Even though the majority of sub-Saharan countries are cash-driven, a string of initiatives are being rolled out across the region to take bank notes out of transactions where possible. Telcos, financial companies and reforms by the central banks are leading the way in Kenya, Ghana and Nigeria. Writer Wendy Atkins

Mention the methods of payments used in sub-Saharan Africa and for many people it will probably conjure up images of wads of cash changing hands in street markets. But although the majority of sub-Saharan African countries are still cash-driven, significant advances are being made thanks to innovations on the ground by telcos, microfinance companies and banks, as well as reforms led by central banks across the continent.

Reform and modernisation of a payments system is no easy task, as Stephen Mwaura Nduati, head of the National Payments System at the Central Bank of Kenya, points out: "There are many stakeholders with a host of their own needs. The provider wants a return on investment. The consumer wants to access services. The country wants to see gross domestic product [GDP] growth and the central bank wants a stable financial system."

Get it right and you are commended for bold moves in the payments sector; get it wrong and you will be accused of being reckless. "Central banks' strategies lay the foundation which drives the various modernisation projects," says Alice D Zanza, senior payment systems specialist for financial and private sector development at the World Bank. "Typically there is a phased plan to modernise retail payments and set up automated clearing houses; wholesale payments, securities settlement systems and so on. On the wholesale payments front, for example, there have been notable developments. Sub-Saharan Africa has moved from a situation where there was not a single real-time gross settlement (RTGS) system operating as of January 1998, to one where there are currently close to 20 RTGS systems running, with others at various stages of implementation."

Kenya's success

Before 1990, the payments system in Kenya did not form a core function of its central bank. However, to address some of the challenges in its rapidly growing payments system, it developed the National Payment System (NPS) Modernisation Framework.

Since 1998, it has achieved a series of goals, starting with full automation of the Nairobi Clearing House in May 1998. Direct debits were introduced in June 2002 and Kenswitch (an organisation providing electronic fund transfers to Kenya's financial community) went live later that year. RTGS implementation began in July 2005. Since then, Kenya has unveiled a series of initiatives that make it one of the most talked about locations for payments in the continent. The well-documented M-Pesa scheme was launched in March 2007, which was followed by the enactment of the Kenya Communications Amendment Act 2008. And this year saw the introduction of the Zap mobile payment service by telco Zain.

Kenya has also seen a steady growth in mobile payments and these are expected to increase from their current average of 171,892 transactions per day, as the Zap and M-Pesa systems compete for customers.

Mr Mwaura Nduati explained the thinking behind the nation's adoption of mobile payments at the GSMA's Mobile Money Summit. He says: "When Safaricom came to us with its business case, it took us more than two years to look through the model that it and Vodafone had put on the table. One thing we had to consider, prior to the technology solution coming to the table, was how had people previously transferred money? Was it regulated? What were the risks? Was this new technology going to increase or decrease the risks? And to us, the answers were obvious. The technology was going to enhance efficiency and safety. It was logical for us to say yes. And our vision has been vindicated by the number of transactions we are now seeing."

Activity in Ghana

Ghana's central bank has also been behind a series of payments reforms. Initially, it set up the RTGS system for large payments. Dela Selormey, director of the banking supervision department at the Bank of Ghana, says: "For small payments and settlements, we set up a subsidiary called the Ghana Interbank Payments and Settlement System (GhIPSS) with the mandate to carry out activities such as automation of the cheque clearing system.

"We also implemented a platform for connecting other switches and facilitating settlement within Ghana. This goes with the e-zwich biometric-based smart card. Then we issued a directive that bank customers were to use these e-zwich cards for identity purposes as well as for transacting business and payments transfers. The bank's next step was to implement guidelines for branchless banking."

E-zwich was launched on April 28, 2008. "By the end of June this year, 228,326 cards had been issued storing a total balance of 1,112,893.17 cedis," says GhIPSS CEO Fred France. He adds that use of the system is spreading across the country: "There are now 26 universal banks, 98 rural banks and eight savings and loan companies on the system."

Nigeria's reform

Adedeji Adesemoye, assistant director at the Central Bank of Nigeria, says that in 2006 the country introduced its own RTGS-CBN Inter-bank Funds Transfer System (CIFTS), along with the New Monetary Policy Framework. Current reforms in the Nigerian payments system include efforts to standardise cheques in the country; a reduction in the clearing cycle from six days to four; the upgrading of the payments and settlement infrastructure; the appointment of 11 money deposit banks as settlement banks; and the electronic bulk payment of the salaries of the staff of seven federal government ministries, departments and agencies.

Looking ahead, the central bank has set out its Payment Systems Vision 2020, which provides a roadmap for the creation of an electronic payments infrastructure that is used nationally by all sectors - and is internationally recognised as being world class. Among its initiatives, the vision sets out recommendations to increase the robustness of the payment systems infrastructure. It also identifies seven areas that will drive e-payments, including government supplier e-payments; person-to-person payments based on the mobile telecoms infrastructure; individual and business tax e-payments; electronic consumer bill payments; streamlining settlement of all securities transactions through the CIFTS; and electronic bulk payment of salaries.

Cross-border initiatives

A series of cross-border initiatives have also been set in motion. "Projects have been set up by regional groups to establish systems supporting cross-border payments which also make handling these transactions more efficient," says Ms Zanza of the World Bank. In the Southern African Development Community (SADC) region, the Committee of Central Bankers reports that it is focusing on developing a sound and robust domestic payment system in each country as a prerequisite for defining a cross-border payment strategy. The Common Market for Eastern and Southern Africa, whose members also belong to the East African Community (EAC) and the SADC, is implementing a regional payment and settlement system. In West Africa, projects include the WAMZ scheme from the West African Monetary Institute and the programme by the West African Economic and Monetary Union to initiate payment-system reform by the Central Bank of West African States.

The EAC is working to introduce a multi-currency system that will use existing RTGS system infrastructure. "The East African Payments System Harmonisation Committee (EAPSHC) aims to harmonise the regulatory and operational frameworks of the region," explains Mr Mwaura Nduati. "We all needed to implement a RTGS solution for added-value payment systems. So far, three of the five countries - Kenya, Tanzania and Uganda - have got RTGS, and Rwanda and Burundi are in the process of implementing it."

Creating an east African payments system involves integrating the RTGS systems of the three countries - and eventually all five. Mr Mwaura Nduati says good progress has been made so far. One of the key challenges has been the lack of a single currency for cross-border payments, so the EAPSHC has been working to overcome this. Mr Mwaura Nduati explains: "We worked out an east African payments system framework and created rules for particular functions such as cross-border payments that avoid exchange rate risks."

He adds: "As part of the east African initiative, a payments oversight policy framework has also been established setting standards for how regional trade should be carried out - and this extends to ATMs because it's important that if someone visits our country they can withdraw money from an ATM."

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