LEGAL MEMORANDUM

Mr. Oola Daniel Comboni,

The Legal Associate, TMBEI Advocates

Date: August - 29th – 2024.

To:

The Managing Partner,

TMBEI Advocates.

RE: A LEGAL MEMORANDUM ON; LEGAL AND INSTITUTIONAL FRAMEWORK AND

REQUIREMENTS FOR UNDERTAKING BANKING BUSINESS IN UGANDA.

Small set of facts

Ryan Mayes intends to establish and undertake banking business in Uganda specifically the
commercial banking business. Herein I have been instructed to make a detailed legal memorandum
following the reference mentioned hereof above. It is a simple task, and I shall set the engine by
raising the following questions;

Brief background of banking business in Uganda.

Before independence, Uganda was dominated by the foreign Banks like; the National Bank of India
established in 1906, as the first commercial bank in the country, the Standard Bank in 1912, Bank
of Netherland in 1954 which later merged with the Grindlays Bank.

The colonial government enacted the Uganda Credit and Saving Act, which established the Uganda
Credit and Saving Bank, to mitigate the discriminative nature of the foreign owned banks against
the Africans, by facilitating loans to them, supporting agriculture, building and cooperative
societies.

Between 1962- 1993, several developments in banking emerged; Uganda Credit and Saving Bank
transformed into Uganda Commercial Bank (UBC), Bank of Uganda and Uganda Development
Bank were set up, leading to Ugandan Government dominance in the industry by acquisition of
49% shares in the foreign banks, causing their closures.

The dominance of the state-owned banks in 1960s, the 1970s and most of 1980s, decreased as
several private owned banks were opened in 1990s, the central bank licensed over 10 private banks
between 1988 and 1999 to operate in the country. Between 2000 and 2009, the banking business
increased and also the non-bank financial institutions were also established. The development in the
banking industry is continuous up to-date.

Legal issues

Issue One: What are the legal framework for the commercial banking business in Uganda?

Issue Two: What are the institutional framework of the commercial banking business in Uganda?

Issue Three: What are the pre-requisites for undertaking commercial banking business in Uganda?

Law applicable

Resolution.

Issue One: What are the legal framework for the commercial banking business in Uganda?

Since Ryan Mayes have interest in setting up a commercial banking business in Uganda, it is fair
and prudent to unveil certain terms like Bank, Commercial Bank, Banking business and commercial
banking business.

Defining a bank; section 3 of Financial Institutions Act of 2004 defines a bank as a company
licensed to carry on the financial institution business as its principle business. Lord denning
expounded on the key features of a bank as a company, in the case of United Dominions Trust
Limited v Kirkwood (1966) 2 QB. 431. A bank can only be called so, only if;

 It takes current accounts,

 Pay cheques drawn on himself, and
 Collect cheques for his customers.

To above, bank in it activities must be connected with opening up of current accounts for its
customers wherein it accept deposits, and collect cheques for their customers, in the same vein
honour cheques drawn on them by its customers.1

Commercial Bank:

Section 3.2 defines commercial bank to mean a company licensed to carry on financial institution
business in Uganda and whose principle business consists of acceptance of call, demand, savings
and time deposits withdrawal by cheques or otherwise, in the capacity of a bank, provision of
overdraft and short to medium term loans, provision of foreign exchange, participation in inter-bank

1
United Dominions Trust Limited v Kirkwood (1966) 2 QB. 431
2
The Financial Institutions Act of 2004
clearing system and the provision and assumption of guarantees, bonds and other warranties on
behalf of others.

Therefore, to exhibit the legal form of a commercial bank in Uganda banking industry, the above
features or activities of the commercial bank, should be clearly adhered to, to be called commercial
bank in Uganda.

The Legal Framework of Commercial Banking Business in Uganda.

It is pertinent to understand the Genesis and Exodus of legal framework of banking business in
Uganda: The colonial government enacted Uganda Credit and Saving Bank Act, creating the
Uganda Credit and Saving Bank.

In 1955 Banking Act was enacted, where capital requirement was a pre-requisite for banking
business, later was repealed and amended in 1969, in amendment the capital requirement was raised
from 1million to 2 million. In 1993 the finance principle legislation came into being Financial
Institutions Act, it was enacted to address the weak points in the 1969 Banking Act as amended
there were also other legislation that followed and before, but most importantly, in 1995 the
Uganda’s Constitution came into existence establishing Bank of Uganda as the central Bank. 3

The above is just the shadow of what constituted a feature like legal framework of banking
business. However today, there are numerous legislations, but a sample discussed hereunder;

The Legal Framework.

1. The Constitution of the Republic of Uganda 1995, as amended.

The constitution is the Supreme Law of Uganda where all other law derive from, this was stated in
the case of Uganda Law Society v the Attorney General Constitutional Petition No. 2 and No. 8 of
2002, where the court stated the same. This simply means despite the existence of all the law
regulating the Banking Business in Uganda, the constitution stands above all of them.4

Article 161 makes provision for the establishment of Bank of Uganda, this provision was copied
from the 1966 and 1967 constitution.

Article 162 is to the effect of stating the functions of Bank of Uganda. Those functions among
others includes;

To promote and maintain the stability of the value of currency in Uganda.

