Why Foreign Banks Do Not Need a Licence to Lend in Uganda

Why Foreign Banks Do Not Need a Licence to Lend in Uganda

Bank of Uganda (BOU) says foreign-based banks do not need its license to lend funds originating abroad.

“Bank of Uganda does not regulate extension of loans/credit or the financing of commercial transactions that are funded using funds obtained from foreign banks that do not take deposits from the public in Uganda,” Governor Emmanuel Tumusiime-Mutebile said in a statement Wednesday.

This was in response to a court ruling that had declared a loan by Diamond Trust Bank Kenya Ltd. to Kampala-based companies using its Ugandan subsidiary as the agent was unlawful

As a result, DTB and its subsidiary were ordered to repay $32 million it debited from the accounts of Ham Enterprises Ltd. and Kiggs International Ltd. 

Consequently, the Uganda Bankers’ Association warned of defaults on as much as $1.5 billion worth of syndicated loans in the country.

“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,” said the Central Bank.

Diamond Trust Bank has appealed the case.