Uganda’s big bet against cash

A new Bank of Uganda policy seeks to push businesses and individuals towards electronic payments, but the transition will test the country’s digital infrastructure and financial readiness

Kampala, Uganda | JULIUS BUSINGE | Bank of Uganda’s move to cap over-the-counter withdrawals marks a major shift in how businesses and individuals move money, but success will depend on infrastructure, trust and readiness

The country’s decision to impose limits on over-the-counter cash withdrawals from January 1, 2027, is set to become one of the most consequential reforms in the country’s financial system in decades.

BoU says the new policy will accelerate the transition towards a cash-lite economy, improve financial transparency and reduce the security and operational costs associated with handling large volumes of physical currency.

But the move has also triggered debate over whether Uganda’s digital financial infrastructure is sufficiently mature to support a rapid shift away from cash, particularly among businesses, agricultural traders and the informal economy where physical money remains deeply embedded.

Commercial banks have broadly welcomed the directive, viewing it as a natural extension of years of investment in digital banking platforms. Economists agree with the policy’s broader objectives but caution that implementation will determine whether the reforms deliver their intended benefits or create new bottlenecks.

Under the new framework, individuals will be permitted to withdraw a maximum of Shs50 million per day and Shs250 million per week over the counter. Businesses and corporate entities will face limits of Shs500 million daily and Shs2.5 billion weekly.

The restrictions apply only to physical cash withdrawals conducted at banking halls. Electronic transactions, including Real Time Gross Settlement (RTGS), Electronic Funds Transfers (EFT), internet banking, mobile banking and mobile money, will remain unaffected.

The central bank says the measures are aimed at encouraging greater use of digital payment channels while reducing the costs and risks associated with cash transportation, storage and security.

A six-month transition period has been provided to allow banks, businesses and customers to adjust before the new rules take effect.

Digital finance gains momentum

The reforms come as Uganda’s financial sector records steady growth in digital inclusion, although significant gaps remain.

According to the Bank of Uganda’s FinScope Uganda 2023 Survey, overall financial inclusion increased to 81 per cent of adults in 2023 from 77 per cent in 2018, while formal financial inclusion rose from 58 per cent to 68 per cent over the same period.

Mobile money remains the dominant digital finance platform, with 66 per cent of adults using the service. However, adoption of bank-led digital channels remains limited, with only 9 per cent of Ugandans actively using internet or mobile banking compared with 21 per cent who are aware of such services.

That gap highlights the challenge facing commercial banks as the economy moves towards greater digitisation: expanding access is not only a question of technology but also trust, affordability and user behaviour.

Cash remains central to several parts of the economy, particularly agriculture, wholesale trade, construction and Uganda’s large informal sector.

For these businesses, the new limits represent not simply a change in payment methods but a potential restructuring of how transactions, liquidity management and supply chains operate.

Banks see opportunity

Commercial banks argue that the directive validates their long-term investment in digital infrastructure and will accelerate the migration of customers away from physical cash.

Stanbic Bank Uganda says it is prepared for implementation and views the reforms as an opportunity to deepen digital adoption among customers.

“Stanbic Bank is fully aligned with the Bank of Uganda’s national digitisation agenda and is well prepared to implement the new over-the-counter cash withdrawal limits effective January 1, 2027. We have already embedded real-time compliance monitoring into our core banking systems, ensuring a smooth transition for both individual and corporate clients,” Kenneth Agutamba, the bank’s Country Manager for Corporate Communication told The Independent.

The bank expects the policy to reshape how companies manage liquidity, particularly among corporate and small business customers.

“We foresee a positive structural change in how businesses and individuals manage liquidity. Corporate and SME clients, in particular, will increasingly move away from bulky cash transactions towards faster, safer digital alternatives such as RTGS, EFTs and mobile wallet integrations. Over time, this transition will accelerate the digitisation of supply chains, enhance financial inclusion and reduce operational risks associated with cash handling,” he explained.

Stanbic said a significant share of its transaction volumes already flows through self-service channels, including internet banking, mobile banking, FlexiPay, agency banking, self-service ATMs and cash deposit machines.

NCBA Bank Uganda shares a similar view, arguing that the future of banking will increasingly be defined by convenience rather than physical branch networks.

“The future of banking is not about the number of branches a bank has. It is about how easily customers can transact wherever they are. Customers should be able to check balances, pay utility bills, transfer money and access services directly from their phones without coming to the branch,” Muyobo told The Independent.

The bank’s chief executive, Mark Muyobo, said NCBA’s cloud-based platform allows customers to manage their transaction limits directly through its mobile application.

“This solution does not limit customers. You can log into the app and set the transaction limits that suit your needs. If you want a limit of Shs50 million, you can set it yourself and transact accordingly without having to visit the bank.”

Muyobo said the policy reflects a wider global shift away from dependence on physical cash.

“We have to be honest about where the world is going,” he said in an interview, “Holding large amounts of cash offers no real advantage today. In fact, cash has become a liability because it exposes individuals and businesses to unnecessary security risks.”

He added that businesses holding large amounts of physical cash expose themselves to theft and other operational risks.

