1. How will bank customers benefit from the new cycle?
As the clearing cycle is shorter, customers will get to know the fate of their cheques faster, and funds will be availed much earlier than previously. This will increase the flow of funds in the economy due to faster payment transactions, particularly business transactions.
2. When does the cycle begin and end?
The processing of cheques begins when the cheque is deposited by the customer into their account. If the cheque is drawn within the same bank, the process is internal. If it is from another bank, the “Presenting Bank” sends the image of the cheque to the “Paying Bank” via the Automated Clearing House, which is owned and operated by the Kenya Bankers Association.
3. How long should it take to access the funds?
The total time it takes (from the cheque deposit; to cheque clearing; and availability of funds) is typically three days. This is from a high of 21 days in the 1990’s.
4. Why would it take longer than 1 day to access funds paid by cheque?
There are numerous reasons why this would happen. Two possible scenarios are:
If there is an issue with the cheque, for example inconsistent customer information and signature, or insufficient funds in the drawer’s account; or
When the customer’s bank presents the cheque a day or two after the date of deposit.
5. How long does will it take for upcountry cheques to be paid under the new cycle?
There is no distinction between upcountry cheques and local cheques. The Banking industry in 2012 introduced a “one clearing zone”. Contrary to when banks physically exchanged, banks today exchange the same information electronically therefore there are no restrictions due to geographic location. This has been enabled by the cheque truncation technology adopted in August 2011.
6. Are there any additional costs levied on upcountry cheques under this cycle?
As the clearing is in one zone, there are no additional charges for upcountry cheques.
7. How long should a bank take to process a foreign cheque once banks migrate to the new cycle?
The new clearing cycle affects only cheques denominated in Kenya shillings. There is no change on cheques denominated in foreign currencies.
8. As a customer, are there mechanisms that I can use to check the status of a cheque I have deposited in my account?
Banks do provide interim statements showing the status of uncleared effects, which may show the status of a cheque presented but not paid.
9. What will happen if a cheque is not honored?
The Customer will be advised by their bank through a document known as Image Return Document (IRD) indicating the reason why the cheque was unpaid.
10. Can a returned cheque be presented again?
There are certain circumstances where an unpaid cheque can be represented by the presenting bank. The customer will be advised by their bank in the IRD about the position.
11. Under the new system, what precautions should a drawer take when issuing a cheque?
The normal precautions customers should observe when dealing with their cheques and other negotiable instruments still apply.
12. Will there be an increase in the maximum amount limit for cheques when banks migrate to the new cycle?
There will be no increase in the value cap limits due to the new cycle.
One-Day Clearing At The Kenya Bankers Automated Clearing House To Hasten Payment Transactions
Nairobi, 31 July 2013 – The Kenya Bankers Association (KBA) today announced new cheque processing timelines, which will result in a one day reduction in the time it takes for banks to process interbank cheques. The move will benefit bank customers by speeding up their cheque payment transactions, ultimately enhancing the flow of funds in the economy. Banks will migrate to the new clearing cycle from 19th August 2013.
Making the announcement, KBA Chairman Mr. Jeremy Awori noted that the new clearing cycle was a major milestone for the industry.
“The shorter cheque clearing cycle will enable customers to know the fate of their cheques faster, and funds will be availed one day earlier than in the previous cycle. We are excited about this development that will benefit bank customers by speeding up their cheque payment transactions, ultimately enhancing the flow of funds in the economy,” he said.
The new clearing cycle means that the “Paying Bank” has one business day to determine the fate of a cheque that they receive from the “Presenting Bank” via the Automated Clearing House, which is owned and operated by the Kenya Bankers Association. Previously the old clearing cycle gave the banks two business days to clear the cheques via the Automated Clearing House. On this cycle (also known as T+2), the overall time it would take from cheque deposit to funds available would be approximately four business days. With the new timelines (known as T+1) that take effect on 19th August, the overall time it would take from cheque deposit to funds available would be reduced to approximately two to three business days.
Mr. Awori also thanked stakeholders for collaborating with the KBA to improve the standards and efficiency of the banking industry. “Over the years, KBA has been able to dramatically reduce the cheque clearing period from a high of 21 days in the 1990’s. The initiative is the result of collaboration between commercial banks and the Central Bank of Kenya and forms part of reforms being implemented in the National Payment System,” he added. Mr. Awori appreciated the partnership between the regulator and the industry association, saying “The positive development we have witnessed through the Kenyan banking industry is a result of the collaboration between KBA and Central Bank, not forgetting the individual banks that make up the KBA membership.”
KBA and CBK initiated the cheque truncation project that not only saw the introduction of a new, more secure cheque format, but also introduced the automation of the cheque clearing process. Contrary to the physical exchange of cheques by banks up until 1997, banks today ‘exchange’ cheques electronically using the image of the cheque and associated information. The move has contributed majorly to significant reduction in cheque-related fraud as well as increase the efficiency and accuracy in making cheque payments. The new cheque processing timelines affect all cheques denominated in Kenyan Shillings drawn on banks in Kenya and exchanged at the Automated Clearing House. There will be no changes in the clearing process for foreign cheques drawn on banks out of Kenya. Additionally, there will be no cost passed to the customers under the new clearing cycle.
The Cheque Truncation Process
Cheque Truncation is the process of clearing cheques between banks using the image of the cheque and associated electronic information. This process takes place at the Automated Clearing House which is owned by the Kenya Bankers Association (KBA) and regulated by the Central Bank of Kenya (CBK). Through the use of technology, the process is much faster and more efficient, leading to savings in time (from a high of 21 days in the 1990’s). As a result, customers can now enjoy the benefit of this reduction in time.
Why Does It Take Longer Than 2 Days To Access The Funds?
The cycle starts when a bank receives a cheque. If the cheque is from another bank, the Presenting Bank sends it to the Paying Bank via the Clearing House (see illustration). The cycle ends when payment is made (or the cheque is returned). The full cycle, including the 1 day (T+1) clearing should be factored in estimating when funds would be available.
Frequently Asked Questions: Banking Industry Migration to New Cheque Clearing Cycle (download)
For more information frequently asked questions visit www.kba.co.ke
Media Contact: Ms. Nuru Mugambi, Director of Communications and Public Affairs, Kenya Bankers Association, Phone: +254-20-2221704/2224014 or Email: nmugambi@kba.co.ke
