The Bank of Uganda (BoU) has licensed two more financial solutions under the Sandbox regulatory framework, as it implements laws aimed at promoting financial inclusion and safety.

A regulatory sandbox is a framework set up by a financial sector regulator to allow small-scale, live testing of innovations by private firms in a controlled environment under the regulator’s supervision. This is aimed at ensuring that there are no repercussions affecting the public including loss of money, which is a common crime in the financial industry in Uganda and other developing financial markets.

Culipa Ltd and Absa Bank Uganda Ltd are the latest to receive approval to test their respective innovations under the Sandbox arrangement.

Culipa will test a payment processing and money transfer service that allows individuals and or small businesses to receive mobile money payments with ease by taking advantage of social media platforms.

Absa Bank will test a digital wallet solution that works on all types of phones via SIM skin technology. This mobile payment technology consists of a thin plastic membrane that can be attached to any mobile phone SIM card and offers full transactional capabilities, such as person-to-person payments, bill pay, merchant payments and cash-out and can also support microloan operations.

The Absa digital wallet will also be accessed through a mobile App and web portal with the aim of scaling up financial inclusion, especially for the unbanked Ugandan population.

Under the Sandbox framework launched last year, the Bank of Uganda first licensed ‘Wave Transfer Ltd”, a mobile payments system company trading as ‘Wave’. It came with a promise to serve mainly those with no bank accounts.

The Bank of Uganda dismisses fears that opening up the market to so many small operators might increase the risk to the safety and security of money, saying instead that they are ready to license more operators to improve the reach of access to formal financial services.

“Bank of Uganda invites more firms to develop and test financial innovations under the Regulatory Sandbox Framework. The Bank reassures the public that it is committed to safeguarding the safety and integrity of the financial system,” said Deputy Governor Michael Atingi-Ego.

One of the achievements of the regulatory sandbox framework is the move to accept cryptocurrency operators into the system. BOU has since 2018 been opposed to cryptocurrency technology because, being a financial digital system, it is difficult to regulate.

The regulator has always insisted that anyone who accepts to participate in business does so at their own risk, without expecting redress from the authorities in case of a loss. But the Central Bank has now invited members of the Blockchain Association of Uganda (BAU) to share their knowledge with the regulator.

“Your plea to peer learning with our technical staff on crypt-economic models is granted with positivity by BoU. We have investigated whether the regulatory sandbox is the right environment for testing certain use cases,” said Andrew Kawere, the Director of the Bank of Uganda’s National Payments Service in an email.

Association chairman Kwame Rugunda confirmed meetings between the association and regulator in May. There are as many as 40 financial technology companies operating in the country, with many attached to banks and telecommunication companies, but the majority of them are yet to be licensed by the BOU. The BOU says they want all registered so that the bank takes control of ensuring the safety of people’s funds

“Protecting the interests of our clients is one of the most important things for us to do as the Bank of Uganda. In Uganda, our level of understanding regarding digital and online finances is quite low. In general, people need some protection from rather advanced financial innovations,” Kawere said.

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