obligations that a business must honor.
Equity financing Vs Debt financing
Equity financing refers to the way of financing a business enterprise by selling shares.
Debt financing: This refers to the way of financing a business by borrowing money simply not
giving up any ownership. The borrowed money is paid back with interest at a later date.
Advantages and Disadvantages of different sources of capital
Source of capital Advantages Disadvantages
Personal savings -The entrepreneur is independent - In the event of business failure,
- No extra cost incurred (interest) like the entrepreneur is likely to lose
in the case of borrowing everything
-It promotes financial discipline -Savings may be insufficient to
-The owner is entitled to all profits start and maintain good business
- Using personal savings means
that the entrepreneur bears all
business risks alone
Bank loans - Pay-back period given by the bank - Interest may be high
may be longer/ more extended than -It requires collateral
other sources securities/Mortgage
- There are chances to get financial - Money may get to you a bit late,
advices by the lender when you are not in need.
- There are variety of sources/ Banks. - Lack of independence bcause the
- It is an encouragement to the bank may make control over your

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 borrower to work hard in order to pay business
back the money in time. - In case of business failure,
personal properties can be taken
away.
- Change in interest rate
Capital from -Business risks are shared Personal issues and conflicts may
partners -Responsibilities and also tasks are affect the business
shared - Some partners may wish to take
-Specialization over the business
-More capital is likely to be - Most partners may not raise
contributed enough capital
Trade -Enables the business to produce - Since the entrepreneur has no
credit( Suppliers’ products as per customer’s needs other choice but to accept, goods
credit) -It reduces to storage costs are bought at higher prices.
-Create good relationship between - Poor quality products are sold to
entrepreneur and the supplier the entrepreneur since he doesn’t
- It allows continuity in the operations. have money.
(no production rupture/ interruption) - inflexibility of the business owner
Retained profits They are cheaper and more reliable. They may not be adequate in young
growing firms.

THE CONCEPT OF INTEREST.

Interest is the cost for use of borrowed funds. When the money is lent, borrowed or invested
during financial dealings, interest (I) is paid to the lender by the borrower.
Interest rates
The interest rate is usually expressed as a percentage of the principle. For example, the interest
may be started as 10% per annual. This means that every year, you pay10% of the borrowed
amount (the principal) as interest.

Types of Interest Rates

I) Lending Fixed interest rates: Is the interest rate which is fixed by the lender of funds.
There is no negotiation between a lender and a borrower.
II) Lending Variable interest rate: Is the interest rate that can be vary or is negotiated
between a Borrower and lender of funds.
III) Natural interest rate: Is the interest rate which is determined by the level of Savings
and investment in the country.
IV) Market interest rate: This is the interest rate which is determined by the demand and
supply of loan able funds.
VII) Deposit interest rate: When you deposit (saving) money on the same type of account
in the bank, the bank pays you interest on such deposits(savings).

NOTE: The interest paid or earned is determined by three factors: the amount of money
borrowed, the length of time for which it is borrowed and the rate at which interest is
charged. Interest rates vary/ difer from bank to bank .
A) The amount lent or borrowed is usually referred to as the principal or capital amount.
We will refer to this amount as the present value (PV).

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 B) second factor which determines the magnitude of the interest is the length of time for
which the money is borrowed or lent. The longer the time the larger the interest. The
way in which the interest is usually calculated is to divide the total time into periods
(days, weeks, months, quarters, years etc.). For each period the money earns interest at
the end of these periods (n represents the number of periods)
C) the money is worth the original amount plus interest. This new amount will be
referred to as “the future value (FV) or Accumulated amount. (A)

Methods of Calculating interests

1. SIMPLE INTEREST
Simple interest is the interest paid basing on the principal amount borrowed.
r
Simple Interest is calculated using this formula: I = p ∗t ∗
100
P∗t ∗r
Or I=
100
Where:
P = Principal amount borrowed or PV=Present Value
R = Rate of interest or I = interest payable
T = Time or duration of repayment or n= Number of periods
Example 1: Calculate the simple interest will be earned by the depositor and the amount
he will accumulate after 2 years, if amount deposited is 200Rwf for interest rate of 3% per
annual (p.a).
Solution
P=200; R=3% T=2 years Or PV=200 i=3% n=2years
The interest earned after 2 years
P∗t∗r
Simple Interest Or I =
100
S.I = 200 x 3% x 2 = 12
i. The accumulated amount (Future Value)after 2 years
FV = P+I
F.V=P+I FV=PV+ (I1+I2) or FV=PV+PV*i*2
F.V=200+12 FV=200 +200 (0.03*2)
F.V=212 FV=200+12=212
ii. The accumulated amount after x years FVx =PV + (I1+I2+…………. Ix ) Or FV= PV +
(PV* i *x)