3
Tracing the historical legal framework of the banking business in Uganda
4
Uganda Law Society v the Attorney General Constitutional Petition No. 2 and No. 8
To regulate currency system in the interest of economic progress in Uganda.

To encourage and promote economic development and the efficient utilization of Uganda resources
through effective operation of banking and credit system.

2. The Financial Institutions Act, 2004.

This is the principal legislation that regulate the financial institutions Businesses in Uganda. In the
matters of Banking other than the constitutional provisions. The Financial Institutions Act, 2004
section 133, the Financial Institutions Act take precedence over all the other laws and regulations. 5

The Financial Institutions Act, 2004 section 133;

“For the purpose of any matter concerning financial institutions, this Act shall take precedence over
any enactment and in the case of conflict, this Act shall prevail”.6

Premised from the above, except where necessary to visit the constitution, anyone who need law
and regulation pertaining the financial institutions, he or she must first look at the Financial
Institutions Act. It is a home for all the Tier I, Tier II, Tier III and Tier III Institutions. It gives
control over the financial institutions to the Central Bank.

The Financial Institutions Act, it is the law which repealed the Financial Institutions Act Cap 54
which is now currently Cap 57. This law consolidates the law relating to the financial institutions,
its regulations, control, and discipline of the financial institutions by the Central Bank. 7

Section 10 and 11. For example the Act, is a door through which every financial institution must
passed to be allowed to operate, it calls for licensing the Banking business, where all the conditions
must be met, and failure to meet such one cannot operationalize banking business in Uganda.

After even obtaining the license, the Act provides for regulations which either determine the
continuous operation where such regulations are followed or closure where they are not be adhered
to by the Banking Businesses in Uganda.

3. The Financial Institutions Act 2016 as amended.

The Financial Institutions Act 2016 as amended is an amendment to the Financial Institutions Act
2004, it made some reforms or changes which were missing yet were necessary at the time.
Inferring from the long Title, the amended was made to; provide for Islamic Banking, Bank

5
The Financial Institutions Act, 2004.
6
Section 133 of the Financial Institutions Act 2004
7
The long Title of the Financial Institutions Act, 2004.
Assurance, Agent Banking, and Special Cases to Credit Reference Bureau and to reform Deposit
Protection Fund.8

Because of amended made over 2004 Act, giving birth to 2016 amendment. There is the Financial
Institutions (Agent Banking) Regulations, 2017.

4. The Bill of Exchange Act Cap 281.9

This law governs the issue, operation and use of cheques, promissory notes, and bill of exchange.
Section 72 defines a cheques as, a bill of exchange drawn on a banker payable on demand. And a
bill of exchange under this Act section 2, is defined as an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the person to whom is addressed
to pay on demand, or at a fixed date a sum certain in money, to the order of a specified bearer. 10

The Act provides the regulations around and on the usage of cheques, bill of exchange and
promissory notes. For example, section 7 distinguished between negotiable bill and non-negotiable
bill. That those with the word “prohibit transfer” are not negotiable bill, the bill is valid between the
parties thereto but not negotiable.

I also describes when a bill may be treated as payable to bearer, payable to the order, payable to the
order of a specified person.

According to Bill of Exchange Act, for the bill of exchange to be valid, it must exhibit the following
features;

The bill must be signed

The bill must be an unconditional order in writing.

The drawee must be named in the bill of exchange (cheques).11

5. The Foreign Exchange Act 2004.

The Exchange Control Act was repealed by the Foreign Exchange Act 2004. The Act consolidate
the law relating to foreign exchange in Uganda, provide for exchange of foreign currencies in
Uganda and the making of international payments and transfers of foreign exchange and other
related incidental matter.12

8
The long Title of the Financial Institutions Act, 2016 as amended.
9
The Bill of Exchange Act Cap.
10
G.P Tumwine Mukubwa- Essay on African Law of Banking Page 12
11
Section 5 (1) of Bill of Exchange Act, that the drawee must be named with reasonable certainty.
12
The Foreign Exchange Act 2004.
Section 3 defines foreign exchange business as, the business of buying, selling and borrowing or
lending of foreign currency. In the Supreme Court case of Active Automobile Spare Ltd v Crane
Bank Ltd & Anor Civil Appeal No. 21 of 2001. In finding whether the Crane Bank Ltd was allowed
to deal in the foreign exchange business, Hon. Justice Odoki defined foreign exchange as stated
hereof above.13

Section 4(1) places the Central Bank as the over seer and regulator of the foreign exchange
businesses in Uganda. And section 4(4) strategically lays such power for implementation of the Act
in the hands of the Governor Bank of Uganda.

For example; the Central Bank at may ask any person carrying the business of foreign exchange to
produce all the necessary and detail information about their foreign exchange transactions in
Uganda. The Governor may also issue guidelines, manuals and particulars purposed to implement
the Act.

Section 5.14 For any person carrying out a foreign exchange business in Uganda must obtain a
license under the act, except where the other laws permit the business. And Bank of Uganda may
also issue such license.

Section 9 of the Act, is to the effect that no person shall carry on the business of foreign exchange
where, permission by the Central Bank has not been granted, or where the Bank of Uganda has not
authorized such person.

