East Africans will soon be able to settle financial transactions across the bloc’s borders in local currencies in a faster and more secure system when the region’s central banks integrate their payment systems in about 18 months.
The process to integrate Real Time Gross Systems (RTGSs) of the central banks of the five-member countries commenced on Monday with the launch of the EAC Payment and Settlement Systems Integration Project in Arusha, Tanzania.
RTGSs are national platforms that facilitate faster settlement of financial transactions–ideally in just two minutes.
It is expected that the EAC Payment and Settlement Systems Integration Project (EAC PSSIP) will boost the East African Cross Border Payment System EAPS), that went live on November 25, last year, but with RTGSs of only three member countries—Kenya, Tanzania and Uganda.
It is understood Rwanda now has the infrastructure for RTGs in place but is yet to be linked to the regional switch. Burundi is yet to purchase the system.
Therefore, the most immediate outcome expected of the project is to purchase a RTGS as well as a Central Securities Depository for Burundi and integrate it with the EAPS.
Prof. Njuguna Ndung’u, the governor of Central Bank of Kenya, told The New Times after the launch of the project in Arusha that the immediate aim is to bring all EAC partner states at the same level of financial sector development infrastructure in order to achieve faster financial integration—a prerequisite for a single currency and monetary union.
Under the implementation agreements signed with the funder (the African Development Bank), the project also aims at assisting Uganda to upgrade its RTGS to interface with the accounting system and complete the process of linking it with commercial banking.
Commercial banks are the end users of the system as they offer retail services to their customers.
Legislation to be drafted
The EAC PSSIP will also support automate retail payment system (commercial banks) in Uganda and Rwanda through the upgrade of their clearing systems, disaster recovery arrangements for Rwanda and Tanzania as well as business continuity arrangements for Kenya and Burundi.
Under the second component of the project, experts will work to harmonise financial laws and regulations in the region by providing support to the EAC Secretariat in drafting legislation and policy “to ensure that the payment and settlement systems are adequately supported and integrated throughout the EAC in order to protect payment flows.”
If all goes according to the plan, the system will be up and running by December 2016, and will see central banks in the region interconnected, operating a single financial market and facilitating settlement of financial transactions in real time.
“We are looking at having one integrated financial market… I look forward to the day when there will be one regional bond, one central bank and one stock exchange,” said Dr Enos Bukuku, the EAC deputy secretary-general for planning and infrastructure, who launched the project.
Experts welcome initiative
Experts have welcomed the EAC PSSIP as “an integral element of the overall infrastructure,” that is urgently needed by the region in its efforts to put together the proposed East African Monetary Union whose protocol was ratified by the heads of states on November 30, last year, in Kampala.
One of the immediate benefits of the project will be to easy convertibility of partner states’ currencies across regional border—a development that will deepen regional integrations by enhancing free movement of capital and goods.
John Chemonges, the director of banking at Bank of Uganda, told The New Times that it will be possible for businesses to settle their financial transactions across the region in local currencies using a more secure and faster system.
This means that businesses will be able to minimise on the losses resulting from currency conversions.
For example, a buyer in Burundi can simply walk into a local bank in Bujumbura, issue instructions to pay a supplier in Uganda or Kenya in local currency.
The seller, too, will receive the money in the national currency of his country, with the concerned central banks working as intermediary clearing houses.
There will be no need to carry cash and payment happens very fast (in about two minutes of issuing instructions).
In other words, it will take just two minutes for money to move electronically from the buyer’s account in Burundi to a supplier’s account in Uganda or Kenya.
Today, according to Chemonges, any payments across the region are routed through Europe—moving from say Kampala to Brussels before being rerouted to Kigali, Dar es Salaam or Nairobi through Swif, resulting in unnecessary delays.