Exercises

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 1) Calculate the simple interest on 250,000Rwf for 5 years and 6months at 6% p.a
2) Find the principal amount on which the simple interest is 4320 dollars for 8years at 5%
per annual.
3) Investor deposited money with the Bank, at the interest rate of 5% per annual. After
10years, He will get 2,000,000 rwf. Find his investment?
SOLUTION
3. Investment = PV
PV= FV-I ,
I= PV * i * n
PV= FV –PV * i* n
PV +PV * I * n =FV ,
PV (1+i * n) = FV PV = FV / (1+i * n) PV= 2,000,000/ (1+0.05
* 10)

2. COMPOUND INTEREST
If the interest accrued after an interest period is added to the principal amount, so that the
interest computed the next period is based on this new principal amount (old principal plus
interest), then the interest is said to have been compounded. The addition of interest to the
principal is called compounding. That is compound interest’ is paid on the initial principal
and previously earned interest. The period for computing interest (usually at regular
intervals such as annually, semi- annually, quarterly, monthly, or daily) is referred to as
the conversion period of the interest, the interest period or, (the term used in this text) the
“compounding period”
In simple interest, the interest for each period was a constant amount, as interest was
calculated on the initial principal for every interest period. In the case of compound
interest, the interest is calculated on a changing principal amount, and therefore the
interest will change accordingly for each interest (compounding) period.
As: PV= Present value or P= Principal FV = future value;
i= interest rate or r= Rate of interest
n= period or T = Time.
Example
1: an amount of Rwf 100 is deposited with a banking institution for 2 years, at an interest
rate of 12% per annually (p. a) compound interest.
Solution
a. The interest earned after First year:
P= 100; r=12%p.a T= 1 year
I = PV x i/100 x n or I= (100 x 12 x 1)/100 = 12
I= 12
 The accumulated amount after 1 year (FV in simple interest)
FV1= PV+I1 or New amount = Principal + Interest
FV1= PV+PV*I > FV= P (1+RT) = 100 + 12
FV1=112 = 112

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 Note that these results are identical to those in example 1 for the first year. The results
differ for the second and subsequent years.
b. The interest earned after Second years
I = P x R/100 x T = FV1* i + PV* i or New amount = New principal after 1year +
Compound = 112(0.12) +100(0.12) new interest = 112 + 13.44
I =25.44 =125.44Rwf
FV = 100 + 25.44
=125.44Rwf
FUTURE VALUE AND PRESENT VALUE IN COMPOUND INTEREST
 Calculation of future value (FV of n period)
Consider a principal amount PV which earns interest for n periods at i per period (p. p)
compound interest. This information may be placed on a time diagram where the n
compounding periods are indicated by T1, T2, T3 ……….Tn
FV1= PV+(PV*r*t) or FV1= PV+I

Then, FV1= PV(1+r)

Where; A = Accumulated amount received after n years

P= Principal, r = Rate (i), n= Number of years
Using the same example as above substitute the values of P,R, and n in the formula:
A = P (1 + r/100)n
= 100 (1 + 12/100)2
= 100 (1 + 0.12)2
= 125.44frw or FV = Principal + Interest = 100+25.44=125.44
Interest = A – Principle = 25.44frw

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 Exercises:
1. Mutara enterprise deposited 1,600,000Rwf with the Bank institution for 4 years, at the
interest rate of 8% per annual and allows for interest to be added to the principal
amount (compounding interest). Calculate also the amount it will earn after fourth
years.
 Calculation of Present value in compounding

 Calculation of period (n) in compound interest

When calculating the period that money will take to get on the interest that the investor want
there are easy formula to use which is to use the logarithm,

Example
An investor deposited $500,000 in bank and he wants this amount to be double on the
interest of 4% annually.
1) What is the future value of this amount?
2) How many time will it take ?

