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Bank of Uganda Launches Regulatory Sandbox Regime For Fintech Startups

June 21, 2021

The Bank of Uganda (BOU) has announced the creation of a regulatory sandbox to allow fintech start-ups to test their innovative financial products in a safe environment. One company, M/S Wave Transfer Limited, has already been granted permission to use this sandbox to test its rapid response (QR) technology.

The BOU said on June 15 that it is now seeking more companies to develop and test their financial innovations in this framework. Meanwhile, the BOU statement goes into further detail on why the central bank decided to start the sandbox. The statement explains:

The Regulatory Sandbox Framework will encourage financial services innovation, attract capital and support for fintech businesses, and allow innovators and regulators to learn from one another. This is intended to increase the use of electronic payments, digital financial services, and overall financial inclusion.

Meanwhile, the BOU will undertake “a fit and suitable examination on each major shareholder, director, or management of the application,” according to a Ugandan government statutory instrument dated March 5, 2021. The central bank would also look at whether “an applicant fits the criteria and basic conditions for operating a sandbox.”

Some of the determining elements that the BOU would evaluate, according to the statutory document, include whether the invention is real or if the sandbox offers consumer advantages and protections. The preparedness of the sandbox for testing, as well as the suitability of the exit strategy, will be taken into account by the central bank.

Meanwhile, according to the law document, fintech start-ups that want to be included in the regulatory sandbox framework must pay a $290 application fee (one million Ugandan shillings).

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Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning write

Uganda Issues First Fintech License, Which Costs Up To $2.8m To MTN, Airtel

May 26, 2021

The era of unregulated fintechs in Uganda has ended. This is as a result of the country’s new law — National Payment System (NPS) Act 2020 — and the gazetting of the NPS Implementing Regulations on 5th March 2020, requiring every fintech company in the East African country to procure a fintech license to remain in operations. To that effect, Bank of Uganda (BoU), the country’s central bank, has issued the country’s first ever fintech licenses to both MTN Mobile Money Uganda Limited and Airtel Mobile Commerce Uganda Limited.

“Pursuant to Section 9 of the National Payment Systems Act, 2020 and Regulation 3 of the National Payment Systems Regulations, 2021, Bank of Uganda has issued licences to the following entities:
Airtel Mobile Commerce Uganda Limited.
MTN Mobile Money Uganda Limited.
In addition, M/s Wave Transfer Limited received the Bank of Uganda’s approval to operate under the Regulatory Sandbox Framework, pursuant to Section 16 of the National Payment Systems Act, 2020 and Regulation 5 of the National Payment Systems (Sandbox) Regulations, 2021.
The Bank of Uganda will continue to support the development of a vibrant and resilient payments eco-system that promotes economic growth,” a statement released by the bank reads in part.
Read also:Why Investors Poured New $2m In Nigerian Fintech Startup, Mono

Uganda’s largest telecom firms have been providing mobile financial services without a license for years.

The National Payment System Department of the Bank of Uganda is in charge of overseeing the country’s payment system in order to ensure its overall effectiveness and credibility.

A Set Of Sweeping Regulations

Uganda’s National Payments Systems Act of 2020 demands that no one can provide a payment service, operate a payment system, or issue a payment instrument without first obtaining a license from the central bank.

Any person who defies this risks an imprisonment period of not more than four years, including having to immediately stop offering such payment services. The person will also be barred from ever obtaining a license again from the central bank.

S/N	License Category	License Class	Minimum Capital Requirement

1	Payment Systems Operator	Funds transfer systems:Large funds transfer systems whose transaction value exceeds one hundred billion shillings per month	1bn Shillings ($282k)
		Medium funds transfer systems whose transaction value exceeds one billion shillings per month and does not exceed one hundred billion shillings per month	500m Shillings ($141k)
		Small funds transfer systems whose transactions value does exceed one billion shillings per month	100m Shillings ($29k)
		Clearing systems or switches	500m Shillings ($141k)
		Settlement systems	250m Shillings ($71k)
		Third party systems	100m Shillings ($29k)
2	Payment Service Provider	Electronic money issuer Large electronic money issuer whose total trust account value exceeds exceed two hundred billion shillings.	10bn Shillings ($2.8m)
		Medium electronic money issuer whose total trust account value exceeds five hundred million but does not exceed two hundred billion shillings.	5bn Shillings ($1.4m)
		Small electronic money issuer whose total trust account value does not exceed five hundred million shillings.	250m shillings ($71k)

The application fees for each of Uganda’s payment systems license.

What Activities Are Eligible For Grant of License Under The New Law?

Under the new law, if a fintech company meets one or more of the following criteria, its application for a license may be approved by the central bank. The activities include:

Clearing payment instructions between financial and non-financial institutions;
Settling obligations resulting from clearing payment instructions.
Using an electronic system to move funds from one account to another;
Electronic money transfer from one electronic device to another;
Provision of technological services for or on behalf of a payment system provider to facilitate switching, routing, clearing, or data management;
Provision of electronic payment services to the unbanked and underbanked population;
Provision of financial communications networks;
Ordering or transmitting payment instructions;
Fulfilling payment obligations at points of sale, merchantoutlets or over the internet.

The central bank is mandated to grant the license within sixty days from the date of the application for a licence.

The law also created a regulatory sandbox regime, for those who want to test-run innovative financial products or services without obtaining a license.

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