In the Court of Appeal Case of Lanex Forex Bureau v Damus Mulangwe Civil Appeal No. 190 of
2016. The Lanex Forex Bureau was accordingly prohibited from accepting deposits and carrying
out foreign exchange business, yet it received deposits from the respondent (Damus), the Justice of
Court of Appeal, Hon Justice Christopher Madrama found that it was illegal, and the Forex license
was liable for revocation and that the appellant was accountable to Bank of Uganda. 15

The significant part of the judgement which run consistent from the high court to the court of appeal
was that, the Forex Bureau was not authorized to carry on the financial institutions businesses for
example accepting deposits, and dealing in foreign exchange, it was only to deal exclusively in
sport transactions. It is clear from this case that where one is not permitted to carry on the foreign
exchange business, they must not act to the contrary otherwise the repercussion begets them.16

6. Tier 4 Microfinance Institutions and Money Lender Act of 2016.

13
Active Automobile Spare Ltd v Crane Bank Ltd & Anor Civil Appeal No. 21 of 2001
14
Section 5 of Foreign Exchange Act 2004.
15
Lanex Forex Bureau v Damus Mulangwe Civil Appeal No. 190 of 2016.
16
Ibid Lanex Forex Bureau case.
Section 6 of the Act establishes by the Microfinance Regulatory Authority, which is an autonomous
body, a body corporate with perpetual succession and common seal to discharge its functions.

Section 8 is to the effect of the role Microfinance Regulatory Authority, most important of all is
categorically stated under section 8(1) where it confers the power over the regulation of the Tier IV
institutions in to the hands of the body.

The long title provides clearly the aim and objective of the Act as to; provide management and
licensing of the Tier IV institutions, to provides management and control of money lending
business, to provide SAACO Stabilization Found, to establish a SAACO Saving Protection Scheme,
to provide for licensing of the money lenders inter-alia all provided in the long titles of the Act. 17

Section 3 provides for the purpose of the Act as;

 Facilitating the microfinance industry to promote social and economic development.

 Promoting legitimacy and building the confidence of the members, customers and investor
in the microfinance business.
 Establishing prudential standards for microfinance institutions in order to safeguard the
deposits of the members, prevent financial system inability of funds of depositors and ensure
the stability of the financial system, inter-alia.

Section 4 provides for the classifications of the microfinance institutions; these are hereunder;

 SACCOs,
 Non- Deposit Taking Microfinance Institutions;
 The Self Help Group;
 The Community Based Microfinance Institutions.

Part III section 36 (1) of the Act, only allows SACCOs to carry on the business of financial services
only when it is registered as society or corporative Society, or licensed under the Act.

Section 36 (2) allows it to provides financial services to only its members.

Part IV section 62 provides for “Non-Deposit Microfinance Institutions. Section 62 to section are all
to the effect that it must be licensed, and license may be revoked where certain conditions provided
by the law is not followed. And that license may as well be renewed.

7. The Anti-Money Laundering Act 12 of 2013.

17
Tier 4 Microfinance Institutions and Money Lender Act of 2016.
Part VI section 18 establishes the Finance Intelligence Authority, the body is independent and not
subject to any question or authority, it is to work on the money laundering in Uganda according to
the law.

The Act provide for the prohibition and prevention of money laundering, the establishment of a
Financial Intelligent Authority to combat money laundering activities, to impose certain duties on
institutions, businesses, professions and persons from using money laundering to perpetuate crimes
among others.18

Section 3 prohibits money laundering wherein, it prohibit any person who intentionally;

Coverts, transfer, transport or transmit property, knowing or suspecting that such property to be
proceeds of crime, for the purpose of concealing the property or the person who is involved in the
crime to evade the legal consequence of the crime or actions.

Conceal the establishment of the true nature, source, location, disposition, movement or ownership
of or rights with respect to property, knowing or suspecting that such property to be the proceeds of
crime;

Or acquire, posses, use or administer property, knowing, at the time of receipt, that the property is
the proceeds of crime, inter-alia. See section 3 of the Act.

Section 3 read closely with section 5 of Anti-Money Laundering Act, criminalize money laundering
activities. This preposition was confirm in the locus classicus case in Uganda’s jurisdiction,
Serwamba Case, in the case, Serwamba and other conspirators, using fake withdrawal slips,
withdrew money from accounts of two southern Sudanese nationals who were Equity Bank Ltd
customers. They were arrested, prosecuted and punished for the act, sentenced to 12 years
imprisonment, plus compensations and damages to the complainant, the Bank.

Section 2 which lays of Amendment Act of 2017, lays down the measures for prevention of money
laundering, section 8 calls for recording and reporting money laundering transactions, section 5 of
Amendment 2017 reporting of suspicious transactions.19

Issue Two: What are the institutional framework of the commercial banking business in
Uganda?

18
The Anti-Money Laundering Act 12 of 2013.
19
Ant-Money Laundering Amendment Act of 2017
Truly there are a number of institutions, which are legally established under certain laws, conferred
upon them powers and authority under those particular and specific law, to control and manage the
commercial banking businesses in Uganda.

They include; the Bank of Uganda, the Uganda Microfinance Regulatory Authority (UMRA), the
Finance Intelligence Authority (FIA), Uganda Deposit Protection Fund (UDPF), and the Uganda
Bankers Association.