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INVESTTMENT APPRAISAL TECHNIQUES/ METHODS OF RANKING
INVESTMENTS( Capital budgeting appraisal methods)
-Break-even point, payback period, return on investment, return on equity
1 The meaning of breakeven point
Definition: BEP It is a point where there are neither profits nor losses. We call this break-even
point. Break-even is determined using the costs and revenues of the firm.
Break-even analysis: This is the tool used to determine the volume at which a company’s costs
will exactly equal to its revenue, therefore no profit made.
2. Key terms used in break-even analysis
• Costs: expenses,
• Fixed costs: These are costs that cannot be vary with output or sales e.g. managers’ salaries,
rent and rates on business promise.
• Variables costs: costs that can vary with the quantity produced or sold e.g. costs of raw
materials, sales staff commissions and other expenses which depend on the number of units
produced and sold.
• Total costs: fixed costs +variable costs at each possible level of output
• Sales revenue or profit: The difference between total revenue and total cost, where total
revenue are higher than costs.
• Loss: the differences between total revenue and total cost, where total costs are higher than
total revenue.
• Profit: The difference between total revenue and total cost, where total costs are less than
total revenue

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  Contribution: This is defined as a product or a service price minus variable costs for
unit sold.
The variables and definitions used in the break-even equation are listed below.
P = Selling Price per unit
V = Variable Cost per unit.
Q= Number of Units Produced and Sold
TR = Total Revenue = P * Q
TC = Total Costs = TFC + TVC
TFC = Total Fixed Costs
TVC = Total Variable Costs = V * Q
Break- even Point formula
If the product can be sold in a larger quantity than occurs at the break-even point, then the
firm will make a profit, below this point, the firm will make a loss. break even quantity is

calculated by
profit= revenues-costs where revenues = (selling price*quantity)-(average variable
costs*quantity+ total fixed costs).

For example, we can use the following data to calculate break-even point.

• Sales price per unit = $250

• variable cost per unit = $150

• Total fixed expenses = $35,000

• Total sales or total production = $ 450,000

Selling price ∗ quantity = fixed cost + (quantity * variable cost per unit)

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 FC FC
BEP in amount= BEP= ∗ Sales/u Or BEP= ∗ Sales
P /u −V /u P−V

Or BEP in units * selling price/u

Presentation of break-even point on graph/ “ BREAK-EVEN CHART” or “COST VOLUME

PROFIT CHART”
Example Total cost=$30,000
Total fixed cost=$10,000
Total variable cost= TC-FC = $30,000 - $10,000 = $20,000
Total sales or total production = $40,000

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 Importance of Break – even analysis

• Knowing the breakeven level helps you plan ahead and determine the amount of finance
needed to grow the company.

• it is much easier to make the strategic objectives more tangible and achievable.

• Break-even charts help your employees visualize your company’s progress towards profits
goals.

• Help to know how to reduce overheads so that you achieve profits fast.

• Break-even analysis helps in determining the prices of products.

• Break-even helps in determining the production schedules.

• Break-even point helps a firm to plan the level of production that must be achieved for it to
earn profits.

Disadvantages of BEP

1. It only emphasizes the supply side (the costs only). It doesn’t tell an entrepreneur about
what sales are likely to be for the product at various prices.

2. It assumes that costs are constant

3. It assumes that average variable costs are constant per unit output.

4. It assumes that the quantity of goods produced is equal to the quantity of goods sold.

PAYBACK PERIOD (PBP)

Payback period It is the length of time a project takes to pay back the money which has been
invested in a company.

This calculation can be done into two ways, either using cash flows or using discounted cash
flows.

Calculation of the payback period

Calculation of the payback period using cash flows The calculation of the payback period is
best illustrated with an example. Consider capital budgeting project A which yields the
following cash flows over its five year life.

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Notice that after two years net cash flow is negative (-1000+500+400= -100) while after three
years the net cash flow is positive (-1000+500+400+200=100) thus the payback period, or
breakeven point, occur irregularly over the course of the year, the payback period can be
computed using the following equation

Example These are the following indicators of GAKUBA’S business

• The total investment of his project is 300,000RWF

• Annual cash flow is 10,000RWF Per month

• How many times will take for GAKUBA to take back his amount invested?

