Central bank to cap cheques

By Sylvia Juuko

THE Bank of Uganda (BOU) will next year not clear cheques with values of more than sh20m.
The move is aimed at strengthening risk management and improving payment systems in the region.

It is in compliance with a May, 2006 Arusha Directive of the East African Central Banks which agreed to cap cheque amounts to improve efficiency in the region’s payment systems.

David Opiokello (right), the deputy governor in a November circular to commercial banks and the finance ministry, said the measure would be implemented on July 2.

“Effective July 2, 2007, cheque amounts exceeding sh20m will not be accepted in the clearing house. The electronic clearing system will also be configured to reject any cheque amount that exceeds sh20m,” the circular said.

Opiokello said before the implementation date of the limits, cheque payees with amounts exceeding sh20m will be advised to deposit their cheques with banks.

The directive follows a new school fees payment system announced by central bank via the electronic fund transfers (EFTs) that will be piloted in 60 schools next year before being rolled out throughout the country.

Opiokello said their technical officials and commercial banks met and agreed on a six-month public sensitisation period about the rational of the cheque caps.

He said more efficient and safer alternatives for making larger payments include the real time gross settlement (RTGS/UNIS) and the EFTs.

BOU’s cheque cap has received mixed reactions from the banks and the business community most of whom argue that it has been done in haste.

BOU implemented the EFT system in August 2003 while the RTGS was implemented in February last year. Bankers talked to acknowledged receipt of the communication and were in the process of notifying their customers.

Richard Byarugaba, the Nile Bank managing director, said the number of cheques issued had declined by about 75% since the launch of the RTGS payment system.

“This will affect the way we do business. While the cheques will reduce in value, the business community may break down the transactions and issue lower value cheque amounts,” he said.

An industry source, however, said while it was a positive move, it has several implications regarding transactions.

“The implication of this cheque cap is that any amounts above that should be on RTGS. Regarding transactions we have been carrying out, the value would be implied by my writing you a cheque but the logistics of having a RTGS agreement authenticated will be difficult and may slow down commerce,” he noted.