The Bank of Uganda as the top most institution regulates the following institutions;

TIER I Institutions

Tier I which may also be called, “the Commercial Banks”, is defined under section 2 of the
Financial Institutions Act, 2004 as company licensed to carryon financial institution business in
Uganda, and the principle business includes;

Acceptance of calls, demand, savings and time deposit withdrawable by cheques in the capacity of a
bank. It also provides overdrafts and short to medium term loans, foreign exchange, participation in
inter-bank clearing systems, and assumption of guarantees, bonds and other warranties on behalf of
others.20

Example of Banks under Tier I includes but not limited to; DFCU Bank, Centenary Bank, Equity
Bank, Tropical Bank, Stanbic Bank, and Standard Chartered Bank.

Tier II Institutions.

Tier II Institutions may also be called as the “Credit Institutions” the credit institutions are also
described as non-bank. They engage in calls and acceptance of call and time deposits and such
deposits are at the risk of such person accepting it.

The banks which are regulated under the Tier II institutions includes; Post Bank Uganda,
Opportunity Uganda Limited, Brac Uganda Bank Limited, Yako Bank Uganda Limited and
Mercantile Credit Limited.

Tier III Institutions.

Tier III is also called “the Micro-Finance Deposit Taking Institutions (MDIs)”. This is defined as
“a company licensed to carry on, conduct, engage in or transact in microfinance business in Uganda.
The Microfinance Deposit Taking Institutions are allowed to take deposits from the public, have
provision of short term loan.
20
Section 2 of the Financial Institutions Act, 2004.
The institutions are not allowed to issue out cheques or bill of exchange. They cannot as well trade
in foreign currency.

In the Supreme Court case of Crane Bank (in Receivership) v Sudhir Ruparelia & Meera Investment
Limited Civil Appeal No. 7 of 2022, the greatest question herein in this case was whether the Crane
Bank Limited was under the control of Bank of Uganda (receivership).

Hon Justice, her Lordship Prof. Lillian Tibatemwa categorically quoted section 95 (1) of the
Financial Institutions Act of 2004, whereupon, the learned Justice stated that the central bank only
has 12 months from the date of taking over the control of any bank, although the Justice the central
bank statutory controlling power had elapsed, and the supervisory role ended and the management
of the bank reverted to the shareholders.21

Interestingly, the Hon Justice did not forget to state effect of receivership; that Bank of Uganda
placing Crane Bank under receivership and closing it meant, the company ceased to operate as a
financial institution, and it lost it license. This clearly points to the general power of the central
Bank over other banks in Uganda.

The second institution. The Uganda Microfinance Regulatory Authority.

Anyone must better understand that the Bank of Uganda has control over all the Tier I, Tier II, Tier
III, except Tier IV, also well-known as the Non Deposit Taking Institutions that fall squarely within
the confine of “the Uganda Microfinance Regulatory Authority”.

The law that places the Tier IV institutions in to the hands of Uganda Microfinance Regulatory
Authority”, is Tier IV Microfinance and Money Lenders Act 2016.

Section 6 of the Act establishes by the Microfinance Regulatory Authority, which is an autonomous
body, a body corporate with perpetual succession and common seal to discharge its functions.

Section 8 is to the effect of the role Microfinance Regulatory Authority, most important of all is
categorically stated under section 8(1) where it confers the power over the regulation of the Tier IV
institutions in to the hands of the body.

The body hereof above is a government Regulatory agency established by the Tier IV Microfinance
and Money Lenders Act 2016. Meanwhile, the Bank of Uganda has control over the Tier I, Tier II
and Tier III Institutions. It has completely no control over Tier IV Institutions.

21
Crane Bank (in Receivership) v Sudhir Ruparelia & Meera Investment Limited Civil Appeal No. 7 of 2022
The non-banking financial institutions sector in Uganda are; the Tier IV Microfinance Institutions
and Money Lenders. Tier IV Microfinance Institutions comprise of;

 Non Deposit Taking Microfinance Institutions,

 The Savings and Credit Cooperative Associations,
 The Self-Help Groups and Commodity Based Microfinance Institutions.

Money Lender.

A money lender is defined as a company licensed to carry out money lending business. The money
lending is one of the facets of the financial services sector in Uganda.

A money lender is defined as a company licensed to carry out money lending business. The money
lending business is one of the facets of the financial services sector in Uganda. The money lenders
are regulated and licensed as a company by the Uganda Microfinance Regulatory Authority.

The third institution: The Finance Intelligence Authority.

The Anti-Money Laundering Act 12 of 2013, Part VI section 18 establishes the Finance Intelligence
Authority, the body is independent and not subject to any question or authority, it is to work on the
money laundering in Uganda according to the law.

The institution is responsible for combating and prohibiting of money laundering activities in
Uganda, it is has the power to impose certain duties on institutions, businesses, professions and
persons from using money laundering to perpetuate crimes among others.22

Section 3 read closely with section 5 of Anti-Money Laundering Act, criminalize money laundering
activities. This preposition was confirm in the locus classicus case in Uganda’s jurisdiction,
Serwamba Case, ”Serwamba David Musoke & 7 others v Uganda Criminal case No. 0024 of 2015,
in the case, Serwamba and other conspirators, using fake withdrawal slips, withdrew money from
accounts of two southern Sudanese nationals who were Equity Bank Ltd customers. They were
arrested, prosecuted and punished for the act, sentenced to 12 years imprisonment, plus
compensations and damages to the complainant, the Bank.23

In the case of Smart Protus Magara & 138 Ors v Financial Intelligence Authority Miscellaneous
Cause No. 215 of 2018 in this case, the Financial Intelligence Authority had halted, frozen, seized,
confiscated, compulsorily taken over the applicants accounts with Bank of Africa, Equity Bank,
Diamond Trust Bank, Stanbic Bank in a bid to pave way for investigation into a suspected money

22
The Anti-Money Laundering Act 12 of 2013.
23
Serwamba David Musoke & 7 others v Uganda Criminal case No. 0024 of 2015
laundering, the applicants applied for judicial review and wanted such decision to be declared
illegal, quashed.