Example: An investment of 200,000Frw is expected to generate the following cash flow in six
years:

Year 1: 70,000Frw

Year 2: 60,000Frw

Year 3: 55,000Frw

Year 4: 40,000Frw

Year 5: 30000Frw

Year 6: 25,000Frw

Required: Compute payback period of the investment. Should the investment be made if the
management wants to recover the initial in three years or less? (8marks)

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ANSWER

Year Cash flow Cumulative cash flow

0 (200,000) (200,000)
1 70,000 (130,000)
2 60,000 (70,000)
3 55,000 (15,000) (A)
4 40,000 ( B) 25,000
5 30,000 55,000
6 25,000 80,000

PBP= Y – A/B

Y= 3years

A= 15000

B= 40,000

PBP = 3+ 15000/40,000

= 3.375years

= 3 years 4 months 15 days

Advantages of payback period.

• It is simple and easy to use

• It uses readily available accounting data to determine cash flows.

• The uncertainty of the future cash flow is reduced.

• It is an appropriate technique of fashion projects where the market demand tends to change
seasonably.

• The payback period quantifies the selection criteria in terms of the decision makers are
familiar with.

• Faster payback period has a favorable short-term effect on earnings per share.

Disadvantages of payback period.

• It does not consider the time value of money.
• It is not a suitable technique to evaluate long term projects where the effects of differential
inflation and interest rates could significantly change the results.
• The figures are based on project cash flow only. All other financial data are ignored.

3. RETURN ON INVESTMENT (ROI)

Another popular investment appraisal technique which does look at the whole project is return
on investment (ROI). This method first calculates the average annual profits, which is simply

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the project outlay deduced from the total gains, divided by the number of years the investment
will run.

Average annual profit = [(Total gains) – (Total outlay)] / Number of years.

Return on investment = [(Average annual proft * 100)] / Original investment.

Example: Using the data contained in the table bellow, compute the return on investment

Years Cash flow project A Cash Flow project B

0 (70,000) Rwf (70,000) Rwf
1 40,000 20,000
2 30,000 20,000
3 20,000 30,000
4 20,000 40,000
Total Gains 110,000 110,000

Solution
Profit (A&B) = 110,000 – 70,000 = 40,000Rwf
Average annual profit = 40,000 / 4 years = 10,000 rwf per year (the same for both projects)
Return on investment = (10,000 * 100) /70,000 = 14%
ROI is also calculated using the following formula:

ROI= ( PBIT
CE )
∗100 %

Where ROI= Return on investments

PBIT= Profit before Interest and Tax
CE= Capital Employed (Equity + long term liabilities) or FA + WC

4.RETURN ON EQUITY
The Return On Equity measures the profitability of equity funds invested in the firm.

ROE=
NP
( NEavg ) Or ROE=
( NetOwner
Income ∗100
s Equity )
'

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UNIT 9. FINANCIAL INSTITUTIONS:

Financial institutions are the firms that provide financial services and advice to their clients.
The financial institutions are generally regulated by the financial laws of the government
authority.
Financial institutions include commercial banks, microfinance institutions and savings and
Credit societies.

Types of financial institutions

Various types of financial institutions are as follows: Banking financial institution and non-
banking financial institutions.

 Banking institutions:

1. Central bank (BNR in Rwanda)

2. Commercial Banks or retails banks ( e. g BK, BCR, AGASEKE BANK etc.)

3. Investment banks (RDB: Rwanda development Bank)

4. Micro-finances institution and savings and credit societies e.g. UMURENGE SACCO,
UMWALIMU SACCO etc,)

 Non-banking Financial institutions

1. Stock Brokerage Firms (CMA - capital market authority)

2. Insurance Companies (ex. SORAS, SONARWA, RADIANT, UAP etc.)

3. Mutual funds: These refers to companies that offer services to people by investing their
money in various different business.

4. Social security fund

Roles of financial institutions in promoting entrepreneurial culure

 provide business technical advice

 loans to the entrepreneurs (short and long term)

 safe custody of key business document

 keeping/handling customers saving and deposit

 regulation of the economy.(minimizing inflation.

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Services offered by various financial institutions

1.The Central bank:

It is a government bank established and managed by the government to control, guide and
assist other financial institutions in the country.

Functions of the central bank are:

• Control the inflation and identify its level

• Lending money means inter commerce banks.

• Controls foreign exchange: It controls the demand and supply of foreign currencies.

• Advisor to government: It collects information and after analysis, provides advice to

government on the management of the economy.

