The East African Community (EAC) has launched a common platform that will allow traders to receive payments in real time and in local currencies, inching closer to a single financial market.

The EAC Payment and Settlement Systems Integration Project (EAC-PSSIP) financed by the African Development Bank (AfDB) to the tune of $23 million aims to support the integration of payment and settlement systems in the region.

The project will enable the processing and settlement of payment obligations in a timely manner, enhance accountability and minimise errors.

“The system will also facilitate the development of innovative financial products while better managing risks” said AfDB head of mission, Jacob Mukete.

Specifically, the project is expected to put in place well-functioning and integrated Real Time Gross Settlement (RTGS) systems in the region.

The central bank governors of Kenya, Uganda, Rwanda, Tanzania and Burundi launched the first phase of the system expected to enable traders receive cross-border payments seamlessly and without having to incur the cost of currency conversion.

It will work just the same way as the banks’ RTGS system, which allows for the movement of cash between different banks and branches and is increasingly being used in the place of cheques.

The only difference is that it will support all currencies and have cross-border functionality.

The system will save costs usually incurred in cross-border payment for EAC’s $5.5 billion intra-regional trade.

“The system will benefit exporters and importers in the region as it allows a faster, safe and secure transfer of funds,” says the EAC Deputy Secretary General, Dr Enos Bukuku. It also paves the way for trading on open account, the predominant method of payment within the European Union and other parts of the world.

Small and medium-sized businesses, investors who make high value payments across the borders and consumers who have been using informal methods to make smaller payments including school and medical fees for relatives across national borders, are expected to be the biggest beneficiaries when the system takes off.

The deal is the second major attempt for EAC to integrate the region’s financial services after commercial banks in Kenya, Uganda and Tanzania linked their RTGS systems last year, reducing cheque clearance time from 22 days to just a day.

READ: Boost to trade as cross-border payment system comes live

Previously, some banks with a regional presence allowed their customers to access funds in parts of East Africa in either their home currency or in a currency of choice. Customers are however required to pay a fee for the conversion of the currencies through wide spreads that the banks offer.

While small and medium-sized businesses are able to use platforms being offered by some of these banks, retail consumers largely use informal systems offered by couriers such as transport companies.

Retail consumers also use mobile money platforms offered by the telecommunication companies to send money from where they are. But even this has limitations as mobile money platforms are limited to home countries.

Dr Bukuku said the financial sector integration is the anchor that will make the EAC a more viable destination for both foreign and domestic investment by bolstering the liquidity of the region’s capital markets and creating financing avenues for investors and issuers.

The scheme will also support the development of central securities depositories and core banking platforms in EAC partner states, he said.

“Multiplicity of currencies and cumbersome exchange rate arrangements that exist in EAC usually add to the cost of doing intra-EAC trade.” said Daniel Mghwira, a business consultant with Miradi Associates in Tanzania.