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BoU: It’s Not Mandatory For Foreign Banks To Establish Representative Offices In Uganda To Conduct Lending

Prof. Emmanuel Tumusiime-Mutebile, the BoU Governor

The Bank of Uganda has spoken out on recent media debates and discussions on issues related to the regulation and supervision of financial institutions and what amounts to conduct of financial  institutions  business  in  Uganda.

In a statement dated Wednesday, October 14, 2020, Prof.  Emmanuel Tumusiime-Mutebile, the BoU Governor, said: “Foreign banks lending deposits held in jurisdictions other than Uganda are regulated and supervised by their home authorities. It is not mandatory for a  foreign  bank  to  establish  a  representative  office  in  Uganda  in  order  to conduct lending or non-deposit-taking activity.

Bank   of   Uganda’s   regulatory   and   supervisory   powers only apply   to financial  institution  business  conducted  by  BoU  licensed  entities  in  or outside  Uganda  or  activity  which  should  be  licensed  as  such  in  Uganda. These powers do not extend to activities of foreign banks outside Uganda licensed by foreign regulators.”

Below is BoU’s statement;

In response to the recent media debates and discussions of issues related to the regulation and supervision of financial institutions and what amounts to  conduct  of  financial  institutions  business  in  Uganda,  Bank  of  Uganda(BoU) wishes to state as follows:

Bank of Uganda is the regulator and supervisor of financial institutions and financial  institutions  business  in  Uganda. 

The  mandate  to  regulate  and supervise financial institutions and financial institutions business is derived from the Constitution of the Republic of Uganda, the Bank of Uganda Act, 2000 and the Financial Institutions Act, 2004 as amended (FIA, 2004).

For the purposes of this statement, the regulation and supervision of micro finance deposit-taking institutions  is  not  addressed  as  these  are  covered under the Micro Finance Deposit-taking Institutions Act, 2003.A. What is a Financial Institution?

A.  ‘financial  institution’  is  a  company  licensed  to  carry  on  or  conduct financial institutions business in Uganda.

Bank of Uganda is, by law, given powers  to  issue  a  regulation  to  classify  financial  services  providers  as financial  institutions  where  their  activities  amount  to  financial  institutions business.

B. What is ‘Financial Institutions Business’?‘

Financial  Institutions  business’  is  broadly  defined  in  Section  3  of  the  FIA, 2004  to  include, acceptance  of  deposits; issuance  of  deposit  substitutes; lending  or  extending  money  held  on  deposit  or  any  part  of  that  money by way   of   consumer   and   mortgage   credit;   for   financing   of   commercial transactions  that  can  be  recovered  by  foreclosure  or  other  means  of amounts so lent, advanced or extended-among other activities.

The FIA, 2004  permits  BoU to  categorise  what  other  financial  services constitute financial institutions business.

C. ‘Acceptance  of  deposits’  and/or  ‘deposit  taking  activity’  for Lending ‘Acceptance  of  deposits’  and/or  ‘deposit  taking  activity’  occurs  when  a natural person or legal entity collects or accepts money from the public or advertises  itself  as  a  safe  keeper  of  money  or  solicits  for  money  from  the public with a promise that it will be repaid on demand or after a fixed period with or without interest or a premium.

Only financial institutions can accept deposits from the public or advertise for safe keeping of money or deposits.

The  lending  or  extension  of  credit  or  loans  or  the  financing  of  commercial transactions using money obtained from deposits or safekeeping in Uganda can only be done by an entity licensed by BoU in a manner prescribed by the FIA, 2004 as amended.

D. Financial Services that are not Supervised or Regulated by Bank of Uganda Bank  of  Uganda does  not regulate  extension  of  loans/credit  or  the financing of commercial transactions that are funded;

1. Using  funds  owned  privately  by  individuals,  corporates,  private  equity funds local or foreign;

2. Using  funds  of  members  of  small  member-based  collective  savings  or lending organizations that do not advertise themselves as safe keepers of money or solicit for funds from the public in Uganda;

3. Using funds obtained from foreign banks that do not take deposits from the public in Uganda;

4. Using funds of  International,  Regional  or  Local  Development  Finance Institutions whether such funds are advanced and administered directly by those institutions or through financial institutions in Uganda.

5. Using funds of Development Institutions, be they multilateral or bilateral, whether  such  funds  are  advanced  and  administered  directly  by  these institutions or through financial institutions in Uganda.

E. Agent Banking Agent  banking  that  is  regulated  under  the  FIA,  2004  is  defined  under Regulation  4  of  the  Financial  Institutions  (Agent  Banking)  Regulations, 2017  to mean  the  conduct  of financial  institution  business by  a  person contracted by a financial institution to deliver such services on its behalf as approved  by  BoU.  Agency  relationships  outside  the  definition  in  the Financial    Institutions    (Agent    Banking)    Regulations   do   not    require authorisation from BoU.

Financial  institutions  licensed  to  conduct  financial  institutions  business  in Uganda,  may  apply  to  the  BoU for  approval  to  conduct  Agent  Banking under the Agent Banking Regulations. An  entity  that  is  not  licensed  as  a  financial  institution  in  Uganda  is  not eligible to apply to the BoU to conduct Agent Banking.

International  and  Regional  Development  Organizations,  Foreign  Banks, and  other  Lenders both  local  and  foreign  who  may  choose  to  appoint  any entity or person to act as their agent in Uganda under general contract law  do  not  require  approval  from  BoU.  Such  agencies  do  not  fall  within regulated agency under the FIA, 2004 and do not require a BoU license.

F. Territorial Jurisdiction

Foreign banks lending deposits held in jurisdictions other than Uganda are regulated and supervised by their home authorities. It is not mandatory for a  foreign  bank  to  establish  a  representative  office  in  Uganda  in  order  to conduct lending or non-deposit-taking activity.

Bank   of   Uganda’s   regulatory   and   supervisory   powers only apply   to financial  institution  business  conducted  by  BoU  licensed  entities  in  or outside  Uganda  or  activity  which  should  be  licensed  as  such  in  Uganda. These powers do not extend to activities of foreign banks outside Uganda licensed by foreign regulators.

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Taddewo William Senyonyi
https://www.facebook.com/senyonyi.taddewo
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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