Central banks want to connect payment systems in the East African region by the end of this year, making it easier and safer for business owners and consumers to move money between countries.
The National Bank of Rwanda (BNR), in its first monetary policy and financial stability statement for this year, has said that it is working with other central banks in East Africa to have the payments systems linked up by December.
Kigali has already rolled out its Rwanda Integrated Payments Processing System connecting the country to the Comesa Regional Payments and Settlement System.
“Work is on in earnest to link the East African region through the East African Payment System, which will go live in 2013 alongside cheque truncation,” said BNR.
The system is part of a larger plan by EAC economies to integrate their capital and money markets.
In a plan expected to take effect on March 1, trading of shares cross-listed on the East African stock markets is to take about four days, from the current delay of up to two months, once electronic settlement of transactions is implemented.
The East African Securities Exchange Association approved an inter-depository transfer system that will allow central depositories to electronically move cross-listed shares, removing a hurdle that has been hindering cross-border trading.
READ: Cross-border share trading shortened to four days
The proposed EAC payment system is expected to benefit businesses, which will be able to move money on a real time basis and have cheques cleared over a shorter period.
Currently, retail consumers can move money through banks, which have a regional presence, or through money transfer service firms such as Western Union.
Executives expect the system to ease commerce across the region by making payments faster, cheaper and easier.
“This system enables residents of the EAC to send money denominated in their local currencies to any party in the other countries. For example, a customer in Kenya can send to another in Uganda money in Kenya shillings directly to their bank; within hours the money will be available to the customer in Uganda,” said Habil Olaka, chief executive of the Kenya Bankers Association.
He said that a regional cheque can take up to 21 days to clear but in the envisioned regional clearing, this will be brought down drastically, as the Kenyan experience has shown.
In January last year, Kenya introduced a system that reduced the time it takes to credit a customer’s account after a cheque is presented to two days in urban areas and three days for upcountry cheques.
READ: Kenya sets pace in banking sector
“EAC central banks will handle the settlement, so to the customer there will be no exchange rate issues as the transaction will be treated as local. Currently the central banks, who will be the settlement agents, are testing the system,” said Mr Olaka.
Fusion Capital chief executive Luke Kinoti said that to transfer money to Rwanda from Kenya, one has to convert it into dollars, which are then converted into Rwanda francs.
He however said that it is possible to convert from Kenya shillings to Tanzania or Uganda shillings, which can then be transferred, but that the charges are prohibitive.