Hon Justice Ssekaana Musa relying on the different reports about the applicants, found that there
were reasonable ground to suspect a transaction or attempted transaction by applicants involved
proceeds of crime. He also stated that nature of the work and mandate of Finance Intelligence
Authority is to detect financial crimes including money laundering and financing of terrorism,
requires swift and expeditious detection of crimes which may affect the public at large. 24

In the circumstance of the case, Hon Justice Ssekaana Musa, stated that it may not be possible to
offer a hearing at such early stage. His reasoning was on point, that the purpose of freezing the
accounts was to enable investigation in the suspected activities of the applicant, and that the
freezing of the accounts had to be done with promptitude in order to stop any possibility of
transferring the money on the account to defeat the intended purpose.

Issue Three: What are the pre-requisites for undertaking commercial banking business in
Uganda?

1. Setting up a company.

One must open up or start up a company. It is a pre-requisite, for one to carry on a banking
business, he or she (they) must first set up a company, fully incorporated under the law. See section
4(1) (2) of FIA. The company must by following all the pre-requisites be licensed under the
company law (Company Act).

As the company is being incorporated, one must making the commercial banking business,
exclusively dealing in banking business.

2. The Approval of Corporate Governance, Directors.

Corporate governance is the manner in which the business and operation of a firm is govern by its
board of directors and the senior management.25

According to Prof. Emmanuel Tumusiime Mutebile the Governor Bank of Uganda at Uganda
to Bankers Association (UBA), Friday-09th- November- 2018. Stakeholder impact is critical for
the long-term survival of supervised Financial Institutions (SFIs). Supervised Financial Institutions
ought to proactively assess the power and influence of each of their stakeholder as well as

24
Smart Protus Magara & 138 Ors v Financial Intelligence Authority Miscellaneous Cause No. 215 of 2018
25
Prof. Emmanuel Tumusiime Mutebile the Governor Bank of Uganda at Uganda to KCB Bank, Board of Directors
Retreat, Kampala, 2nd- November-2012
legitimacy of the stakeholder claims on the financial institutions and design effective strategies to
respond to each of the stakeholder claims. Specifically, the power and influence exhibited by the
general public and depositors places them as key players in the management of the Financial
Institutions Liquidity.26

Section 3 of The Financial Institutions (Corporate Governance) Regulations, 2005 defines

“Corporate governance” means the process and structure used to direct and manage the business and
affairs of the financial institution with the objective of ensuring its safety and soundness and
enhancing shareholder value and shall cover the overall environment in which the financial
institution operates comprising a system of checks and balances which promotes a healthy
balancing of risk and return.27

Approval of the Board of Directors.

Before the appointment of any director or any person in the senior management of a Ugandan Bank,
the approval of Bank of Uganda must be obtained, it’s a mandatory for prospective directors are not
permitted to carry on their distinctive obligations before the know of Bank of Uganda. The senior
management is composed of the executive officers and the heads of the different departments in
banks.

Section 52(4) of the Financial Institutions Act;

“No person who is not a fit and proper person in accordance with the fit and proper test specified in
the Third Schedule shall become or remain a director of a financial institution, and for the purposes
of this section, the Central Bank shall vet all persons proposed as directors of a financial institution
within six months and notify the financial institution accordingly”

Premised from the passage hereof above, the list of proposed persons is to be submitted to Bank of
Uganda. It is then the Central Bank or the Bank of Uganda which will, in its capacity as the father
of all banks, vet, appoint and approve, those it finds have met the standards set therein.

In the case of Kizito v FINCA Labour Dispute No. 57 of 2017. In this case the claimant Kizito was
appointed as a new executive director of FINCA (MDIs), in his appointment, the letter stated that it
was subject to approval of the Bank of Uganda.

Section 22 of the Microfinance Deposit Taking Institutions Act 2003,

26
Prof. Emmanuel Tumusiime Mutebile the Governor Bank of Uganda at Uganda Bankers Association (UBA), Friday-
09th- November- 2018
27
The Financial Institutions (Corporate Governance) Regulations, 2005.
“No person shall become a director of an institution without the approval of the Central Bank and
the Central Bank shall have due regard to the fit and proper person criteria prescribed in the
second schedule to this Act.28”

Therefore it was asserted that the claimant’s appointment letter that the effect to his appointment
was subject to his successful fit and proper vetting by Bank of Uganda, and indeed the claimant’s
appointment was approved by the central bank.

