East African Payment system will lower cash transfer costs
Kenya’s banking sector regulator has said the interconnection of East African Community (EAC) member countries payment systems will cut the cost of cross-border money transfer and spur regional trade. Central Bank of Kenya(CBK) governor Njuguna Ndung’u recently said that East African Payment System (EAPS) which went live on November 25 will facilitate real-time transfer of large value payments across borders and enhance safety through the use of the SWIFT infrastructure.
“All commercial banks in Kenya, Tanzania and Uganda are participants in the system. Commercial banks in Rwanda and Burundi are expected to join later,” said Prof Ndung’u in a statement. The EAPS, which is currently interconnecting the real-time gross settlement systems (RTGS) of Kenya, Uganda and Tanzania is offering same day settlement of funds and is expected to help reduce non-tariff barriers such as high transaction fees on intra-EAC wire transfers, foreign currency fluctuations and capital account restrictions.
“EAPS will enable the public to pay as well as receive payments on a real-time basis. The transactions will be made through commercial banks in EAC regional currencies,” said Prof Ndung’u.
The EAC region has made huge gains in intra-regional trade and increased movement of workers and families among member states since 2005, but the lack of a convenient and safe way to make and receive payments has remained an impediment. Kenya’s banking regulator already requires the use of RTGS for payments above Sh1 million but over time the system has proved popular even for payments of as low as Sh100,000.
“Transactions are settled in any of the EAC local currencies, reducing the cost and risk of transferring money. This will facilitate trade in the EAC region and is a quick win for EAC,” said Prof Ndung’u. CBK data shows that transactions between January and October this year on RTGS system totaled Sh18.78 trillion ($220.58 billion) which is a Sh1.097 trillion short of the Sh19.87 trillion ($231.08 billion) transacted in 2012.
In 2011, Sh21.89 trillion ($257.36 billion) transacted and in 2010 the amount totalled Sh17.1 trillion ($211.78 billion). The EAPS is an early step towards the creation of a monetary union within the five nation EAC trade bloc, which member states hope to establish within 10 years.
“EAPS will facilitate trade within the region and is a quick win for the EAC,” said CBK. Each member state currently has its own banking payment systems, meaning cross-border transfers take from one to two days. A common currency remains a long way off, analysts say. Member states first need to implement the free movement of labour, goods and services, which has proved especially contentious in Tanzania.