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Financial Sector, BOU Agree on Fair Play to Develop Technology

Fintech is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services, using technology to improve activities in finance. However, rather than compete, fintech and financial institutions have progressively integrated technology in order to improve their use and delivery to consumers.

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The Bank of Uganda will keep reviewing the operating conditions of the financial technology companies- Fintechs, which have termed the recently introduced regulations for the sector, as unfavourable.

Fintech is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services, using technology to improve activities in finance.  However, rather than compete, fintech and financial institutions have progressively integrated technology in order to improve their use and delivery to consumers.

The commonest fintech businesses revolve around e-commerce or electronic payments, mobile money transfers and other financial services that are largely offered by banks and other financial institutions. 

The National Payments Act 2020 that became active in June following the issuance of guidelines by the Bank of Uganda subject the fintech to regulation by the BOU.

The regulations touch on issues including licensing, minimum capital requirements, a board of directors, a board of trustees and separation of duties between shareholders and management. But the fintech's say that they have continuously operated under hardship with no clear direction and belonging, and this made it difficult to have some of their innovations recognized.

Edith Kutesa, the Executive Director of Mcash said they first innovated Agency Banking in 2010 but it did not grow until the laws were amended in 2017. Kutesa now says that while regulations are welcome, some of the requirements are too expensive for them, including hiring professional managers, directors and trustees.

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Peter Kawumi, the Chairman of Fitspa Uganda, an association of fintech's in Uganda says there are 163 companies registered under his organisation, however, only five have so far acquired the licensing by the Bank of Uganda. Kawumi, who is also the Country Manager of Interswitch East Africa, calls for a regulatory regime that is aimed at creating or improving the working environment for all players, as this will, have a big impact on the penetration of the financial services sector.

"Against the backdrop of an enabling legal environment, Fintech's have the potential to reach consumers at scale and accelerate the inclusion of more people under the financial services umbrella," he told the Annual Fitspa Fintech Conference in Kampala.

The Uganda Bankers Association said the industry has since recognized the role Fintech's play in providing services to the banking sector. The association's Chief Executive Wilbrod Owor however, says it is important that the regulator and the private sector reach common grounds on various issues concerning the sector. 

"We welcome the National Payments Act because it brings order, rules, standards, and corporate governance in the system. The financial sector thrives on integrity. To those Fintechs avoiding regulations in fear of the cost, there are different license levels so everyone is catered for. We can only grow when we are together,” he said.

He, however, urged the regulator to concentrate on oversight roles but leave the financial sector companies freedom to innovate which will lead to a strong industry focused on the needs of the market.  

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The sentiments were echoed by the United National Capital Development Fund official, Aiaze Mitha, the Digital Ambassador for the Fund. He says the government needs to give incentives in form of fiscal, regulatory and other stimulatory incentives to ensure the young but vibrant innovation space in Uganda is not discouraged.

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The Bank of Uganda says there is a very big market for fintech, including where they have already ventured. Director National Payments, Mackay Aomu says, for example, 85% of the transactions at the agents banking locations are deposited.

"There are more opportunities in the fintech space brought about by technologies. We need to identify common areas for collaborations to improve security, standards in the Fintech space," he says. Aomu says they are trying to be as responsive as possible to the concerns of the market and the players, and some guidelines are in the pipeline to ease the registration requirements for fintech. 

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He says, however, that the level of regulation of the industry is not aimed at failing the industry players, but to ensure stability and avoid past shocks in the banking sector.

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