Central Banks in the Region Advised to Embrace Technology to Boost Cross-Border Trade, Rwanda Says

The recent Roundtable Discussion on Coordination of EAC Donor Support in the Area of Payment Systems, held at the EAC Headquarters in Arusha, Tanzania, highlighted several critical issues and opportunities regarding the East African Payments System (EAPS). EAC Secretary General Veronica Nduva opened the discussion by addressing the challenges that have hindered the uptake of EAPS. These challenges include limited capacity, lack of interoperability, communication gaps between central banks and stakeholders, fear of online scams, protectionism by central banks, and overlapping memberships in regional economic communities’ payment systems.

Launched in 2014, EAPS aims to enhance the efficiency and safety of payments and settlements within the East African Community (EAC) region. Despite its potential, the adoption of EAPS has been sluggish, primarily due to the aforementioned challenges. Nduva emphasized the crucial role of regional central banks in establishing a reliable payments and settlements system. In financial markets, where trust is paramount, central banks must build public confidence in new technology-driven payment systems to ensure their success.

Nduva highlighted that enabling cross-border traders and investors to use a cost-effective payment system could significantly boost intra-regional trade and investment. A functional cross-border payment service is vital for regional economic integration, as stipulated by the East African Monetary Union (EAMU) Protocol, which mandates the harmonization and integration of payment and settlement systems during the transition to a single currency. This integration is intended to foster regional trade and investment.

The Secretary General acknowledged that various initiatives have been undertaken over the past decade to modernize and integrate payment systems, driven by both the public and private sectors. These initiatives have led to significant advancements in digital financial services, making payment systems more efficient, cost-effective, and inclusive at the national level. Commercial banks have traditionally managed bulk transfers involving high values, while mobile money operators have improved financial inclusion for many unbanked individuals.

However, progress in cross-border payments has been much slower. Nduva pointed out that moving money between partner states remains slow and costly, with a lack of interoperability in digital payment systems at the regional level. Consequently, many banks still rely on foreign correspondent banks for regional transactions. She stressed the need for partner states to build on domestic successes to achieve regional interoperability in digital payments.

Nduva’s vision for the region includes making cross-border payments faster, safer, cheaper, and more integrated. This requires harmonizing policies and regulations, enhancing payment systems infrastructure, and building the capacity of payment system actors and stakeholders. Amani M'Bale from the Bill and Melinda Gates Foundation emphasized the role of payment systems in enhancing financial inclusion and addressing poverty. She underscored that cross-border payment systems are crucial for intra-regional trade and expressed the foundation’s commitment to supporting such systems at both national and regional levels.

Allen Asiimwe from TradeMark Africa (TMA) discussed the financial losses incurred by cross-border traders due to currency exchange and highlighted the importance of addressing payment systems in the informal trade sector, which constitutes over 70% of regional trade.

Dr. Joy Maria Kategekwa of the African Development Bank (AfDB) expressed the bank’s interest in building capacity in regional payment systems and ensuring their interoperability and functionality. She praised the Pan-African Payment System (PAPSS) for its role in easing cross-border payments and transactions across Africa.

Bjoern Richter of the GIZ-EAC Project emphasized the need for the EAC to develop a digital market, build technical capacity, and enhance connectivity to boost intra-regional trade. The forum was also attended by notable figures such as the EAC Deputy Secretary General for Trade, Customs, and Monetary Affairs, Annette Ssemuwemba, and representatives from various partner states' central banks. Overall, the roundtable discussion underscored the collective commitment of stakeholders to overcoming challenges and optimizing payment systems within the EAC to drive regional economic integration and development.