of the banking system ; that is to prevent financial crises. second, financial regulation aims to protect depositors, especially small depositors, whose deposits could be put in jeopardy by reckless or fraudulent management. these objectives underlie the provisions in the financial institutions act, 2004 and the regulations issued by the bou under that act, as well as the provision of deposit insurance. the regulatory stance which the bank of uganda adopts towards mobile banking and other innovations in the financial services sector must be guided by these prudential objectives. our basic approach is to encourage innovation in the provision of financial services provided, and in particular to avoid stifling innovation through unnecessary regulation, provided that such innovation does not pose any conflict with the two key objectives of prudential regulation. how relevant is mobile banking to the prudential objectives which motivate financial regulation? in terms the systemic stability of the financial system, mobile banking does not bis central bankers ’ speeches currently have the potential to pose any significant threat. this is because the magnitude of mobile money is still very small in relation to the entire banking system in uganda. as of june 2014, there was a total of shs 171 billion held on the mobile money accounts of customers of the six mobile money operators in uganda, but that is only 1. 4 percent of the total deposits in the banking system. mobile money transactions constitute less than a tenth of all the financial transactions which take place in the financial system. if one or more of the mobile money operators were to close its operations, it would be a nuisance for its customers, but it would hardly constitute a financial crisis. a more serious concern is the protection of customers ’ money. as i noted earlier, electronic money held on a mobile phone has similar characteristics to a demand deposit. although the basic transaction services offered by mobile money operators are relatively risk free, in principle the electronic money held on mobile phones could be at risk unless there are safeguards. the approach which the bou has adopted, and which is similar to that of other financial sector regulators in the region, such as the central bank of kenya, is to require mobile money operators to collaborate with a commercial bank and to hold in an escrow account in their partner bank sufficient funds to cover all of the electronic money which they have sold to their customers. as such, mobile money operators cannot themselves intermediate the funds they have mobilized from their customers ; they must instead transfer these funds to a commercial bank which is subject to all the normal pr

##udential regulations applicable to deposit taking institutions. hence even if a mobile money operator were to collapse, the electronic money held by its customers could be reimbursed from the escrow account in the partner commercial bank. as mobile banking develops, we are likely to see a much wider diversity of financial products made available through customers ’ mobile phones. many of these products will involve intermediation of funds rather than simply payment services. the principle which the bou will maintain is that only financial institutions which are licensed under the financial institutions act, 2004 can take deposits and intermediate these funds. these principles are enshrined in the mobile money guidelines which were issued by the bou in october 2013. if we maintain this principle we can allow the mobile money industry to develop and innovate in order to extend the range of services it can offer customers without putting at risk the funds of its customers. to conclude, i wish to congratulate all the recipients of the digital impact awards today, and wish you success in commercializing your innovations. we particularly look forward to innovations that will promote financial inclusion, as well as the efficiency and safety of financial transactions. i once again, thank cyberplc and hipipo ( u ) limited for making the arrangements for these awards. thank you for listening to me. bis central bankers ’ speeches