Rwandan businesses can now pay for goods or services procured in the region using the national currency, the Rwandan franc.
This follows the adoption of the East African Payment System (EAPS), by the National Bank of Rwanda (BNR) yesterday.
EAPS is a regional Real Time Gross Settlement System (RTGS) which allows payments to be carried out using local currencies of subscribing member countries of the East African Community.
With EAPs, businesses will no longer have to convert the Rwandan franc into dollars in order to pay for goods or services procured in Uganda, Kenya or Tanzania.
Rwanda is the latest country to adopt the EAPS after Uganda, Kenya, Tanzania switched on the system in November 2013.
Burundi is expected to get onboard as soon as the country’s central bank acquires the necessary infrastructure.
BNR Governor John Rwangombwa said the development is part of regional efforts to modernise and integrate the payment system to enhance cross-border trade.
“Given that transactions are carried out in any of the EAC currencies, EAPS will increase efficiency and facilitate cross border transactions that will help boost intra-regional trade among the EAC partner states,” he said.
He said the system will reduce dependence on hard currencies and the cost associated with foreign exchange transactions.
“The system will eliminate losses associated with converting national currencies into dollars and help settle payments quickly,” he said.
Previously, it used to take about two days for a bank in one of the EAC countries to send or receive money, but with the new system, it now takes seconds to transfer funds from the sender to a recipient account.
“Traditionally, when a Rwandan wanted to buy anything from Kenya, Uganda or Tanzania, they had to first convert the money to dollars and then to either Tanzanian, Kenyan or Ugandan shillings to pay for goods from those countries,” said Maurice Toroitich, managing director of KCB Bank Rwanda.
He said EAPS has removed the middle expense involved while converting the currencies and allows Rwandans to pay suppliers in the region directly in their local currencies.
Although some commercial banks operate their own payment systems, the medium of transaction remains the US dollar.
How it works
EAPS is a secure, effective and efficient method of transferring large sums of money in real time. It is a switch linking Real Time Gross Settlement (RTGS) systems of partner states using SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging network.
Local commercial banks are connected onto national RTGS systems to facilitate payment. That means a buyer, for example, in Kigali can simply walk into his commercial bank and issue instructions to debit their account and pay a supplier in Uganda, Kenya or Tanzania in francs.
Similar instructions are relayed to the suppliers’ account through the concerned central banks that act as intermediary clearing houses and the seller receives the payment in their account.
The system is faster because it eliminates the need to route payments through Europe as has been the case previously. Before the EAPS, any payment from, say Kampala, went through Brussels before being rerouted to Kigali, Dar es Salaam or Nairobi using SWIFT, resulting into unnecessary delays.