Central Bank warns payment service providers against dealing with unlicensed digital lenders

KAMPALA, UGANDA – In a move aimed at protecting consumers and maintaining the stability of the financial system, the Bank of Uganda has issued a directive to Payment Service Providers (PSPs) and Payment System Operators (PSOs) to conduct thorough due diligence on digital lenders before engaging in business relationships.

The central bank’s move comes amid concerns that some PSPs and PSOs have been partnering with unlicensed digital lenders, who have been accused of predatory lending practices, unethical collection practices, and harassment of borrowers.

According to the Bank of Uganda, credit products can only be offered in partnership with licensed lenders, with the approval of the central bank. The directive reminds PSPs and PSOs of their obligations under the National Payment Systems Act, 2020, and the Anti-Money Laundering Act, 2013 (as amended).

The Bank of Uganda has directed PSPs and PSOs to verify the licenses of digital lenders and obtain confirmations from the Uganda Microfinance Regulatory Authority (UMRA) before engaging in business relationships. Failure to comply with this directive will result in administrative measures being taken against the institution.

This move is seen as a significant step in the Bank of Uganda’s efforts to regulate the digital lending space and protect consumers from unscrupulous lenders. The central bank has pledged to continue monitoring the financial system and taking decisive action to prevent illicit activities.

The directive is effective immediately, and PSPs and PSOs are expected to comply promptly. The Bank of Uganda has urged consumers to exercise caution when dealing with digital lenders and to report any suspicious activities to the authorities.