The East African Community (EAC) - Payments and Settlement Systems Integration Project (EAC - PSSIP)


Overview

  • Reference: P-Z1-HZ0-003
  • Approval date: 05/12/2012
  • Start date: 09/09/2013
  • Appraisal Date: 10/05/2012
  • Status: OngoingOnGo
  • Implementing Agency: EAST AFRICAN COMMUNITY (EAC)
  • Location: Burundi, Rwanda, Kenya, Tanzania Uganda

Description

The EAC partner states are implementing the EAC-FSDRP whose overall objective is to lay the foundation for financial sector integration by broadening and deepening the financial sector services. Part of this agenda is the need to integrate the PSS among the EAC states. The proposed EAC-PSSIP will support the integration of PSS through components identified as complementary to the work co-funded by the World Bank through the six pillars of the EAC-FSDRP.

As a first step, EAC countries have decided to focus on modernizing and harmonizing their payment and settlement systems, which will facilitate the later transition to a single integrated financial system. Developing efficient and harmonized payment and settlement systems across the EAC zone will enable the processing and settlement of payment obligations in a timely manner, enhance accountability, minimize errors and facilitate the development of innovative financial products while better managing risk

The proposed project includes the following components:

(i) Integration of financial market infrastructure - to achieve its objective this component is expected to realize the integration of RTGS across the region and the centralization in a single database of all regional payment flows. It is expected that integration of existing systems will be substantially completed by 2014 and that the regional technological platform will be in place by 2016;

(ii) harmonization of financial laws and regulations; and

(iii) capacity building.


Objectives

Project Objectives: The objective of the proposed project is to develop a robust environment for both, wholesale and retail payment and settlement systems and to facilitate market integration, support effective application of monetary policy and financial markets aimed at enhancing safety and efficiency in the overall payment and settlement systems. This will contribute to the pursuit of sound macroeconomic policies and improved functioning of regional integrated financial markets. The project would support, through integrated Payment and Settlement Systems (PSS), the broadening and deepening of the financial sector by establishing a single market in financial services among EAC Partner States, with a view to providing a wide range of financial products and services to all, at competitive prices.

The project's overriding objective is to support, through an integrated PSS the broadening and deepening of the financial sector by establishing a single market in financial services among EAC Partner States, with a view to making a wide range of financial products and services available to all, at competitive prices.

The project aims specifically at:

(i) the convergence and regional integration of PSS and

(ii) strengthening a harmonized legislative and regulatory financial sector capacity in partner states.


Rationale

The EAC member states have identified the integration of their payments and settlement systems as a priority in order to create a firm foundation that will ensure that payment obligations throughout the EAC are settled effectively and with certainty. The need to manage all risks associated with payment systems is a high priority and the mitigation of systemic risk remains paramount. A technological platform is desired that will not only accommodate existing payment systems streams but also provide a common foundation for the introduction and development of additional financial products and services in the future.

The EAC region is comprised of five partner states that currently maintain mixed levels of payment systems automation and standards. The levels of communications infrastructure remain very mixed and the continued expansion of the EAC communications "backbone" will prove a valuable element for the payment and settlement systems integration. Work has been undertaken within the region to date, through the offices of the EAC Secretariat and partner states, that has led to the establishment of a number of working groups to evaluate and initiate the integration process. Those member states having RTGS systems, namely Tanzania, Kenya & Uganda, have started the process of integrating their RTGS systems as the initial project toward a comprehensive EAC regional payments and settlement systems integration. The overriding objective of the proposed EAC-PSSIP is therefore, to upgrade and integrate payment systems in all EAC partner states to ensure an elegant, effective and secured means of undertaking payments within the EAC region.

This proposed project is well aligned with Bank's The Bank's East Africa Regional Integration Strategy Paper (EAC-RISP) 2011 -2015 pillars 1 and 2, on Regional Infrastructure and Capacity Building respectively. Specifically it will support and contribute to two broad areas of focus of pillar 1 of the EAC-RISP namely;

(i) Trade Facilitation Infrastructure and

(ii) Information and Communication Technology; and one broad area of focus of pillar namely; Strengthening Institutions (RECs/IGOs, continental organizations, special utilities and national implementation units). The proposed EAC-PSSIP is also well aligned with the Bank's Financial Sector Policy (2003).


Benefits

Project Direct Beneficiaries: The EAC will be the recipient of the grant. The direct beneficiaries of the project will include the National Central Banks of the EAC Partner States, Commercial Banks, other financial institutions, and the judiciary, including the East African Court of Justice (EACJ) and members of the East African Legislative Assembly (EALA). This will also include the Office of the Counsel to the Community. This is the EAC Secretariat Legal Office.

2.5 Expected Project Outputs: Well-functioning and integrated Real Time Gross Settlement (RTGS) systems and retail payment and settlement systems, Central Securities Depositories and Core Banking Platforms in the region; Supporting infrastructure including business continuity and disaster recovery platforms that function satisfactorily; Harmonized national legislation; regulations and policies that ensure adequate supporting pillars for the payment and settlement systems to be integrated throughout the EAC in order to protect payment flows. Including, but not limited to; adoption of common "Failure to Settle" arrangements, "Oversight Framework and Policy", on site-inspection format in line with BIS CPSIPS, regulatory arrangements for payment instruments and collateral levels; enhance capacity and supporting skill sets for specific areas of payment and settlement systems for the EAC-CPT, the National Central Banks, the Commercial Banks, Judges and other stakeholders and regulators.

2.6 Expected Project Outcomes: Sound national and Integrated Regional wholesale and retail payment and settlement systems that will strengthen the efficiency of cross-border funds transfers within the five EAC countries; together with strengthening of the financial sector regulatory and legislative capacity in the EAC Partner States.


Key contacts

KYOKUNDA Grace - OFSD2


Costs

Finance source Amount
ADFUAC 15,000,000
DeltaUAC 5,000,000
TotalUAC 20,000,000