Mustapha Mugisa, an investigator of financial fraud and a forensics expert says the government wants the new companies to be subjected to Financial Intelligence Authority (FIA) guidelines due to the big sums of money going through the platform.
Starting June 1, Ugandans will have mobile money transactions run
by companies separate from the traditional telecoms that have been operating
This follows the licensing of three companies to operate mobile money services
in Uganda, including MTN Mobile Money Uganda Ltd and Airtel Mobile Commercial
Uganda Ltd. Until now, the businesses have been officially run by the
telecom companies like MTN Uganda Ltd, Airtel Uganda, Uganda Telecom and
The move follows the enactment of the National Payment Systems (NPS) Act, 2020
in September 2020 and gazetting of the NPS Implementing Regulations on 5th
March 2021. Bank of Uganda has commenced licensing of Payment System
Operators, Payment Service Provider and Issuers of Payment Instruments.
A financial technology company (fin-tec) M/s Wave Transfer Limited, has also
received the BOU’s approval to operate under the “Regulatory Sandbox
Framework”, under the National Payment Systems Act, 2020 and the National
Payment Systems (Sandbox) Regulations, 2021.
A regulatory sandbox is a framework that allows FinTech startups and other
innovators to conduct live experiments in a controlled environment. This
is intended to support innovation to attract more players, as well as advance
The Fin-techs, which are usually smaller than the major operators, are
protected by the law from being outcompeted. Apart from transferring money,
mobile money users have turned them into saving platforms, and sources of small
This expansion of the services necessitated the separation of the mobile money
business from the telecommunication service providers. Other fin-techs
like Safeboda, Payway and others will also be controlled under the same laws,
for purpose of money transfer.
One of the ideas behind the NPS Act 2020 and the enabling regulations is to
enhance financial inclusion especially for poorer and rural people to access
Joseph Sanjula Lutwama is the Director of Programs at FSD Uganda
says regulation under the bank of Uganda will also help consumer confidence in
the financial system.
“Yes, the new law provides more certainty in the regulation of retail
payments. This will not only enhance consumer confidence in mobile money
but also translate into greater growth in the payments industry,” he said.
The idea was also mooted at the time when there were growing concerns that big
amounts of money moving through the mobile money platforms could not be easily
be traced for origin and destination, hence the fear that the platform could be
channels for terrorist financing and money laundering.
Mustapha Mugisa, an investigator of financial fraud and a forensics expert,
says that the government wants the new companies to be subjected to Financial
Intelligence Authority (FIA) guidelines due to the big sums of money going
through the platform.
“MoMo has been real disruption, and several players have come up to leverage
from the ecosystem. The Telecom industry is already complicated. So new
provisions are to enable effective regulatory oversight, especially the high
money laundering risks and fact that MoMo is operating like financial
institutions but doing more volumes.” he reasons.
He says the problem is easier to solve when the entities are divided, and also
because the law under which telecoms are regulated does not provide for the FIA
mandate. “The better option is to require telecoms to form new companies
to offer mobile money financial services and be subjected to such controls as
Financial Intelligence Authority (FIA) and financial institutions act
Despite improving access to financial services to include savings and loans,
mobile money platforms are quite more expensive than the traditional banking
institutions regulated by the Central Bank and/or the Uganda Microfinance
Regulatory Authority UMRA).
An example is the micro-loans that mobile money services offer.
Their interest range between 9% and 12% for the one-month loan duration that
most platforms. This is an average of 100% per year, compared to banks and
microfinance institutions that charge an average of 25% and 30%,
respectively for small loans.
Mobile loans gained traction because they are easy to get since they are
instant and require no collateral. Asked about the possibility of the costs
falling to the levels of banks, Charity Mugumya, the Director of Communications
at the Bank of Uganda gave hope saying, the new laws now give BOU the mandate
to regulate electronic payment services, to consumer protection.
“The NPS Consumer Protection Regulations which are in advanced stages of being
finalized will provide more recourse mechanisms for digital financial services
Mugumya however could be committal on how far the new regulator will go in
ensuring that the interest rates fall.
This is because of the nature of the loans and the mode of lending, where no
collateral is required. The borrower’s creditworthiness depends on how much
savings they have on their mobile wallets, or the frequency and volumes of
transaction through the mobile account. On defaulting the lender can only
hope to recover from any cash deposited on the borrower’s phone, threaten to
block the line or devalue the creditworthiness.
“Uganda runs a liberalized interest rate regime in which lending rates are
market-determined. Given the different cost structures of the lenders, varied
risk profiles of the borrowers and the varying collateral arrangements, the
interest rates cannot be expected to be the same across the different players
in the financial sector”, says Mugumya.
The bank also expected to ensure that savings on the mobile phone wallet will
earn some interest for the saver. Currently, saving is expensive
because anytime when the saver wants to withdraw or transfer the money, they
lose about 2% of the value, the reason many people prefer to be paid in cash.
BOU’s Mugumya says the new law provides for interest to be paid. “Section
49 (6) of the NPS Act, 2020 and Regulation 14 of the NPS Regulations, 2021 provide
for interest to be paid to e-value account holders. Going forward, holders of
“mobile money” accounts will earn interest on their accounts.”
MTN Uganda assures that after the handover to the new company on June 1,
services will remain normal. “This is due to recent changes by the
government to have all mobile money service providers licensed. But no clients
account will be affected. Ours is changing mobile money name to MTN Mobile
Uganda Ltd,” says a shot statement by MTN."