The letter of removal from Bank of Uganda, stated that on onsite inspection, the Bank found that
Kizito was in conflict of interest of receiving preferential interest rates on his fixed deposits account
with the Respondent (FINCA), and the claimant’s claim of the respondent’s failure to follow due
process was dropped, as the respondent was left with no option after he was removed by the central
bank, the only option it was left with was the discharge of the claimant through a discharge letter,
there was need to have a hearing, the decision of the Central Bank prevailed.29

The case above exhibited the authority which the central bank have over the approval of the
members of board of directors. Without approval of bank of Uganda, no financial institution shall
obligate and allocate duties to such directors, otherwise everything done without strict adherence to
central Bank’s voice of approval shall be inconsistent, and such a member in the circle of
inconsistence shall be removed by Bank of Uganda.

Section 52 of the Financial Institutions Act, read together with Financial Institutions (Corporate
Governance) Regulation 6 (7) (a) mandates the financial institutions to have board of directors of
not less than 5 directors, headed by a Chairperson who is to be a non-executive director

Section 52(3). Not more than 50% of directors should be the employees of the institution.
According to section 52(4). The directors of the Financial Institutions (Commercial Bank) must be
competent enough See section

According to section 52 (3), (4), and Second Schedule of Financial Institutions Act. 30 First, the
minimum numbers of the Board of directors a financial institution or bank can constitute, is and not
more 50% of the directors are to be employees of the same Bank (Financial Institution),

Secondly; they must be fit for the position. Section 52 (3) and the Third Schedule, provide criteria
of determining the fitness of a person who may be a shareholder or director of the bank or financial
institution, these inter-alia includes;

28
Microfinance Deposit Taking Institutions Act 2003
29
Kizito v FINCA Labour Dispute No. 57 of 2017.
30
section 52 (3), (4), and Second Schedule of Financial Institutions Act.
  The general probity (strong moral principle, honesty and decency),
 Competence and the soundness of his or judgement,
 Diligence
 Must be concerned with the interest of depositors, and must not threaten the same.
 Any other additional information to determine the professional and moral suitability of that
person.

The directors must have clean records so that they may not be tracked under second schedule,
section 2, fraudulent practice inter-alia.31

3. The approval of Capital requirement as another requirement.

Section 26 provides for the planning to have a bank, is required to have a minimum capital
requirement of not less than two hundred thousand currency points.

By virtue of section 26(5) the capital requirement keeps on changing, as the Minister responsible on
advice of the central bank revise it from time to time. By Financial Institutions (Revision of Capital
Requirement) Instrument 2022, No. 130, the capital minimum requirements by then was 120 billion
as of 31st December-2023, but of now is 150 billion by 30th June 2024.

This requirement is intended to ensure that financial institutions maintain adequate high-quality
capital to safeguard the interest of the depositors, shareholders and other stakeholders. It is a
proactive stance which helps to shield the regulator from the potential need for substantial bailouts
in the event of institutional failures. Banks are required to meet the capital criteria as mandated by
the Bank of Uganda and other banking authorities. The requirement also aim at ensuring that banks
maintain adequate capital reserves relative to their risk exposure, enabling them to withstand
economic downturns.

Failure to meet the capital requirement at the beginning before the operation of a bank, or even
going down below the capital requirement during the time of legal operations, will to the closure of
the bank if such banks were already in operation or placed under receivership or to the new bank
which yet to open, to kick-start operation, shall not be granted a license to operate where the capital
requirement is not adhered to.

For example, on August 27, 2024, Bank of Uganda made a notice of closure of two banks that is,
Mercantile Credit Bank Limited and the EFC Uganda Limited. The central bank was informing all

31
Third Schedule of the Financial Institutions Act, 2004, section 2
the depositors or customers of those banks that they have gone below the capital requirement, and
therefore, provided under section 99 of the Financial Institutions Act.32

4. The requirement of the shareholders and their shares

Hon Justice Stephen Mubiru defined shareholders as “those persons who have shares in a company
in their names or someone holding it on their behalf (nominee shareholder), where such persons are
able to dispose of shares, draw dividends on them, exercise voting rights and other benefits
associated with the ownership of the shares. 33 See the case of Chen Jianwen v Bang Cheng
Investment Co Limited Miscellaneous Application No. 0530 of 2023.

Shareholders must be fit and proper.

According to section 19(1). Shareholders must past the test called “fit and proper person test under
the Third Schedule of Financial Institutions Act. This means it not a mere name, “shareholder” one
must legally qualify for the position

Third Schedule, provide criteria of determining the fitness of a person who may be a shareholder or
director of the bank or financial institution, these inter-alia includes;

 The general probity (strong moral principle, honesty and decency),

 Competence and the soundness of his or judgement,
 Diligence
 Must be concerned with the interest of depositors, and must not threaten the same.
 Any other additional information to determine the professional and moral suitability of that
person.

The shareholders must have clean records so that they may not be tracked under second schedule,
section 2, fraudulent practice inter-alia.34

Substantial shareholders and notification of Bank of Uganda for 5% share or more.

Section 19 (4). In opening up a bank as a company, should there arise which will always be, the
approval by the central bank is substantial. And the central bank to grant such power to have 5%
shares or more, it would consider conditions or factors hereunder;

 That Bank of Uganda has given such persons written notice of no objection,
 That person has met fit and proper person test,

32
Section 99 of Financial Institutions Act, 2004.
33
Chen Jianwen v Bang Cheng Investment Co Limited Miscellaneous Application No. 0530 of 2023.
34
Third Schedule of the Financial Institutions Act, 2004, section 2
  The interests of depositors are not threatened.

