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VALUE CAPPING: THE ISSUES
The modernization of our payments system began with the Automation of the Nairobi
Clearing House in 1998 with the aim of enhancing the clearing of cheques between banks
using Magnetic Ink Character Recognition (MICR) technology and Electronic Funds Transfer
(EFT) payments. The result of this policy shift was the reduction of clearing time from a
high of fourteen (14) days to three (3) days currently.
The second and third milestones in this modernization process were the successful launches
of: Kenya National Payments System Framework and Strategy Document in September
2004 and the Kenya Electronic Payments and Settlement System (KEPSS) in July 2005.
KEPSS implementation helped phase out the previous paper-based inter-bank settlement
system and completely transformed the management of liquidity in the banking industry.
Statistics available for the Kenya shilling leg indicate that the system moved Ksh8,563
billion with 142,445 payment messages in 2006; Ksh9,599 billion with 180,312 payment
messages in 2007; and Ksh17,269 billion with 273,941 payment messages in 2008.
During the year 2008, the Bank in conjunction with Kenya Bankers Association initiated
other modernization programs which are ongoing and are expected to be realised this year.
These include; Cheque Truncation, Value Capping, Failure to Settle Mechanism, and the GPay
Project. All of these are aimed at mitigating various risks and enhancing the efficiency
and effectiveness of our payments system.
Although the introduction of the Real Time Gross Settlement System was expected to
reduce the systemic importance of the Automated Clearing House (ACH) and increase the
stability and soundness of the payment systems, available information reveals that there
has been no significant change in the volumes and values of payment instruments going
through the ACH. Therefore the ACH still remains a Systemically Important Payment System
(SIPS) as opposed to being a low risk retail payment system. It is in this context that it has
been seen necessary to introduce Value Capping in order to reduce risk of settlement,
increase KEPSS usage and facilitate the implementation of failure to settle mechanism in
the Clearing House.
The Central Bank of Kenya wishes to assure members of the public of its commitment to
continuously develop a world-class payments system in the country. The Bank also wishes
to thank the Government and Kenya Bankers Association in their efforts to modernize the
national payment systems.
CENTRAL BANK OF KENYA
June 24, 2009
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