Financial technology industry better regulated today: Operators

Kampala, Uganda | THE INDEPENDENT | The financial technology (FinTech) industry has grown faster than the managers of the economy had anticipated, with the number of FinTechs growing from just five in 2017 to 189 in 2022.

This has come with regulatory challenges due to the complex nature of the industry that is a source of a wide variety of services.

The commonest of these services has been the growth of electronic finance that follows or is based on the mobile money mode, mainly focused on transfer or payment, but they have increasingly diversified into agriculture extension and trade, among others.

The payments companies especially mobile money companies like MTN and Airtel, and their regulators, have endured complaints of loss of money, delayed delivery of money sent as well as fraud by people taking advantage of loopholes in the system. This prompted the FinTech industry to push for regulation of the activities, to build confidence among skeptical Ugandans.

The growth of the industry has exposed the need for FinTechs to collaborate with the different specialized and non-specialized professional services to realize wholesome business growth.

Asked about how and who regulates the FinTechs, Henry Wavah, the Vice Chairperson of the FinTech Service Providers Association, FITSPA, said it was agreed that each company is regulated according to the services it offers and the size.

These according to Wavah, include Bank of Uganda for lending, remittance services, deposit-taking among other services, while the Uganda Microfinance Regulatory Authority regulates micro-lenders and the Insurance Regulatory Authority is in charge of insurance service providers.

In September 2020, the Bank of Uganda had the National Payments Systems Act published in the Uganda Gazette, and the idea behind the law was to promote financial inclusion, support new innovations in the financial sector and enhance safety of transactions, among others.

According to a study led by Deloitte in 2021, mobile penetration is 49 percent and while smartphone adoption is just 16 percent in Uganda. However, the digital economy of Uganda was found to contribute to 7 percent, ahead of countries like South Africa and Rwanda at 3 percent each, despite their higher use of digital services generally.

Uganda’s high score is because the financial technology terrain is based both on smartphones and feature phones, unlike in most of the other countries that rely on smartphones only.

The report shows that Uganda’s digital economy is next to Kenya’s and Nigeria’s which contribute 9.2 and 17.83 percent respectively to their economies.

According to Zianah Mudduh, the Engagement Partner at FITSPA, they could not risk losing this opportunity the new industry was providing, and had to push for regulation to protect it.

The FinTech are due to hold their 4th annual conference next month on the theme Investments and Partnerships – How to Thrive in Uganda’s FinTech eco-system.” The Financial Technologies Services Providers’ Association (FITSPA) is the umbrella body for fintechs in Uganda with 189 members to-date.

This year, FITSPA celebrates 5 years of existence with several milestones.

Amongst the key topics to be discussed are regulation, capital acquisition, digital trade and digital financial services and green finance. FITSPA will also launch two key products; the Deal book and a feasibility study. These two products will uniquely position the industry players to take advantage of the market opportunities.

“The growth of the industry has exposed the need for FinTechs to collaborate with the different specialized and non-specialized professional services to realize wholesome business growth,” says the notice to the members.

While new FinTechs continue to challenge the traditional players in the area of lending and savings, banks are still dwarfing them with hybrid products or operations, including the use of agency banking, according to the Deloitte study. However, FinTechs are dominating specialized markets such as asset lending, solar, agro-business, micro-loans and savings.

They have also capitalised on their understanding of the traditional Ugandan SACCOs and microfinance structures to offer digital transformation solutions to this market segment.

Wavah says this has seen FinTechs become an important industry in the financial inclusion of rural Ugandans.

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