Registration and register of shares and shareholders.

Section 23(1) provides for shareholder register and disclosure of interest in the banking institution
or financial institutions. There is need for the financial institution or the bank which is to be opened
or already in operation to furnish; current register of the shareholder in the prescribed form given by
the Bank of Uganda. In brief there would be a requirement to present for an “Information sheet for
substantial shareholders”.

The 49% rule of shareholding.

Part III section 18 of the Financial Institutions Act provides for shareholding in financial institutions
and its prohibitions. Particularly under section 18(1),

No individual or body corporate owned by one person shall own or acquire more than 49% shares
of a financial institution. Where bank has approved the fitness of the shareholders, attention must be
paid to the distribution of shares. One cannot own more than 49% shares of a commercial bank or
financial institution. The materiality of this element is check and balance the influence of every
individual shareholder, to ensure that a company is not being placed under the control of one
individual or a body corporate.

Summarily; shareholders must past the test of fit and proper person test, shares must be registered
according to the Financial Institutions Act.

5. Obtaining license for the operation of the bank.

Now that the company has been formed having; the corporate governance; its management set and
approved, approved board of directors and shareholders, capital requirement has been met.

Section 4(2). Where the company issue is solved, in it there should be banking as one of its
activities. Section 7(1). There is need for an application to acquire license for banking activities.
And the word “BANK”, specifying itself as a commercial bank.

And accordingly; See section 7(3). The word “BANK” must be included in the name of Business, in
any case, the company shall be debar from carrying out business as commercial bank. It is a prudent
practice that all the activities that the Bank would intend to be involved be expressly stated under
the application for license. See section 4 (3) (a).
Section 4(11). A Bank must get license otherwise, there is penalty for failure which could be an
offence and where one is convicted of the offence, he or she mandatorily disqualified from
acquiring license again.

Once the application is finally prepared, be submitted to the Central Bank. See section 10(1),
wherein the application must contain the following;

 The name and address of the proposed financial institution, the directors, and the
shareholders.
 The nationality of the directors, the nationality and shareholding of each of the shareholder.
 The proposed location and where the financial institution is going to operate from.
 The estimated number of people to be employed.
 The qualifications, experience, nationality and other relevant particulars of the proposed
management and staff.
 The capital structure and the prospect of the financial institution.
 The applicant’s business, financial plans and earnings forecast, balance sheet, income
statement and cash flow, for at least three years and sufficient detail to describe the
operating plan, demand from financial products and services and existing competition in the
proposed market.
 Summary of the applicant’s board risk management policies and management operating
procedures and system that will ensure integrity of its control,
 Any other information relating to the viability of the financial institution or other matters as
the applicant considers relevant to its application.
 Paying the license fee.

Section 13 of the Financial Institutions Act provides for the payment of the application fee to the
central bank. And section provides for how long the license may remain in operation, and it is clear
that for as long as it is not revoked, it shall remain in force.

Where the license has been granted, under section 14(2), the license is to be kept in the place where
the banking business will operate including the branches, the original at the main branch and the
copies at the branches.

Once the license has been granted, therein, it is a must for such financial institutions to kick-start its
operation. Section 16 provides that the financial institution which fails to commence operation
within 12 months from the date the license has been issued, the license shall be revoked.
Generally; the information given above, may have not captured all the necessary statutes as on the
presentation of the legal and Institutional framework but at least the major statutes have been
touched, most importantly the Financial Institutions Act of 2004 and 2016 as amended is critical in
this discussion. The requirements for setting up the banking business in Uganda are all set in the
financial Institutions Act. The work is dependable but not exclusively, it must be inclusively
depended on as other relevant laws and regulations may be called to satisfy certain idea already
highlighted.

I hereby end,

Accordingly advice,

Oola Daniel Comboni,

TMBEI Advocates.

Sign ………………………………………Date………………2024.

Checklist for the establishment of the commercial banks from inception to when a license is
granted for operation.

Requirements The law Applicable Comment

A company to be set up. Section 4 of Financial A commercial bank cannot

Institutions Act 2004. Start without setting up a
Company.
The Company Act.

Corporate Governance. Section 52, 53, 54, 55, 56, 56 Corporate Governance is the
 Of Financial Institutions Act Senior management of a
2004. Company consist of directors.

The minimum number of the

Directors must be 5.

Chairperson must be non-

Executive director.

Only 50% out of the directors

Should be employed in same
Company.

Approval of the directors by Section 52 (3) and (4) of the Directors must pass the fit
Bank of Uganda. The Financial Institutions And proper person test under
Act 2004.
Directors shall not carry on
Third Schedule of the Directors’ obligations without
Financial Institutions Act Approval of Bank of Uganda.
2004

The capital Requirement. Section 26 of the Financial It’s called minimum paid up
Institutions Act, 2004 Capital.

It is regulated by Bank of
Uganda.

It keeps changing if the

Central Bank makes it so.

The current one is 150 billion

Obtaining License Section 4, 10, 11, 12, 13, 14, Licensing is a must.
16 of Financial Institutions No operation of any company
Act Without first getting license

Registration of a company Form.

Act 1 Companies Act 2012

SECOND SCHEDULE
Passport size

Photo FORM FOR REGISTRATION S.18

OF A COMPANY
Name of the Company …………………………………………………………………………….