• Printing money and money reform (Issues a country’s currency and replaces old notes and
coins) etc.

• It regulates and control activities of commercial banks.

2. Functions of commercial banks are:

Commercial banks provide the number of services to the people who use them and economy as
a whole.

• Money transfer services: They provide services that enable the transfer of money from one
place to another or from one account to another.

• Buying and selling foreign currencies: Commercial banks may buy foreign currencies from
individuals and businesses and give them local currencies use.

• Means of payment: They also provide convenient means of payment. Bank customers may
use cheques, other methods to conveniently make payments.

• Financial advice: Commercial banks provide financial advice to its customers in matters
concerning investment and financial management.

• Lending money and Credit facilities: Commercial banks provide credit facilities to credit
worthy customers who pay back at a later date with interest.

3. Development Bank

These are banks or financial institutions that specialize in providing long term development
loans to their clients. Examples of developmental banks include East African Development

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banks (EADB) and Rwanda Development Bank (RDB).

Functions of development banks

• The development bank gives funds to long term development projects in sectors that are not
financed by commercial banks due to many risks that are involved in their operations, for
example, agriculture, and education.

 The RDB participates in distribution of credit in the all fields and it notably holds an
important place in the financing and commercialization of agricultural products.

• It has a mission to participate in the preparation of the development budget and to encourage
development on all kinds of companies in Rwanda.

• Development banks help of public and private capitals

4. Micro-finances institution(MFI) and savings and credit societies e.g. UMURENGE

SACCO, UMWALIMU SACCO etc,)
These are institutions that offer financial services just like banks.

Functions of Micro-finances institution

• Micro-finance services consist of the supply of a collection of financial products to all those
who are excluded in the classical or financial system.
• Micro-finance institution enabling the poor to have permanent access to a range of
financial services of a great quality that are adapted to their needs, include not only the
credit facilities but also saving, insurance and funds transfers.

• Micro-finance institutions mobilize small savings and also give small credit.

Brokerage firms.
The stock brokerage firms are the other types of financial institutions that help both the
corporations and individuals to invest in the stock market. (e,g in Rwanda we have
CMAC. Capital market advisor cancel)
The services provided by the brokerage firms are;
• Insurance of your investment

• Money market and check writings.

• Intermediary services between investment borrowers and lenders etc.

Distinction between commercial banks and credit union or credit cooperatives

The credit union is co-operative financial institution, which is usually controlled by the
members of the union. The major difference between the credit unions and banks is that the
credit unions are owned by the members having accounts in it.

BANK LOANS

A loan is a sum of money that you borrow with the expectation of paying it back either all at

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once or in installments over time, usually with interest.

TYPES:

1. Open-ended loans are loans that you can borrow over and over.

Eg: lines of credit are the most common types of open-ended loans Open-ended
loans are also known as Revolving loans since they able to turn in cycle.

2. Closed-ended loans: are one-time loans that cannot be borrowed again once they’ve
been repaid.

Closed-ended loans are also known as Term loans. Common types of closed-ended
loans include mortgage loans, auto loans, and student loans.

3. Secured and Unsecured Loans

Secured loans are loans that rely on an asset as collateral for the loan. Interests rates for
secured loans may be lower than those for unsecured loans. The asset may need to be
appraised to confirm its value before you can borrow a secured loan.

Unsecured loans don’t require an asset for collateral.

These loans may be more difficult to get and have higher interest rates.

Personal loans: These are loans that are give to an individual who usually wish to borrow
small amounts of money and able to repay in a couple of years.

IMPORTANCE OF LOANS

Loans provide as many advantages as those that capital provides. They include:

1. To buy properties

2. To pay for the utilities

3. To pay for wages and salaries

4. To pay for other loans

5. To pay for rents

PROCEDURES FOR LOAN APPLICATION

1. Submission of dully application forms signed with the relevant requirements that are
handed to the officer in charge.

Those requirements are;

 Bank account

 ID copy and locations

 Business plan

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  Collateral security, a mortgage or a guarantee

 Witnesses

 2 pass port size photos

 Bank statement

 Salary certificate if you are an employee

 Marital status certificate

 Any other relevant item as may be requested by the bank

2. After some time when the credit officer has visited and approved the collateral,
depending on the value of the loan, a loan will be disbursed(gutanga) to your bank
account.

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