The National Bank of Rwanda (BNR) has instituted new tougher punishments for issuers of bounced cheques.

The regulation, published in the Official Gazette last month, seeks to prevent issuance of bounced cheques and provides for penalties applicable to cheque defaulters.

A cheque is considered bounced or rubber, in most cases, when an individual, group account holders or company issues it as a mode of payment against a bank account with insufficient funds on it.

Industry experts have welcomed the new regulations that will add to the woes of offenders who were already faced with up to five years in jail under the Penal Code for the offence.

Equity Bank managing director Samuel Kirubi told The New Times that although the practice is not as common in Rwanda compared to other countries in the region, tougher measures are welcome to prevent it from growing.

"Banking is a discipline very much dependant on integrity of practice and issuing bad cheques undermines the purpose of using cheques as a mode of payment, it definitely is not needed in banking,” said Kirubi.

Without providing statistics, Police spokesperson Celestin Twahirwa said issuance of bounced cheques is one of the most rampant crimes Police have to deal with.

Damning statistics

Aimable Nkuranga is the country manager of Credit Reference Bureau (CRB), a firm mandated to compile data on the credit worthiness of individuals and companies seeking financial services.

The data provided by CRB is aimed at helping lending institutions such as commercial banks to efficiently assess credit worthiness of customers and their level of risk before granting credit services.

Nkuranga says his institution receives an average of 200 cases of bounced cheques per month and welcomed the central bank’s new measures, saying it will help curb the practice.

"It’s a big issue. We have 18,000 cases in our data base of individuals that have been implicated in issuing bounced cheques,” Nkuranga revealed, adding that another 7,000 companies have also been booked for the same practice.

That makes 25,000 the total of bounced cheques cases, a figure that could have informed the central bank to issue new stringent measures.

Out of the reasons Nkuranga says are cited for causing bounced cheques, having insufficient funds on the account is the leading; this is a crime under Rwandan law.

Based on central bank statistics, the trend is damning; issuance of bounced cheques from 2005 to 2014 increased by 832.9 per cent.

Old penalties

Equity Bank’s Kirubi noted that it’s not like the central bank has not been biting cheque defaulters, but the new regulations point to a resolve to bite harder in a bid to impart discipline in the financial sector.

Under the Penal Code, if one got caught for issuing a bounced cheque, but moved fast enough to raise the money before being prosecuted, they would escape with a fine of between Rwf20,000 and Rwf50,000.

They would also pay another penalty of up to 10 times the value of the amount of the bounced cheque; the offenders would also be barred from issuing any more cheques and their names would be ‘black-listed’ and in current practice, reported and filed under negative data to CRB.

Force of law

Doreen Makumi, the central bank’s communication officer, said although BNR previously had a legal instrument in place regarding the matter, it wasn’t published in the Official Gazette.

What does that mean? Geoffrey Mwine, a commercial lawyer, said it means that the new regulation has the full force of law and is now binding to the general public, adding that the old instrument was lacking obligations of the paying bank to its customers on the proper use of cheques.

"The current regulation now requires that before a bank issues a customer with a cheque book, it formally and clearly informs them of proper use as well as the consequences of issuing bounced cheques, including related sanctions,” she said.

On their part, a customer issuing a cheque is obligated under the new law to, hold sufficient funds on their account on the due date of cashing the cheque until the expiration of validity of the issued cheque.

Tough punishments

The new law, with an element of public education, eliminates any attempt of pleading ignorance on the proper use and consequences of cheque books and introduces amplified punishments heavier than those previously served.

For instance, previously, the financial penalty for issuing a bounced cheque was 10 per cent the amount on each of the issued bouncing cheque; that has been increased to 20 per cent under the new law.

Also, under the new regulation, a person who issues a bounced cheque "shall not be allowed to access any credit facility from banks, microfinance institution or in any lending institution.”

Offenders will also not be provided a new cheque book by any bank or micro finance institution or open a new account in a bank or in a microfinance institution (until they are cleared).

In addition to sanctions, a cheque defaulter will return all cheque books given to them by banks or micro finance institutions.

For first-time offenders, these sanctions shall apply for a period of six months and twelve months for multiple offenders in subsequent incidents.

"The cheque defaulters who are affected by the new regulation are those whose sanctions (for issuing bounced cheques) are not yet removed,” said BNR’s Makumi.

It means BNR’s new regulation is what is legally termed as ‘retro-active,’ meaning legislation that ‘takes effect from a date in the past.’

Potentially, each one of the 25000 cases currently in the negative records of CRB for issuing bouncing cheques could face further punitive measures under the new regulation.

Cleansing bad record

Many of those implicated will be seeking to be cleansed of their bad record, but this is a lengthy and bureaucratic process under the new regulation.

Apparently, they would have to show proof of payment of all bounced cheques drawn by the cheque defaulter and certified by the paying bank.

The proof should indicate the date of settlement of the cheque, clearance letter from the National Public Prosecution Authority, payment of financial fine equivalent to 20 per cent of the amount mentioned on each bounced cheque and completion of the sanction period (six months for first-time offender or 1 year for repeat offenders).

The process of applying for cleansing will be made by the management of the paying bank on behalf of the cheque defaulter, through central bank, with all documents proving beyond any reasonable doubt that the requirements for clearance have been met.

Under the new law, the 20 per cent fine paid by the cheque defaulter, will be equally shared between the paying bank and BNR; and with all requirements met, central bank would then respond to the clearance application, within seven days.

Meanwhile, in cases where a bank falsely accuses a client of issuing a bounced cheque, BNR would slap the offending bank with a fine of Rwf300,000.

editorial@newtimes.co.rw