Cross-border bank link to boost trade in EAC countries
Trucks line up at the Namanga border on the Kenyan side awaiting clearance into Tanzania. A new payment system will speed up transactions in the region. Photo/File
What you need to know:
The central banks are currently testing the real time gross settlement system (RTGS).
The system, which is expected to go live during the year, will reduce the transaction settlement period to same day from the current two days.
The speed and volume of trade among East African countries is expected to pick up as central banks within the region implement a cross-border real-time payment system.
The central banks are currently testing the system, which is expected to reduce the transaction settlement period to same day from the current two days.
“The system is under pilot and we expect to go live during the year. It is only Burundi which is yet to set up its real time gross settlement systems but the others are ready,” said Stephen Mwaura, head of National Payment Systems at the Central Bank of Kenya.
Currently, banks have to send the money through their correspondent banks.
This means that, for example, a bank making payment on behalf of a Kenyan trader to a firm in Dar es Salaam is required send the money to a bank in New York with which they are in agreement, which will in turn reroute the cash to a Tanzanian bank, one that they have settlement agreement with.
This bank will then remit the cash to the recipient’s bank.
“It is a big impediment to trade; the new system will bring speed and with speed bring more transactions,” said Jaswinder Bedi, the chairman of the Kenya Association of Manufacturers.
Traders had to wait for the cash to reflect in their bank accounts before releasing goods for delivery.
Under the real time gross settlement system (RTGS), the central bank of the country making the payment is debited and instantly, the amount is credited to the receiving country’s central bank, which remits the cash to the trader’s bank.
The payment is conducted in the local currency of the recipient.
Kenya’s exports to Uganda, Tanzania and Rwanda average Sh9 billion monthly, constituting a fifth of Kenya’s total exports.
Implementation of the system referred to as the East Africa Payment System (EAPS) is also going to drive cross trading of government securities and equities in the regional markets.
Plans to introduce a regional payment system covering the Comesa region are also in play having being launched in 2009. Nine central banks have already signed the regional payment and settlement system (REPSS) and deposited cash in their accounts held at the Bank of Mauritius.
It is estimated that Comesa member states could save $45.8 million when settling payments through REPSS and while increasing intra-Comesa trade by up to $229 million.
