Last month, Kenya, Tanzania and Uganda quietly linked their Real Time Gross Settlement systems. Perhaps because it came so close to the festive season, the general public did not take too much notice.
But there must have been some very loud and relieved sighs among the business people. A major barrier to the flow of capital and a pillar of the Common Market has been dealt with.
The significance is that as a Ugandan or Tanzanian for example, you don’t have to use a third party, (forex bureau or commercial bank), to first buy Kenyan currency or US dollars in order to clear a Kenyan bill of sale and vice versa.
RTGS is a result of the three central banks working together and according to a senior Bank of Uganda official, Burundi and Rwanda will soon come on board when ready.
It was explained that with RTGS, a customer instructs their commercial bank detailing the currency they intend to transfer across the border and then the banks will effect the transaction through the East African Payments System (EAPS).
In a statement the Central Bank of Kenya said ‘EAPS will facilitate trade within the region and is a quick win for the East African Community.’
Real time gross settlement systems (RTGS) are funds transfer systems where transfer of money or securities takes place from one bank to another on a ‘real time’ and on ‘gross’ basis.
Settlement in ‘real time’ means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed.
‘Gross settlement’ means the transaction is settled on one-to-one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. Put very basically, RTGS is similar to a national clearinghouse, but much faster.
The system will have a substantial impact on current operations in the banks, particularly in the area of treasury, payment division, corporate banking and cash management. Banks will need to implement new strategies, processes, systems and organisation.
The new challenges also brings in new opportunities. It’s true that the implementation of RTGS will deprive banks of free float of funds but this will be more than compensated by reduction in the operational cost and gain out of same day deployment of stock/cash due continuous settlement.
RTGS is a big boost to the Common Market and credit must be given to all those technocrats who have made it happen.
Along with the Single Customs Territory, the region is steadily becoming an attractive investment option for both domestic and foreign business people. The key is gettng rid of the red tape and harmonising such sensitive issues as taxation. The free movement of goods, services, capital and people across borders is becoming a reality.
Today, trucks hauling merchandise from Mombasa to Kigali no longer have to constantly stop at the formerly excessive weighbridges. Drivers only have to be checked at three and depending on your destination it could even be just one.
In the coming years EAC governments will not be able to discriminate in procurement or in awarding public works contracts. Every EAC country will have to recognize the product standards of the others. There is still much to do, but at least we are moving in the right direction.