Banks to levy heavy fines for old cheques
By Kenneth Kwama
Customers who present old cheques to their banks for clearing from next week will incur heavy monetary penalties and will have to wait for at least 21 days for those cheques to clear if the new cheque truncation system takes effect from Monday as scheduled.
But even as the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK), which are both overseeing the implementation of the new Cheque Truncation System (CTS) remain upbeat it will commence on schedule, quietly, there are fears that some of the impediments that caused its postponement to August 15 from the originally scheduled commencement date of June 1, are still in place and could still cause disruptions.
Cheque truncation is a process where physical cheques presented for payment in a bank are converted to electronic form and the image is then transmitted electronically to the clearing house for processing and eventual payment by the paying bank.
It is projected that for CTS to work successfully, about 96 per cent of cheques under circulation in the banking circles should be the new generation cheques that banks are currently being encouraged to disburse.
"This is a high threshold and it is worrying that some people are still using the old cheques. We would like to urge bank customers to apply for the new cheques and start using them immediately because using the old ones will become very expensive from the go-live date of August 15," says KBA’s CEO Habil Olaka.
Low circulation of the new generation cheques — estimated at around 46 per cent by June 1 when CTS was originally scheduled to commence — was one of the reasons blamed for the failed takeoff. A problem with printers allegedly starved banks of the new generation cheques.
"This development was beyond our control as it was largely due to the printing constraints in the industry, which made it difficult for commercial banks to meet the demand for the new generation cheque books," says Olaka.
Contrary to the old system, where cheques would be moved physically from the banks, where they are presented to the clearing house, CTS will employ a data and image-capturing application where images of the cheques will be captured through a scanner and submitted to the clearing house electronically.
There were concerns that some banks were also not ready for the new technology although Olaka says this has since been sorted out.
"The new system will involve a process where the cheque image is captured at the bank where it is first presented. Subsequently, the captured image moves through various stages in the cheque-clearing cycle and transactions are settled on the basis of images and the data," says Olaka.
Operationalisation of the new cheque clearing system will greatly benefit customers by substantially reducing the time taken to clear cheques. It will also be a boon for banks because it is expected to increase operational efficiency by cutting down on overheads that were previously incurred in physical cheque clearing. This is because it will use images instead of the physical cheque.
"Obviously, banks are going to cut a lot on overheads and operational expenses by adopting the new system. The old method of physically moving cheques, say from Nakuru to the clearing house in Nairobi was expensive. The savings might be passed on to customers, which I believe is very good news," says Olaka.
Generally, banks and their customers have been supportive of the new initiative, which is aimed at reducing the cheque value-dating period from the present four to two and eventually to one day. It will also reduce fraud and enhance liquidity in the banking system.
KBA has contracted mobile provider, Safaricom to provide electronic linkages, which it says has been encrypted at different levels to avoid any tampering. Use of the new compliant cheques will take effect on Monday and is expected to initially reduce the clearing period to two days and eventually one day.
"This effectively reduces the time required for payment of cheques, the associated cost of transit and delay in processing, thus speeding up the process of collection or realisation of the cheques," says KBA.
KBA says once the new cheque clearing system is in place and functioning, it will move to the next phase of a programme, which it says will eventually culminate into Kenyans accessing cheaper credit facilities.
According to Olaka, KBA will do this by encouraging what is referred to as Full File Reporting (FFR) where banks and other lending institutions are encouraged to provide both positive and negative information about a customer’s credit history to Credit Reference Bureaus (CRB).
Although banks have started providing CRBs with information about their customers’ loan repayment, currently this is limited to negative information, meaning CRBs are being starved of positive information that would otherwise allow customers to negotiate for cheaper loans whenever they are applying.
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