Financial Technology Companies Fail to Comply with Bank of Uganda

financial technology companies fail to comply with bank of uganda
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Government Weighs New Regulations for Fintech Industry

The Bank of Uganda (BOU) has raised concerns about financial technology companies (fintechs) failing to apply for the required licenses. BOU initiated the implementation of regulatory frameworks for fintechs last year, operating under the National Payments Systems Act, which establishes regulatory standards for these small financial technology firms within the regulatory sandbox framework. This regulatory approach aims to ensure that payment and cash transfer service providers operate under regulatory oversight to safeguard the interests of the public.

Richard Byarugaba, the Executive Director of Finance at BOU, highlighted that despite fintechs significantly contributing to financial inclusion and growth, many have neglected safety and security concerns in their pursuit of profit. Byarugaba noted that several companies have intentionally avoided applying for regulation, which is considered an offense, and this omission creates opportunities for cybercriminals.

These concerns were raised during the Annual General Meeting of the Financial Technology Services Providers Association (FITSPA) in Kampala, where Byarugaba was speaking.

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Monica Musenero, the Minister for Science, Technology, and Innovation, criticized the financial industry for its limited support of innovations within the country. She argued that this shortfall negatively affects Uganda’s participation in the fourth industrial revolution. Musenero emphasized that Uganda’s innovation and technology industry, primarily driven by young innovators, requires both technical support and financial aid.

Uganda’s development plans, including Chapter 14 of the Third National Development Plan 2020-2025, highlight digital transformation as pivotal for development. Furthermore, Uganda Vision 2040 recognizes information and communication technology (ICT) as a fundamental driver for the country’s transformation into a modern and prosperous nation.

Musenero cautioned that neglecting young innovators could hinder the development of a digital economy in Uganda, while the rest of the world advances. The innovation sector in Uganda currently relies on volunteer financiers, market connections, and corporate investors such as telecoms and banks to sponsor fintechs.

FITSPA’s membership has grown significantly, with 210 registered businesses, up from the initial five recorded in 2017, indicating the rapid expansion of the sector. Josephine Alok, the association’s chairperson, attributes this growth to ongoing infrastructure improvements in Uganda and globally.

However, Alok expressed concerns about limited access to finances and recurring issues related to safety and privacy within the banking sector. She stressed the importance of market research for innovators to ensure their efforts lead to practical and valuable innovations, making it easier for financiers to support them. Alok also pointed out the opportunities presented by the increasing mobile phone penetration, with approximately 30 million mobile money accounts offering a platform for launching more innovations in the fintech industry.

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