New payment system eases cross border trade

By WINSLEY MASESE

Trade between Kenya, Uganda and Tanzania is expected to improve significantly, following the launch of a new payment system. The East Africa Payment System (EAPS) will interconnect the three East African economies and enhance efficiency in trading.

Under the system, a trader in Kenya can pay for goods in any of the three region’s currencies without necessarily changing them into a customer’s preferred mode of payment. 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 EAPS. By linking the real time gross settlement (RTGS) system  used in Kenya, Uganda and Tanzania, large sums of money can be transacted across the three borders seamlessly.

Rwanda and Burundi are also expected to join the system, once they set up the RTGS. The system is part of larger plan by the East African Community partner States to integrate their money and capital markets that has been under development for three years. Central Bank of Kenya (CBK) Governor Njuguna Ndung’u noted that the system will reduce the cost of trade in the region. He was speaking in Nairobi during the  official launch of the system on Friday evening.  “The interconnection in the region will cut the cost of cross-border money transfer and spur the region’s trade,” he said.

He said under the system, transactions are settled in any of the EAC local currencies, reducing the cost and risk of transferring money. 

The system, which  went live  late last year, will facilitate real time transfer of large value payments across borders and enhance safety through the use of the infrastructure. All commercial banks in Kenya, Tanzania and Uganda are participants in the system and will offer 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.

“The modernisation of the system is good as it will help in deepening integration in the region,” said EAC Deputy Secretary General Enos Bukuku.

Kenya’s Principal Secretary in charge of East African Community Affairs Mwanamaka Mabruki noted that the  system will make the region more attractive to investors and traders. This is also expected to increase intra-regional trade and cross border movement of labour.