Research Korner: Regulatory framework governing

An analysis of the legal and regulatory framework governing electronic banking in Uganda

Information technology, particularly the internet is becoming an important foundation of the future of financial services industry. Indeed almost all financial services and financial transactions can be done online. The quick development of online financial services is made possible by the internet. Banks all over the world are exploiting the net in order to give better services to their clients. Online banking is the flagship banking development that currently affects how customers and banks do business transactions and will continue to hold a prominent position in the banking sector in the future. Online banking traces its history to 1970s when banks offered PC-based online banking with propriety dial-up services. Banks such as Chemical (through Pronto), Citibank (Direct Access), Chase (Spectrum), Bank One (Applause), and others offered their customers, for a monthly fee, basic home PC banking which included balance lookup, fund transfers, personal budgeting and bill payment (Banks, 2001). Home banking was targeted towards upscale households (Guttman, 2002).  Home PC banking was heavily invested on and marketed by these banks, but it remained unpopular among consumers because of high user fees and burdensome technical platforms. In the mid-1980s software companies such as Meca and Intuit/Quicken introduced third-party packages designed to link customers and banks. This was met with eagerness from local banks which signed up with one of these software companies and allowed customers to use the platform in order to access account information, transfer funds and pay bills. Intuit’s bill paying platform was reasonably successful. Customers could authorize the payment of funds to a given merchant, the Quicken package would receive the customer approval and determine, via the Intuit Services Corporation (ISC), if the merchant was part of the Federal Reserve’s Automated Clearing House (ACH). If it was, ISC would effect an electronic payment through the ACH and, if not, would mail a check to the merchant. In the mid-1990s AOL partnered with Intuit in order to give customers access to Intuit’s home banking services. Though Intuit and others improved the home banking process, the overall market for such services remained very limited until the arrival of the Internet (Banks, 2001).             As of March 2009, the banking sector of Uganda was comprised of twenty-one (21) banks. There were just fifteen (15) banks in 2006, meaning there was an increase of seven banks in three years. Overall, the banking sector has had a rapid growth in the last three years with entry of new banks and considerable expansion of the branch network to 301 branches in 2008.The health of the banking system has continued to improve following the adoption of the risk based supervision regime and improvement of the regulatory environment to align it with international standards. At the aggregate level the balance sheets of commercial bank have shown steady year on year growth.             The Bank of Uganda is responsible for supervising, regulating, controlling and disciplining all financial institutions. The mission of the bank supervision function which is directly responsible for supervising financial institutions, is to formulate and enforce statutory and prudential regulations and guidelines directed at creating a sound, safe and stable financial system/sector in which depositors’ funds are safe and the system contributes to sustainable economic growth.             The financial system in Uganda is small, underdeveloped and dominated by commercial banks. The financial sector is relatively small, with total assets equivalent to 29.5 percent of GDP in June 2002.It is undeveloped, with indicators of financial depth being low both in absolute terms and relative to most African comparators. Reflecting the underdevelopment of the financial system, the banking sector’s equity investments, in and lending to, nonbank financial institutions is negligible. The banking sector is characterized by a large share of foreign ownership and high concentration. Following the privatization of Uganda Commercial Bank Limited (UCBL), four foreign-owned banks dominate the baking sector in Uganda and account for 73 percent of total sector asset, 68 percent of sector loans and 75 percent of deposits.   Research Questions 1. What is the current state of electronic banking in Uganda? 2. What are the laws and regulations concerning electronic banking in Uganda? 3. What are the roles of The Bank of Uganda in the legal and regulatory framework of electronic banking in Uganda? 4. What are the problems concerning electronic banking laws and regulations? 5. How is the Ugandan Government dealing with these problems?   Research Methodology This research will make use of both quantitative and qualitative research methodologies. According to Newman and Benz (1998), a qualitative research involves an interpretative, naturalistic approach of the subject matter. Qualitative research is about studying things in their natural settings. A researcher conducting qualitative research attempts to make sense of, or interpret, phenomena in terms of the meaning people bring to them. Qualitative research involves different methods of gathering and collecting of empirical materials such as case study personal experience, introspective, life story, interview, observational, historical, interactions, and visual texts. This method of data collection is about exploring issues, understanding phenomena and answering questions. The quantitative paradigm is based on positivism which takes scientific explanation to be nomethetic (i.e. based on universal laws). Its main aims are to measure the social world, to test hypotheses and to predict and control human behavior (Newman and Benz 1998). Quantitative research is based on the assumption that the world can be investigated using scientific method and that there is an independent reality. Quantitative research is based on the belief that measurable influences (independent variables) affect measurable outcomes (dependent variables) in a cause-effect manner. Quantitative studies are studies in which the data can be analyzed using conventional statistical methods (Peat 2001). As its name implies, quantitative research is concerned with quantities – how to measure phenomena and how to express those measurement. A researcher who takes a quantitative approach to investigating a topic aims to learn more about it. Taking a quantitative approach to research implies asking questions about the phenomena that can be counted. Researchers who take a quantitative approach often work within positivism, as this paradigm frames the world as a collection of apparently independent phenomena to be counted, measured and otherwise catalogued as the prelude to deducing the rules or laws underlying them and giving them coherence (MacNaughton et al 2001). This is a method of data collection, that usually emphasizes on words rather than numeric in the collection of data and analysis whereby questionnaires, surveys and experiments are carried out (Bryman and Bell, 2003).

An analysis of the legal and regulatory framework governing electronic banking in Uganda

Information technology, particularly the internet is becoming an important foundation of the future of fin...