Name of Subscribers 1……………………………………………………………………………

2. ……………………………………………………………………………

3. ……………………………………………………………………………

Address: …………………………………………………………………………………
Nature of Business………………………………………………………………………
Place of Business: ………………………………………………………………………..
Proposed Share Capital: ………………………………………………………………….
Signature of Subscribers
1. ……………………………………………………………………
2. ……………………………………………………………………
3. ……………………………………………………………………
An application form for license.

THE REPUBLIC OF UGANDA

THE COMPANIES ACT CAP 106 AS AMENDED.

MEMORANDUM AND ARTICLES OF ASSOCIATION OF A COMPANY

LIMITED BY SHARES

MEMORANDUM OF ASSOCIATION OF…………………………………….LIMITED

1. The name of the company is“……………………………………………………………..”

2. The registered office of the company will be situated in Uganda.

3. The objects for which the company is established are …………………………...……….….

…………………………………………………………………………………………………………
………………………………, and of the doing all such other things as are incidental or conducive
to the attainment of those objects.

4. The liability of the members is limited.

5. The share capital of the company is ………………………….. (Insert the amount of share
capital) divided into…………………….shares of …………………………shillings each.

WE, the several persons whose names and addresses are subscribed, desire to be formed into a
company, under this memorandum of association and we respectively agree to take the number of
shares in the capital of the company set opposite our respective names.

Names,

Postal addresses and occupations of subscribers

Number of shares taken by each subscriber

Signature subscribers of

1.

2.

3.

4.

5.
Total shares taken

Dated ……………… day of: …......... 20………..…...

Witness to the above signatures ………………………………………….

ARTICLES OF ASSOCIATION………………………………………………...LIMITED.

•Adopt table A Part II of Companies Act cap 106.

•Adopt table A Part II of Companies Act cap 106 with modification (Attach the modification1)

WE, the several persons whose names and addresses are subscribed, desire to be formed into a
company, under this Articles of association.

Names.

Postal addresses and occupations of subscribers

Signature of subscribers

Dated ……………… day of: …...…………20…………

Witness to the above signatures ……………………………………………………………….

APPLICATION FOR A LICENCE TO ESTABLISH A FINANCIAL INSTITUTION

(To be submitted in duplicate)

The Governor,

Bank of Uganda

P.O Box 7120, KAMPALA

1. I, the undersigned, acting as principal/promoter/in the capacity of duly authorized agent on behalf
of ………………………………, a Company incorporated under the Companies Act, CAP. 110
Laws of Uganda ("the principal"), hereby apply for a license in terms of section 10 of the Financial
Institutions Act, 2004 to establish a financial institution to carry on the business(es) specified in
class(es)**………………..pursuant to section 10(3) and the Second Schedule to the Financial
Institutions Act, 2004.

2. I submit the documentation specified in section 10 of the Act and regulation 12 of the Financial
Institutions (Licensing) Regulations, 2005.

Date…………………………………………………………………..

Applicant’s current Applicant’s Principal;

Address………………………………………… Address:
………………………………………………

Telephone……………………………………… Telephone:
……………………………………………

Certification and Undertaking.

I, the undersigned: …………………………..hereby certify that all information contained in and

accompanying this application is complete and accurate to the best of my knowledge and belief.

I undertake to forthwith notify the Bank of Uganda, of any material change in the particulars of this
application.

Sworn at …………….. This …......day of …………………200…………………

………………………………………………
…………………………………………………

Signature of deponent Principal/ promoter/ Agent.

Deponent understands the contents of this application.

Before me

…………………………………………………………………………………………………………

COMMISSIONER FOR OATH.

BIBIOGRAPHY

Statutes, case law and reference legal text book.

REFERENCE

REFERENCES

Statutes

1. The constitution of the republic of Uganda1995 as amended.

2. The Finance Institutions Act, 2016 as amended.
3. The Bill of Exchange Act Cap.
4. The Foreign Exchange Act 2004.
5. The Financial Institutions Act, 2004.
6. The Financial Institutions (Corporate Governance) Regulations, 2005.
7. The Anti-Money Laundering Act 12 of 2013.
8. Ant-Money Laundering Amendment Act of 2017.
9. Microfinance Deposit Taking Institutions Act 2003

Case Law.

1. Smart Protus Magara & 138 Ors v Financial Intelligence Authority Miscellaneous Cause
No. 215 of 2018.
2. Crane Bank (in Receivership) v Sudhir Ruparelia & Meera Investment Limited Civil Appeal
No. 7 of 2022.
3. Chen Jianwen v Bang Cheng Investment Co Limited Miscellaneous Application No. 0530 of
2023.
4. Active Automobile Spare Ltd v Crane Bank Ltd & Anor Civil Appeal No. 21 of 2001.
5. Uganda Law Society v the Attorney General Constitutional Petition No. 2 and No. 8.
6. Serwamba David Musoke & 7 others v Uganda Criminal case No. 0024 of 2015.
 7. Lanex Forex Bureau v Damus Mulangwe Civil Appeal No. 190 of 2016.
8. United Dominions Trust Limited v Kirkwood (1966) 2 QB. 431.
9. Kizito v FINCA Labour Dispute No. 57 of 2017.

Text Books.

G.P Tumwine Mukubwa- Essay on African Law of Banking.