“If you can access your money instantly through your account and make payments electronically, there is really no reason to continue carrying large amounts of cash.”

Despite the growing importance of digital banking, Muyobo does not expect branches to disappear.

“Digital banking will shape the future, but it will exist alongside physical banking rather than replace it entirely. Customers still derive confidence from seeing the institution behind the technology.”

The emerging model, he said, is likely to be a hybrid system where branches increasingly focus on advisory services and relationship management while routine transactions move online.

Beyond cash

While commercial banks view the reforms primarily through the lens of digital transformation, economists argue that the policy represents a broader shift in how Uganda’s economy records, monitors and conducts high-value transactions.

Emmanuel Erem, a research fellow at the Economic Policy Research Centre (EPRC), says the withdrawal limits could fundamentally alter the way large transactions are executed across the economy.

“Mobile money has already transformed retail payments, but many large businesses still rely heavily on physical cash. By capping corporate withdrawals at Shs500 million a day and individual withdrawals at Shs50 million, the Bank of Uganda is effectively forcing high-value transactions onto digital channels,” Erem told The Independent in an interview.

He expects the policy to accelerate growth in electronic payment systems, including RTGS, EFTs and corporate bank-to-wallet transfers, creating opportunities for both commercial banks and telecommunications companies.

Beyond efficiency, Erem believes the shift could strengthen financial transparency by reducing the anonymity associated with large cash movements.

“Cash is anonymous, but digital money leaves a trail. By forcing large transactions through electronic channels, the policy creates an auditable record that strengthens anti-money laundering efforts and gives the Uganda Revenue Authority greater visibility into actual business transactions.”

He said greater use of digital payments could also improve corporate governance by reducing informal transactions and making financial records easier to verify.

The banking sector could also benefit from lower operational costs.

“Handling physical cash is expensive. Banks spend heavily on cash transportation, insurance, vault management and security. Reducing large over-the-counter withdrawals lowers those costs considerably,” he said.

However, Erem cautioned that the transition will require careful implementation, particularly for sectors where cash remains an important part of daily operations.

Managing the transition

The biggest challenge, according to economists, will be ensuring that the reform does not unintentionally disrupt legitimate businesses that still depend on physical cash.

Erem said the government and the central bank should establish clear criteria for exemptions, particularly for agricultural commodity traders and other cash-intensive sectors.

“The criteria for exceptional withdrawals must be published well before implementation. Businesses need certainty instead of discovering at the last minute that they cannot access the liquidity required to operate.”

He also urged the Bank of Uganda to intensify public communication around the policy, arguing that many ordinary consumers may misunderstand the scope of the restrictions.

“The average Ugandan will rarely be affected by these limits. That message needs to be communicated consistently to avoid unnecessary panic.”

For commercial banks, the transition will place greater emphasis on the reliability and capacity of digital platforms.

Erem warned that a rapid migration from cash to electronic payments could expose weaknesses if systems are unable to handle higher transaction volumes.

“If a company’s chief financial officer cannot authorise a Shs1 billion digital payment because an application has failed, business operations grind to a halt. Reliability will become just as important as regulation.”

Cybersecurity will also become increasingly important as larger transactions move online. Banks, regulators and businesses will need to strengthen safeguards against fraud and digital financial crime as electronic payments become more central to economic activity.

Businesses will also have to rethink their internal payment systems, including digitising supplier payments, strengthening financial controls and encouraging employees, contractors and suppliers to embrace electronic payments.

Lessons from elsewhere

Uganda’s move follows similar efforts by other countries seeking to reduce dependence on cash, although international experience shows that such reforms can carry significant implementation risks.

Erem points to Nigeria’s cash withdrawal restrictions introduced in 2023 as a cautionary example of what can happen when policy moves faster than digital infrastructure.

“The biggest lesson from Nigeria is that digital infrastructure must be ready before cash restrictions take effect. Banking applications crashed, electronic transfers were delayed and payment systems became overwhelmed because millions of people shifted online almost overnight.”

He said Uganda should conduct stress tests of national payment systems before implementation to ensure that banks and payment providers can manage increased demand.

Another area requiring attention is the role of mobile money agents and bank agents, who remain critical points of access to financial services, particularly in rural communities.

“In Nigeria, withdrawal limits severely affected point-of-sale merchants because they could not access sufficient cash to rebalance their operations. While the Bank of Uganda is targeting corporate ‘whales,’ it must create special liquidity corridors or distinct regulatory classifications for mobile money agents and bank agents. Otherwise, the policy could unintentionally constrain the rural and informal economy,” Erem explained.

He also said the new framework should be carefully aligned with existing regulations, including Uganda’s Anti-Money Laundering Act, the Financial Institutions Act, and the Uganda Revenue Authority’s requirements.

A further challenge will be preventing businesses from bypassing the limits by splitting withdrawals across multiple accounts or financial institutions.

“The Bank of Uganda will eventually need to leverage the National Identification Number system and interbank data-sharing mechanisms to monitor cumulative withdrawals across the financial system. Otherwise, the intended impact of the policy could easily be diluted,” he said.