Regulatory Framework for Managing AI in Uganda’s Financial Sector?
AI – a stay-in visitor to the sector. Artificial Intelligence (AI) is revolutionizing Uganda’s financial sector, enabling efficient fraud detection, personalized lending, and customer service automation. And it is not a visitor planning to leave. Some Tier I financial institutions are already deploying AI for credit scoring and underwriting. However, for newcomers to this technology, managing risks like bias, privacy violations, possibles flaws in the algorithm within the AI tool, and cybersecurity threats is crucial to ensure ethical adoption and regulatory compliance.
But are we ready? As yet, Uganda lacks a comprehensive AI-specific law, although existing frameworks provide foundational guidance. The Data Protection and Privacy Act (2019) mandates consent, transparency, and rights against harmful automated decisions, directly applicable to AI-driven financial processes. The National Payment Systems Act (2020) allows regulatory sandboxes by the Bank of Uganda (BoU) for testing AI innovations safely. In 2025, a SupTech initiative was started to modernize supervision using AI. A full regulatory framework, emphasizing human rights and risk-based oversight, is expected by year-end, aligning with international models like the EU AI Act. Maybe this will bring Uganda closer to regulating AI in the financial sector.
Opportunities and risks. The opportunities are countless – more efficiency, effectiveness, volume processing, less human error and clerical mistakes. Key risks of AI in banking include algorithmic bias in credit assessments and other operational functions, possible increase in exclusion, privacy breaches from data-heavy AI, ineffective automation frustrating customers, and cyber vulnerabilities exposing sensitive financial data. To mitigate these, institutions should adopt ethical principles, ensure transparency in AI decisions, use diverse datasets to reduce bias, and maintain human oversight for high-stakes outcomes like loan approvals.
Need for AI governance. Best management practices involve developing internal AI governance, including cybersecurity protocols and staff training on ethical use. Leverage BoU sandboxes for pilots, comply with UMRA’s (now DMR) 2024 Digital Lending Guidelines for AI-enhanced products, and participate in multi-stakeholder platforms for best practices sharing. Build awareness programs to educate users and staff, fostering trust.
By proactively integrating these strategies, Ugandan financial institutions can harness AI’s potential while minimizing risks, paving the way for inclusive growth amid global emergence.
Dr. Keren Obara.
Digital Marketing Associate.