THE PAYMENT SYSTEM IN

LESOTHO
 Table of Contents

1. INSTITUTIONAL ASPECTS .............................................................................................. 49

1.1 General legal aspects ................................................................................................... 49

1.2 Financial intermediaries that provide payment services ........................................ 49

1.3 Role of the central bank ............................................................................................. 49

1.4 Role of other private sector and public sector bodies ............................................. 50

2. SUMMARY INFORMATION ON PAYMENT MEDIA USED BY NON BANKS ....... 50

2.1 Cash payments ............................................................................................................ 50

2.2 Non-cash payments ..................................................................................................... 50

2.2.1 Credit transfers ................................................................................................... 50
2.2.2 Cheques ............................................................................................................... 50
2.2.3 Direct debits ....................................................................................................... 50
2.2.4 Payment cards .................................................................................................... 50
2.2.5 Other payment instruments ................................................................................. 51

3. INTERBANK EXCHANGE AND SETTLEMENT SERVICES ...................................... 51

3.1 General overview ........................................................................................................ 51

3.2 Settlement .................................................................................................................... 52

4. SPECIAL USE OF INTERBANK TRANSFER SYSTEMS FOR INTERNATIONAL

AND DOMESTIC FINANCIAL TRANSACTIONS ......................................................... 52

5. ROLE OF THE CENTRAL BANK IN INTERBANK SETTLEMENT SYSTEMS....... 52

6. RECENT DEVELOPMENTS IN THE PAYMENT SYSTEM ........................................ 52

7. INFRASTRUCTURE ............................................................................................................ 52

Tables ................................................................................................................................................ 53
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1. INSTITUTIONAL ASPECTS

1.1 General legal aspects

The supervision of banks and any other financial institutions is carried out by the Central
Bank of Lesotho in accordance with the provisions contained in the Financial Institutions Act, 1973.
Netting arrangements are carried out using the Central Bank of Lesotho Clearing House
rules. There is no law as such.
The Central Bank can appoint persons, acting with the prior written approval of the
Minister, if a bank’s condition is unsound or its business is being conducted in an unlawful or
imprudent manner. The central bank’s appointee shall take an inventory of assets and property of the
institution and this shall be available for examination by interested parties at the office of the
commissioner (Central Bank).
Payment instruments such as cheques and credit cards are issued to those people who fall
into a certain category of salary.
Other institutions providing payment services by law are the Post Office and
development banks. The Post Office issues postal orders and these are acceptable everywhere and are
treated the same way as cheques.

1.2 Financial intermediaries that provide payment services

Financial intermediaries such as commercial banks also act as savings banks because
they provide banking services to the public by accepting saving deposits as well as demand deposits.
They operate according to the Financial Services Act.
Partial financial institutions exist in the form of development banks (non-banks because
they do not offer the full services of commercial banks, such as cheque accounts) and also The
Employment Bureau of Africa (TEBA) which makes payments on behalf of migrant mine workers.
Other types of financial institutions which accept deposits from the public are insurance companies.

1.3 Role of the central bank

The Central Bank is responsible for issuing maloti notes and coin to settle legal payments
and the loti is thus legal tender. It takes the form of token money or paper which has no commodity
value but is acceptable as a medium of exchange.
The Central Bank operates accounts for banks to enable speedy settlement between
themselves. It also operates accounts for certain international agencies. The Central Bank also fulfils
its obligations as banker to the government by operating accounts and tellers’ facilities for the
government departments and agencies. Usually the Treasury will instruct the Central Bank to make
payments on its behalf per letter with the designated signatories.
The Central Bank executes monetary policy via several monetary policy instruments such
as interest rates, reserve requirements, open market operations, credit ceilings and moral suasion. The
discount rate is rarely used as most commercial banks usually have excess liquidity.
The Central Bank, through the Bank Supervision Division, keeps an eye on banks to
ensure they adhere to the set rules contained in the Financial Institutions Act.
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1.4 Role of other private sector and public sector bodies

The Treasury’s role is to issue instructions authorising payments on behalf of the

Government by the Central Bank.

