Loan Syndication Is Legal In Uganda, Supreme Court Rules


The Supreme Court of Uganda has on Tuesday, 13th June 2023  ruled that syndicated lending in the banking industry in Uganda is legal, bringing an end to a cloud of uncertainty that has hovered over syndicated loan transactions in the country since three years ago.

According to the top Court, whose decisions on any matters of law are final, syndicated loan transactions are a “global lending phenomenon” where multiple lenders (banking or non-banking institutions) pool money together and lend it to a single borrower.

“This practice usually stems from the need to spread out, and thus reduce, the enormous risk associated with lending large sums of money. Individual countries may enact laws that place limits on the amount of money a bank can lend to a single borrower; thus encouraging syndicated lending.”

Wrote Chief Justice Owiny-Dollo, also head of the Supreme Court, who led the panel of 4 Justices of the Court.
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The question of the legality or otherwise of syndicated loan transactions in Uganda arose out of a dispute between businessman Hamis Kiggundu and his two companies; Ham Enterprises Ltd, and Kiggs International (U) Ltd – on the one hand and their lenders; Diamond Trust Bank (Uganda) and Diamond Trust Bank (Kenya) – on the other hand.

The two sister lenders had jointly lent the businessman and his companies at least $10M.

READ MORE: Why The Decision In Ham’s Case Is Very Important For Every Ugandan


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Diamond Trust Bank (Uganda) according to its lawyers lent out $6M and its Kenyan counterpart $4M in a loan transaction that the businessman through his lawyers cast as illegal for two main reasons;

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One, that Diamond Trust Bank in Kenya’s lending was illegal because the lender does not have a license to operate a banking or financial institution business in Uganda, and two, that Diamond Trust Bank in Uganda, the agent of the Kenyan bank in the transaction, through which the loan was to be disbursed and recovered, committed an illegality by acting as an agent without obtaining approval from the Bank of Uganda (central bank).

The Supreme Court Justices unanimously reversed the ruling of the High Court on the matter which had agreed with Ham and his companies that the lenders had committed the alleged illegalities for it was their responsibility to ensure they have the requisite operating licenses.

The High Court Judgment had sent shockwaves across the banking industry and the legal sector alike for its potentially far-reaching consequences.

With yesterday’s ruling, the Supreme Court cleared the anomaly and sent Hamis Kiggundu and his companies back to the High Court presided over by another Judge “basing only on issues of fact arising from the pleadings ” which precisely means the businessman will have to argue his original factual claims against the lenders – that they had wrongfully siphoned money off his accounts in the guise of recovering the loan in question.

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In coming to its ruling, the Supreme Court made two critical pronouncements; one, that loan syndication is legal – more so in furtherance of international trade, and two, that a foreign bank is not a financial institution under Uganda’s banking laws for the simple reason that it does not take deposits on Uganda’s territory and three, that an “agent” under Uganda’s agent banking laws is a human being doing business on behalf of a bank in Uganda and not a financial institution doing business on behalf of another institution as it was the case between Diamond Trust Bank in Uganda and its counterpart in Kenya.

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