Big cheque ban leaves Kenyan civil servants in crisis

A cash crisis has hit civil servants’ cooperative societies after the government banned cheques with a value of more than Sh1 million. All payments of more than Sh1 million are supposed to be made using a new computer software, which many government ministries did not have.

Two weeks after the ban, they continued paying sacco members’ contributions through cheques, which the saccos can’t cash in the old way.

New policy

Cooperatives — which serve over 60,000 civil servants — could not make payments totalling Sh1.3 billion because ministries had not complied with the new policy introduced by the Central Bank of Kenya.

The bank prohibited the payment of amounts exceeding Sh1 million through cheques with effect from October 1. The rule was meant to enhance safety by reducing cheque fraud and increasing efficiency in the payment process.

On Wednesday, officials from various saccos told the Daily Nation that CBK was meant to have installed the computer software in all ministries by October 1. However, it had not done so on time and for two weeks, the ministries continued to issue cheques to the cooperatives.

An official of Jamii Sacco, who refused to be named fearing victimisation, said failure to put in place the proper systems in good time had caused a cash-flow crisis among civil servants, farmers, schools, and Jua Kali (informal sector) industries.

Cash-starved

He said cash-starved saccos had a difficult time explaining to distressed members who needed money for emergencies like medical care and funerals why they can’t be paid. “In two weeks alone, a sacco transacts not less than Sh30 million,” one official said. According to him, there are more than 50 saccos whose members are civil servants, bringing their estimated transactions to about Sh1.5 billion.

He said the delays could have put smaller saccos to near ruin since the cheques they received as members’ contributions or loan repayments could not be cleared. The Union of Kenya Civil Servants secretary general, Mr Tom Odege, has also protested. “Some members have literally been grounded,” he said during the Public Service Week.

The notice was issued in June by the Central Bank of Kenya in agreement with the Kenya Bankers Association barring high value payments using cheques and Electronic Cash Transfers. The two means of payment were restricted to settling amounts not exceeding Sh1 million.

Payments of value above Sh1 million are to be done through the Real Time Gross Settlement (RTGS) system, part of the Kenya Electronic Payments and Settlement System (Kepss).

“This change will also apply to domestic foreign currency cheques and Electronic Funds Transfers whose value is or exceeds $35,000, £15,000, and €30,000.”The notice said the policy change was aimed at enhancing safety and efficiency of the payment process. It would also increase economic activity by speeding up payments.

“This is to further inform the public that all commercial banks are currently participating in Kepss and are able to provide this state-of-the-art payment and settlement service to customers,” the Central Bank said in its notice. On Wednesday, a sacco official said the banks had not returned any of their cheques since Tuesday. The sacco officials appeared unaware that according to the new rules, their cheques will clear after 21 working days, rather than the usual five.

The electronic payment system is intended to transfer the money in four hours. The new policy on payments was first proposed by the then CBK governor Andrew Mullei, who said banks needed a safe and secure payments system for the efficient transfer of funds. Dr Mullei left the bank under controversial circumstances in 2007 after he was accused of improper handling of a consultancy tender.

He was also accused of awarding a contract to his son. Under a barrage of public pressure, he stepped aside but was never to return even after he was acquitted of the charges. He was briefly succeeded by his deputy, Mrs Jacinta Mwatela, in an acting capacity before Prof Njuguna Ndung’u was appointed governor.