Investors in the foreign exchange business will now be required to have a minimum paid-up share capital of Shs200 million to carry out the business of dealing in money transfers.
This is provided for in the Foreign Exchange (Amendment) Bill, 2023 that was passed by Parliament during plenary on Thursday, 29 June 2023 chaired by Speaker Anita Among.
While considering the Bill, Hon. Muhammad Muwanga Kivumbi (NUP, Butambala County) and also Shadow Minister for Finance, Planning and Economic Development, expressed concern that the proposed share capital amount could limit local investors from partaking in the foreign exchange business.
“Forex bureaus are some of the low-hanging fruits which our people would take interest to invest in. We have to be careful that foreign investors do not out-compete our local investors,” Muwanga Kivumbi said.
The Chairperson of the Committee on Finance, Planning and Economic Development, Hon. Amos Kankunda, said the minimum limit of Shs200 million for money transfers from Uganda to other countries will check the vice of money laundering.
“In our opinion as a committee, this money is not so big given the amount of money used to transact this business. We think that by the time you are at the level of international money transfers, you should have that capacity,” Kankunda said.
Hon. Henry Musasizi, the State Minister for Finance (General Duties), reiterated that the minimum paid-up share capital in the foreign exchange business should cut across all investors because it would be difficult to differentiate local investors in the business from foreign investors.
“These are players in the financial sector space. We have banks and insurance players there, some of which are locally owned and others foreign-owned. Capital is capital to these players,” said Musasizi.
The Bill will also increase the minimum paid-up share capital required to carry out a foreign exchange business from Shs20 million to Shs100 million.
According to the committee, market development, capital position of licenses and ensuring sustainable business are some of the factors that necessitated the increase in the minimum paid-up capital.
The committee observed that as of 30 June 2022, 153 licensees (65.67 per cent) out of 232 licensees held capital and reserves above Shs100 million, whereas 40.77 per cent of the licensees held paid-up capital of more than Shs100 million.
“The data shows that foreign exchange business requires more capital than the current statutory requirement and that the current statutory capital requirement is not commensurate with the practical reality of foreign exchange business,” reads the Committee report.
The committee noted that the sustainability of a business is largely driven by how much paid-up capital or shareholder funds it holds to absorb losses that arise from foreign exchange volatility and operating costs.
“Regarding the impact on potential new entrants, the view is that serious market participants are unlikely to be deterred by the revised requirement since they demonstrate possession of the required capital,” further reads the committee report.
The Bill seeks to amend the Foreign Exchange Act of 2004 to provide for the enactment of the minimum capital requirements to carry on foreign exchange business, the use of technology in operations and the charging of administrative penalties.
It will also provide for the strengthening of the vetting requirements and the harmonisation of the regulatory regime pertaining to foreign exchange bureaus and money remittance companies within the East African Community.