UGANDA Trends and Developments Contributed by: William Kasozi and Brian Banana Baine, AF Mpanga
Regulation of Digital Lending In January 2024, the Uganda Microfinance Reg - ulatory Authority (UMRA), the statutory body that regulates tier 4 microfinance institutions and money lenders, issued guidelines regulating dig - ital lending in Uganda. The guidelines, referred to as the “Tier 4 Microfinance Institutions and Money Lenders Digital Lending Guidelines” (the “Guidelines”), provide for the licensing and gov - ernance of digital credit providers, among other aspects. Under these Guidelines, digital credit is defined as a credit facility or arrangement where money is lent or borrowed through a digital chan - nel while a digital credit provider is defined as a tier 4 microfinance institution or money lender providing credit using digital channels, digital credit business is defined as the business of pro - viding credit facilities or loan services through a digital channel, while a digital channel is defined as internet/mobile devices, computer devices, applications or any other digital system as may be prescribed by UMRA. The Guidelines prohibit a digital credit provider from establishing or engaging in digital credit business without a licence issued by UMRA in accordance with the Act, Regulations and Guidelines. The Guidelines also mandate digital credit providers to extend credit to customers in accordance with their established credit poli - cies and any other requirements prescribed by UMRA. Digital credit providers must disclose the terms and conditions for extension of credit to their borrowers before the transaction. The terms and conditions should include the fees, charges, penalties, relevant interest rates to be charged (on a reducing balance or not), the date on which the amount of credit and all interest, charges or fees are due and payable, and any consumer liabilities or obligations relating to a product or service a customer is interested in. The Guidelines also set restrictions on digital
• implementing equal opportunities and diver - sity, equity and inclusion; • integrating data privacy and transparency considerations; • identifying, assessing, and defining the impact of ESG and climate-related risks (such as transition and physical risks) on existing risk profiles (such as credit, market, opera - tional, etc) over short-term, medium-term, and long-term time horizons; • incorporating trainings, as part of their under - lying training framework, to upskill people and enhance their ability to navigate the ESG space and increase their E&S risk awareness; • adopting procurement practices which guar - antee transparency, integrity and fairness while ensuring that equal opportunities are given to prospective suppliers and vendors; • incorporating ESG-related considerations into the existing vision and mission statement of the bank to establish a risk culture highlight - ing the bank’s commitment to ESG; and • identifying the categories of eligible green and social projects for allocation of proceeds from green, social or sustainability bonds/loans. The ESG framework requires a great deal of vol - untary action and commitment from the finan - cial institutions and the key stakeholders to drive sustainable economic development across the nation. Most of the international key players in the banking industry have already incorporated ESG principles at a group level and the effect has been trickling down to the subsidiaries or local companies in Uganda. By aligning these industry practices with this ESG framework, the sector’s ESG performance is expected to improve. A consistent, holistic approach in the implementation of the ESG framework will be essential in unlocking the banking industry’s full potential in the national socio-economic trans - formation.
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