- Financial Technology Companies Face Scrutiny Over License Compliance
In Uganda, the Bank of Uganda (BOU) has accused financial technology companies (fintechs) of not applying for the necessary licenses. BOU initiated the regulatory framework for fintechs last year, implementing the National Payments Systems Act to regulate these small financial technology companies under the regulatory sandbox arrangement. The primary goal of this effort is to ensure that payment and cash transfer providers operate under regulations aimed at protecting the public.
Richard Byarugaba, the Executive Director of Finance at BOU, has expressed concern that while fintechs have significantly contributed to financial inclusion and growth, many have not given due importance to safety and security, instead prioritizing profit. Byarugaba stated that numerous companies have deliberately avoided seeking regulation, which is considered an offense. This non-compliance is creating opportunities for cybercriminals to operate within the sector.
These remarks were made during the Annual General Meeting of the Financial Technology Services Providers Association (FITSPA) in Kampala. The Minister for Science, Technology, and Innovation, Monica Musenero, also criticized the financial industry for not sufficiently supporting innovation in the country. She emphasized that this lack of support is negatively impacting the progress of the fourth industrial revolution.
Chapter 14 of the Third National Development Plan for 2020-2025 identified digital transformation as a crucial element for development, and the Uganda Vision 2040 recognizes ICT as fundamental to Uganda’s transformation into a modern and prosperous nation.
Musenero urged the banking industry representatives to not overlook young innovators in the country, as doing so could hinder the development of a digital economy in Uganda while the rest of the world advances.
In Uganda, the innovation sector primarily relies on support from volunteer financiers, supporters who connect innovators to markets, and corporate investors such as telecoms and banks that sponsor fintechs. FITSPA has seen a substantial increase in its membership, with 210 registered businesses, compared to only five in 2017, highlighting the rapid growth of the sector.
Josephine Alok, the Chairperson of FITSPA, credited this growth to the continuous improvement of infrastructure in Uganda and worldwide. However, Alok expressed concern about limited access to finances and ongoing safety and privacy issues within the banking sector, which could erode public confidence in the financial technology industry. She advised innovators to conduct market research before developing ideas to make it easier for financiers to support these innovations.
Alok also highlighted the immense potential in Uganda’s fintech industry, driven by the increasing penetration of mobile phones and the presence of 30 million mobile money accounts, offering opportunities for the development of further innovations.