2. SUMMARY INFORMATION ON PAYMENT MEDIA USED BY NON BANKS

2.1 Cash payments

Denominations of bank notes used are the M200, M100, M50, M20, M10 and M5
including coins (the loti and M2 coins).

2.2 Non-cash payments

2.2.1 Credit transfer

– Telegraphic transfer (S.W.I.F.T.) which is quite efficient.

– Mail transfer.
Users of these credit transfers are mainly the commercial banks and the Forex Division
of the Central Bank. The Post Office also operates this facility.

2.2.2 Cheques

Only commercial banks are allowed to issue cheques. Their acceptability as a payment
medium is quite good. Types of payments made by cheque are for goods and services, salaries,
pensions, etc.

2.2.3 Direct debits

Commercial banks use direct debits for making payments on behalf of cheque account
holders to pay stop orders, usually to insurance companies. These are normally quite efficient.

2.2.4 Payment cards

The card that is the most commonly used is the credit card and is acceptable everywhere
and is used widely to make all types of payments.
The other card that is widely used is the Automatic Teller Machine (ATM) card. This
card operates via a network known as Saswitch, which is an association of banks which have agreed
to facilitate banking transactions amongst themselves.
The smooth operation of ATMs relies on the telecommunication systems being
functional, as this is the mode of transmission. Transmission lines have recently been increased in
order to improve their efficiency. Several ATMs exist in a few of the districts such as Butha-Buthe,
Leribe and Roma and they operate normally for as long as the telecommunication lines are working
normally.
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2.2.5 Other payment instruments

Travellers’ cheques are normally exchanged for the local currency at any commercial
bank, but are generally acceptable, especially at hotels.

3. INTERBANK EXCHANGE AND SETTLEMENT SERVICES

3.1 General overview

Interbank transfers are effected through the Central Bank which operates as a clearing
house for the banking system in Lesotho by participating in the exchange of cheques with the
commercial banks on a daily basis.
Since the Central Bank holds settlement accounts for all the banks, the system of
interbank exchange and settlement is quite efficient.
There is no legislation governing clearing and settlement, but clearing house rules exist
which the commercial banks have to abide by. The Central Bank is responsible for ensuring that these
rules are adhered to.
The main criteria for participation is that an institution should be a fully fledged
commercial bank carrying out the business of banking.
The transactions handled are:
– Table clearing which involves preparation and accounting for outward clearing of
cheques deposited at the Central Bank of Lesotho (CBL) but drawn on customers’
accounts at commercial banks, and inward clearing of cheques deposited at commercial
banks but drawn on customers’ accounts at the Central Bank.
– Outward clearing cheques are put in an envelope for each commercial bank, and the total
amount to be cleared is written on the surface of the envelope.
– Amounts to be cleared (in and out) are recorded in the CBL Clearing House Register.
Similarly, each bank should record the amount cleared in and out in their respective
registers. The difference between the amounts cleared in and the amounts cleared out is
the net settlement figure and can be in favour or against a bank.
– The settlement figure is recorded in the clearing house register under, against or in
favour.
– CBL Clearing House account will be credited if it is in favour or debited if it is against.
The same will be done for individual banks depending on whether they are in favour or
against.
– A batch will be prepared for the settlement entries.

Clearances normally start at 9.30 a.m. and end at about 10 a.m.

The clearing process is done manually, that is, using simple adding machines, on a
clearing table. The exchange process takes place on the table.
Afterwards, settlement figures representing vouchers debits and credits must be
accurately posted to the correct accounts. These postings are the source data for the production of
banks’ financial statements.
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In the case of participant failure, losses are incurred in the form of interest lost had the
bank been in favour, because this would mean that there is no outward clearance for that particular
day.
Commercial banks rarely resort to borrowing from the Central Bank because most of
them have excess liquidity.

