East Africa’s banking customers will have to wait longer to gain
access to cheaper ATM withdrawal charges as states dither on reviewing
financial laws to enable an integrated regional banking switch.
The
switch connecting Kenya, Uganda, Rwanda and Tanzania banking systems,
which was expected to go live in 2015, has been held back due to failure
by the Finance ministers to agree on how to review banking legislations
in their respective countries.
A source close to the
project said all the logistical and technical aspects have been
concluded but there are still no regional laws and policies to
operationalise the system.
“In principle, the EAC
Finance ministers have agreed that all the region’s banking switches
should communicate with each other but this requires changing policies
and the legal framework which is not easy. All these are still under
discussion by the ministers,” said the source.
“There
is agreement at the national level. The hitch is at the regional level
where regulations have to be reviewed, which takes time.”
Withdrawal fee
It
is argued that the fee charged on automated teller machine withdrawals
from different banks across region will drop from $2.5 to about $0.8 per
transaction when the interoperability of card switches project goes
live in Kenya, Uganda, Rwanda and Tanzania.
The
countries have already linked their card switches to their RTGS systems.
Burundi is expected to be part of the initiative once it establishes a
national payment switch.
Under this arrangement,
regional Central Banks will take over the responsibility of determining
and setting foreign exchange conversion rates, thus ensuring that
customers face minimum foreign exchange losses associated with
cross-border payments.
Real time transfers
For instance, a Ugandan with a DFCU bank ATM card travelling to Kenya will be able to withdraw money from Equity Bank of Kenya at $0.8 per transaction and at an exchange rate set by the Central Bank of Kenya.
For instance, a Ugandan with a DFCU bank ATM card travelling to Kenya will be able to withdraw money from Equity Bank of Kenya at $0.8 per transaction and at an exchange rate set by the Central Bank of Kenya.
The
initial phase of this project is expected to cover ATMs before
expanding to other business payment solutions such as points-of-sale and
interbank transfers.
The interoperability of the card switches is being implemented by the EAC Secretariat in collaboration with the regional Central Banks under the umbrella of the EAC Monetary Affairs Committee.
The interoperability of the card switches is being implemented by the EAC Secretariat in collaboration with the regional Central Banks under the umbrella of the EAC Monetary Affairs Committee.
Its implementation is based on
recommendations of a 2014 study by Ernst &Young (Uganda) which was
financed by the World Bank to the tune of $14 million.
The
project was launched in May 2014 by the governors of the region’s
central banks, to ensure real time gross settlement of transactions with
payments carried out using any currency of the EAC.
Financial benefits
Cross-border
payments in East Africa comprise a significant and growing part of
regional gross domestic product. Agriculture related cross-border
transactions alone surpass 60 million transactions and $900 million
exchanged in the region annually.
The initiative between the four switches seeks to enhance financial inclusion in the EAC.
The
initiative is expected to bring financial benefits and impact the
financial sector across the region by promoting cross-border payments
using debit/credit cards within the EAC banking sector.
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