The National Bank of Rwanda (BNR) has toughened its monetary stance on bounced cheques by introducing tougher punishments contained in a new law published last month.
The regulation, published in the Official Gazette last month, seeks to ‘prevent issuance of bounced cheques and provides for penalties applicable to cheque defaulters.’
A cheque is considered rubber or bounced when issued as a mode of payment against a bank account with insufficient funds on it.
Technocrats at BNR, whilst trying to regulate the issue of bounced cheques that industry experts say is on the rise, argue that the new law will eliminate any attempt of pleading ignorance on the proper use and consequences of cheque books.
Industry experts argue that banking is a discipline that depends a lot on integrity of practice and issuing bad cheques undermines the purpose of using cheques as a mode of payment. Plausible.
However, in increasing the punitive measures such as in doubling the penalty for issuing a bounced cheque from 10 per cent of the amount on the cheque, BNR does not appear to be solving the problem as it uses the stick approach without any carrots. Which banker wouldn’t dream of 50 or so cheques deposited at their banks turning out to be rubber considering the profits they would generate from the penalty?
There is no evidence that harsher punitive measures curb crimes. Not even death penalty has stopped capital offences from being committed. This is why even with existing punishments such as denying offenders access to credit facility from finance institutions or withdrawing cheque books would best serve the industry as long as sensitisation of the public was heightened.
Not everyone issued with a cheque at banks is knowledgeable about its proper use, just like not every bank client is literate.
This is why it is plausible that the central bank has, in the new regulations, catered for the need to increase public awareness of legal provisions attached to the use of cheques. BNR should also look into why cases of bounced cheques are on the rise.
Besides the obvious reasons such as intent to defraud, what if there is a dip in financial prudence among the public?
With the new regulations in effect, BNR must compel commercial banks to ensure that more than just signing and picking their cheque books, clients are thoroughly briefed on the implications of abuse of the cheques.