Businesses in the region have asked the government to consider lowering remittance fees, which they say are increasing costs due to an unstable exchange rate.
Private sector players have been particularly troubled by rising fees for mobile remittances and the cost of remittances and payments.
Remittances, which are household non-commercial remittances by foreign workers, are particularly important for low-income countries, accounting for about 4% of GDP compared to about 1.5% for middle-income countries .
John Bosco Carisa, CEO of the East Africa Business Council, said, “We are encouraging EAC partner state governments to take the initiative to reduce exchange fees during transactions as an interim solution in the absence of a single currency. I urge you to pursue it,” he said.
Speaking at a webinar on harmonization of payment systems in Dar es Salaam last week, Karisa called for full interoperability of mobile money networks and cross-border transactions/payments at the EAC level.
At a meeting that brought together the central banks of seven EAC partner countries, participants called on the Ministry of Finance to coordinate legal procedures to facilitate remittances.
“In the absence of a currency union, regional currencies can be freely converted to enable trade without converting their own currencies into dollars in order to enhance regional trade and reduce transaction costs. We need to do that,” Carisa said.
double billing
In East Africa, the average fee for a $200 transfer (a benchmark used by authorities to assess costs) is $14. However, both the sender and recipient will be charged a fee equal to his 29.7% of the amount sent. Also, the amount you receive depends on the exchange rate.
Calls for full interoperability of mobile money networks have been reported by Africa RISE, a technical assistance agency funded by the European Union, which now has East African Payment Systems (EAPS) in seven EAC states. It became clear that only four of the states were operational. EAPS was established in 2014 to facilitate cross-border interbank funds transfers for payments and settlements within the EAC.
A report titled ‘Harmonization of Payment Systems in the EAC’, dated 15 September 2022, indicated that EAPS is currently operational between Kenya, Tanzania, Uganda and Rwanda and their central banks’ real-time aggregate payment systems ( RTGS).
under development
The report is concerned that not all EAC states use payment systems, making it difficult for citizens to transfer money within the region.
“South Sudan’s payment system is under development with AfDB support under the EAC Payment and Settlement Systems Integration Project (EAC PSSIP) project,” said Paul Baker, presenting the Africa RISE report.
“A national payment system in the Democratic Republic of the Congo is under development with support from the World Bank.”
EAPS allows processing and settlement of transactions in local currency, but penetration is low due to low volume of intra-regional transactions and intense competition from banks with established correspondent bank relationships .
World Bank Q4 2020 global remittance prices show an average of 6.5% to send $200 worldwide, 4.88% to South Asia, 6.58% to the Middle East and North Africa, and 8.19% to Sub-Saharan Africa costs.
“An integrated payment system is essential to the realization of an EAC monetary union as it facilitates payments for goods and services, cross-border capital flows and intra-regional remittances,” Baker said.
“Digital payments are one of the core elements of the single online market layer that enables East Africa to pay for domestic and international services.”
According to the report, EAPS transactions will be conducted in local currencies and settlements will be made through reciprocal accounts with respective central banks. Transactions on the system are billed at the same rate as local transactions in each partner country RTGS, exchange rate risk is borne by the customer and the commercial bank.
However, EAPS only processes payments through formal financial institutions and does not cover electronic or mobile payments.
“Uganda is in the process of deploying a nationwide switch and the EAC block should come up with similar initiatives to support mobile transactions at the regional and international level,” said deputy director of National Payment Systems Bank of Uganda. said James Bukulu,
The Africa Rise report also identified challenges to harmonizing cross-border payments. This includes regulatory and infrastructure gaps such as payment settlement workarounds, high compliance costs, and low trading in certain currencies.
There are also requirements for account pre-funding, payment value chain bloat, and taxation.
digital payment
Africa Rise has identified digital payments as one of the core elements of the single online market layer that enables East Africa to pay for domestic and international services.
The report recommends that all EAC partner countries establish digital payment platforms to facilitate seamless, low-cost cross-border digital payments.
“The EAC should establish full interoperability between mobile money networks (national and regional) and cross-border transactions,” said the report.
“The EAC will also pursue initiatives to reduce exchange fees as an interim solution in the absence of a single currency union and harmonize laws and regulations affecting the availability and ability to use electronic payment platforms. is needed.”
Calls for harmonization of payment systems in the EAC were heightened when Tanzania announced that it would end the recently introduced surcharge on electronic transactions following public outcry. A surcharge was imposed from 15 August.
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