Uganda’s Central Bank unveils first regulatory sandbox to boost fintech innovation

The Bank of Uganda has officially announced the launch of a regulatory sandbox aimed at supporting financial technology companies in developing new products and services. This move signals a significant step towards fostering innovation and growth in the country's financial sector. The regulatory sandbox will provide oversight to startups, allowing them to create and test financial solutions in a controlled environment. Silver Kayondo, a Technology Lawyer, shared insights on this development during an interview with CNBC Africa. The introduction of the regulatory sandbox comes at a crucial time when the fintech industry in Uganda is experiencing rapid growth. Various fintech solutions, including those in payments, remittances, credit, insurance, technology, and real estate, have been emerging in the market. The establishment of the regulatory sandbox is seen as a vote of confidence in the ecosystem, offering a platform for startups to thrive and innovate. To participate in the sandbox, startups are required to submit an application expressing their interest. The application must outline the innovation being developed, a risk management framework, a dispute resolution mechanism, and a consumer protection policy. The central bank, specifically the payments department, will assess the applications to determine the authenticity of the innovation, its industry impact, the testing and exit plan, as well as the backgrounds of the founders and top management. Additionally, founders need to provide certificates of good conduct and details of the company's directors. Once an application is approved, the startup can operate within the sandbox for six months. In case the desired objectives are not met during this period, an extension of another six months can be sought. The process also allows founders to present their innovation in detail, conduct test runs, and provide demos to ensure a clear understanding by the central bank. Despite the rigorous requirements, the first startup has already received approval for its innovative QR code smartphone payment system. This demonstrates that some startups are prepared to meet the challenges posed by the regulatory sandbox. Compliance with regulatory processes is essential for modern businesses, striking a balance between protecting the market against unregulated innovations and fostering market innovation and product development. The implementation of the regulatory sandbox is expected to drive various financial innovations, particularly in the payment space. Innovations in capital markets, insurance, pension services, mobile money integrators, and B2B and B2C payment models are anticipated. Moreover, there is increasing interest in blockchain technology solutions, which could potentially revolutionize the Ugandan fintech ecosystem. The focus on cashless payments is also set to accelerate the transition towards a cashless economy in Uganda, providing a significant boost to the financial landscape.