Customers queue for services at a bank in Nairobi. CBK has asked the lenders to open Rwandan franc cleaning accounts, a move that will boost trade. Photo/FILE
What you need to know:
Francs can now be paid directly instead of being converted into dollars in a move bankers said will boost trade.
The move leaves only Burundi as the country without clearing accounts for its currency under the East African Payment System (EAPS).
Kenya exported to Rwanda goods worth Sh13.5 billion in 2013, a growth of nearly 50 per cent from five years ago.
Kenyan banks have started opening Central Bank clearing accounts for Rwandese Francs obtained by local traders, enabling faster settlement of bilateral trade.
Francs can now be paid directly instead of being converted into dollars in a move bankers said will boost trade.
Kenya exported to Rwanda goods worth Sh13.5 billion in 2013, a growth of nearly 50 per cent from five years ago. However, it imported Sh1 billion worth of goods from the country.
Uganda and Tanzania were already linked up with Kenya in the instantaneous payment system.
The move leaves only Burundi as the country without clearing accounts for its currency under the East African Payment System (EAPS). Unless the country secures a bilateral agreement with Central Bank, traders cannot transact with Kenya real-time.
Central Bank (CBK) directed the banks to open the accounts, saying Rwanda had completed testing payment systems for the clearing to be acceptable.
“Rwanda has completed the user acceptance testing (UAT) phase and is now ready to join in the live environment,” said Mark Lesiit, CBK’s director of banking services, who asked banks to open Rwandese Francs clearing accounts in the CBK.
Commercial banks in Kenya use the real-time gross payment system (RTGS) to transact large values where time is critical, meaning that transmission of the message of the payment and the actual payment takes places within two hours.
Banks transacting in Rwanda francs would previously not use the RTGS, but use cheques and electronic funds transfer (EFT) or wire transfer. Under EFT, payments are not continuous but are made in batches at a designated time.
Under RTGS, settlement of transactions is continuous with the actual money transfers taking place through the books of the CBK and the payment is irrevocable.
Bankers said the systems had worked well in other countries in the region and Rwanda was no exception.
“It has worked well with Uganda, and so there is no reason it should not do so with Rwanda. With trade increasing between these countries, it makes it quick to transact business once you can use the RTGS,” said Philip Wambua, head of trading at Bank of Africa.
EAC countries launched the EAPS in Nairobi last May to enable banks make instantaneous payments.
Banks such as KCB, Equity and DTB have subsidiaries outside Kenya. The changes to the region’s payment system are steps towards having a monetary union in place by 2024.
Other initiatives include the launch of the rules for issuing of regional bonds.
Convertibility of currency in the region has been a hindrance to trade especially during conflicts.
When violence erupted in South Sudan last year, many Kenyan traders were left holding worthless cash as they fled to Kenya where bankers could not touch the currency, saying it was not recognised locally.
A similar convertibility problem has also affected the Chinese Yuan, and Kenya is bidding to host a clearing house for the currency.
This would mean that there would be no need to convert to the dollar before trading with the Chinese, an exercise that involves commission payment to forex dealers.
President Kenyatta proposed to have the clearing house last August when he visited China.
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