3.2 Settlement

The net settlement is effected by debiting or crediting the accounts of affected Banks
held with the Central Bank. So far the banks in Lesotho have been liquid and have not encountered
any difficulty meeting their debt obligations.

4. SPECIAL USE OF INTERBANK TRANSFER SYSTEMS FOR

INTERNATIONAL AND DOMESTIC FINANCIAL TRANSACTIONS

International payments are effected through S.W.I.F.T. The foreign currencies traded in
the country are US dollar, pound sterling, Swiss franc and others, but on a very small scale. The
payments are processed directly to the payee and arrangements are made with foreign banks to
process payments on their behalf. For example, the South African Reserve Bank and the Federal
Reserve Bank of New York act in this capacity for the Central Bank of Lesotho because they have
accounts with them.
The present situation with securities markets is that they operate with cash mostly or
transfer of funds from commercial banks’ call accounts in CBL.

5. THE ROLE OF THE CENTRAL BANK IN INTERBANK SETTLEMENT

SYSTEMS

The Central Bank supervises interbank settlement system and chairs the Clearing Bankers
monthly meetings at which issues of common interest are handled.

6. RECENT DEVELOPMENTS IN THE PAYMENT SYSTEM

There is no new system as yet. We are still operating manually.

7. INFRASTRUCTURE

The Lesotho Telecommunication Corporation has covered the whole of Lesotho with
telephone facilities.
The whole of Lesotho is working on new roads in the rural areas. The roads in urban
areas are good.
In urban areas electricity is available. The Lesotho Electricity Corporation is working on
introducing group schemes in the rural areas.
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Table 1
Basic statistical data

1992 1993 1994 1995 1996

Population (millions) ..................................... 1.89 1.95 2.00 2.06 2.11

GDP (millions of Maloti) .............................. 1.89 2.29 2.69 3.05 3.60

GDP per capita (thousands of Maloti) ........... 241 244 267 284 312

Exchange rate (domestic vis-à-vis US$)

year-end ..................................................... 3.053 3.397 3.543 3.647 4.683
average ....................................................... 2.847 3.252 3.552 4.550 4.271

Table 2
Settlement media used by banks
(in billions of Maloti)

1992 1993 1994 1995 1996

Reserve balances held at central bank ........... 19.29 24.63 3.57 4.91 5.64

Transferable deposits at other institutions ..... - - - - -

Accounts at the Post Office ............................ - - - - -

Accounts at the Treasury ............................... - - - - -

Required reserves .......................................... 34.74 41.39 6.65 8.39 9.73

Institutions’ borrowing from central bank ..... - - - - -

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Table 3
Banknotes and coin

1992 1993 1994 1995 1996

Denomination of banknotes:
200 notes ................................................. - - - 6,355,800 3,651,600
100 notes ................................................. - - - 23,694,500 39,053,500
50 notes ................................................. 14,550,250 24,602, 950 31,104,350 36,957,750 40,826,150
20 notes ................................................. 19,320,600 19,761,900 25,081, 940 18,360,560 12,470,840
10 notes ................................................. 8,383,070 6,905,770 12,427,390 6,824,780 5,610,790
Denomination of coin:
100 coins .................................................
50 coins ................................................. 993,400 1,100,400 1,215,400 1,243,900 1,410,400
25 coins ................................................. 538,300 627,350 668,050 674,650 780,900
20 coins ................................................. 297,550 404,375 345,025 339,900 373,825
5 coins ................................................. 397,389 461,789 499,589 533,689 589,889
2 coins ................................................. 103,019 120,944 137,694 157,044 184,369
1 coins ................................................. 92,097 1,030,770 119,817 139,737 160,317
½ coins ................................................. 155,361 166,841 197,261 228,991 239,681

Table 4
Institutional framework

Number of
Number of Number of Value of accounts
Categories accounts
institutions branches (millions of Maloti)
(thousands)

Central bank .......................... 1 - - -

Commercial banks ................. 3 16 372 151
Public credit institutions ........ 1 8 - -
Post Office ............................. 1 47 - -