Automated cheque-clearing to cut costs of transactions

Kenyans can expect to pay less for their cheque transactions and receive instant value on their cheque payments in the next three months following the introduction of an automated cheque clearing system.

But the maximum value of cheques that individuals and businesses can draw will be capped to a maximum of Sh1 million, according to changes announced on Wednesday that begin on October 1.

“Efficiency generally comes with reduced costs which will be passed on to our customers,” said the Kenya Bankers Association (KBA) chairman Martin Oduor-Otieno. “Customers will get value on their cheques on the same day.”

It currently costs about Sh200 to process cheques through commercial banks, a significant reduction from charges of up to Sh1,000 that banks used to charge only a few years ago.

Individuals and businesses making payments valued at above Sh1 million will be expected to issue instructions to their banks, which will then electronically transfer value to the payees by making direct debits in their accounts.

Once implemented, the new policy is expected to reduce the value of cheques that pass through the central clearing house by up to 60 per cent, according to KBA estimates.

The changes announced on Wednesday by the Central Bank of Kenya (CBK) and the KBA are expected to add to efficiencies in the national payments system which will in turn save costs and reduce the number of days it takes to clear cheques from the current four to one.

“Isolating the small cheques from the big ones will reduce the risk of fraudulent cheques that pass through the system,” said the CBK governor, Prof Njuguna Ndung’u.

The new system is a part of the ongoing reforms in the national payment systems that has seen the number of days it takes to clear cheques drop from 14 in 1998.

It is expected to yield smoother cash flow management for businesses and individuals that have been suffering liquidity crunches arising from delayed settlement of cheque payments.

Liquidity at the stock market could also increase with the reduction in the settlement period for transactions at the bourse from the current five days to the internationally recommended maximum of three or less.

Central Bank of Kenya (CBK) statistics show that the cheque payments accounted for 77.2 per cent of the total cashless transactions last year.

In the year to June, 2008, the average daily volume of cheques that passed through the clearing house was 51,800 valued at Sh10 billion, up from the previous year’s daily average of 48,833 cheques valued at Sh8.5 billion.