August 1, 2025

On 25 July 2025, the High Court of Uganda delivered a decision that reaffirmed the Supreme court decisions that no law bars Ugandans from borrowing from foreign lenders nor foreign lenders from advancing credit to the Ugandan market.

The decision buttresses the Supreme Court’s decision in Ham Enterprises Ltd and 2 others V Diamond Trust Bank (U) Ltd and Diamond Trust Bank (K) Ltd (Supreme Court Civil Appeal No.13 of 2021), which upheld the legality of syndicated lending arrangements between foreign lenders and Ugandans. Crucially, both decisions clarify that there is no legal requirement for foreign lenders to obtain a license from Bank of Uganda as a prerequisite to transacting with Ugandan borrowers.

The Simbamanyo case deals with a layered financing arrangement involving a bridge loan from Bank One Ltd Mauritius secured by an irrevocable and unconditional standby letter of credit issued by Equity Bank Kenya and settled by both Equity Bank Uganda and Equity Bank Kenya, a Post Import finance facility, and a suite of securities that tied the entire transaction together.

The decision brings renewed confidence to both local and international lenders desirous of advancing credit to borrowers in Uganda. It also signifies the Courts’ resolve to recognize and promote international business transactions in Uganda.

Historically, some borrowers have attempted to evade liability by arguing that international lenders must hold licenses in Uganda. It is encouraging to witness judicial pushback against such tactics.

The Case
Between 2012 and 2014, Simbamanyo Estates Ltd (“Simbamanyo”) obtained loans totaling USD 7.2 million from Equity Bank Uganda and Equity Bank Kenya, secured by a first-ranking legal mortgage, a corporate guarantee by Mutungo Executive Hotel Ltd, and an all-assets debenture over Simbamanyo’s assets.

In 2017, Simbamanyo secured a USD 10 million bridge loan from Bank One Ltd Mauritius to refinance the existing loans (now accrued to USD 7.9M). This bridge loan was backed by a standby letter of credit (“SBLC”) issued by Equity Bank Kenya. At this point, Simbamanyo also entered a Post Import Finance loan backed by several securities with Equity Bank Uganda. Upon Simbamanyo’s failure to repay the bridge loan, Bank One called on the SBLC, which was settled jointly by Equity Bank Kenya and Equity Bank Uganda, triggering the Post Import Finance loan, whose subsequent default prompted the Equity Bank Uganda to enforce its securities through the sale of the mortgaged securities.

Structure of the transaction

Simbamanyo challenged the legality of the recovery process on several groundsinter alia;

a. Equity Bank Kenya, as a foreign bank, was not duly licensed by the Central Bank of Uganda and therefore lacked legal authority to lend to Ugandan borrowers.

b. The syndicated nature of the loan structure was a disguised attempt to bypass the regulatory framework that requires all financial institutions to be licensed by the Central Bank of Uganda.

c. Contested the legitimacy of the USD 10 million facility, first on the authenticity of the SBLC; second on grounds of undue influence, misrepresentation and breach of fiduciary duty by the lenders.

d. Validity of the SBLC because the sole issuer of the SBLC was Equity Bank Kenya, whereas the Post Import Finance loan that resulted from the call on the SBLC was granted by Equity Bank Uganda yet there was no evidence of reimbursement by Equity Bank Uganda to Equity Bank Kenya.

e. The specific conditions required to activate the Post Import Loan facility were never fulfilled, and that no formal demand had been made to it prior to the SBLC being drawn upon.

On misrepresentation and undue influence, Simbamanyo claimed that it had been assured USD 7.9 million would refinance its existing loans while USD 2.1 million would be disbursed directly to it. Instead, Equity Bank Uganda and Equity Bank Kenya appropriated USD 1,362,476 from the USD 2.1 Million, which was according to Simbamanyo, breach of a fiduciary duty that arises from banker customer relationship between itself and the lenders.

It also argued that it was unduly influenced by the lenders to enter a complex and misleading transaction that it did not understand.

The Court’s decision:

Foreign lenders licensing requirement
Relying on Ham Enterprises Ltd and 2 others V Diamond Trust Bank (U) Ltd and Diamond Trust Bank (K) Ltd(Supreme Court Civil Appeal No.13 of 2021) the court re-affirmed that foreign lenders are not required by law to be licensed by the Central Bank of Uganda. It further emphasized that the Central Bank’s regulatory mandate only extends to institutions registered in Uganda and that engage in the business of lending or extending money held on deposit in Uganda.

The Court also acknowledged the Central Bank’s statement issued on 4th October 2016 regarding financial institutions business regulated by Bank of Uganda under the Financial Institutions Act, 2004(as amended in 2016), which clarified that foreign lenders are subject to regulation under their respective domestic laws and the Bank of Uganda does not have regulatory mandate over them.

Stand By Letter of Credit (SBLC)
The Court held that the SBLC is self-liquidating and payable on demand, with no mandatory requirement for the borrower’s consent prior to payment. Court emphasized that the SBLC may be called upon if the conditions stipulated in the letter are met, without the issuer being concerned with the underlying relationship between the principal contracting parties. Court also clarified that the

7.9 million indicated was exclusive of accrued and penal interest and as with other securities, interest continued to accrue.

Misrepresentation and undue influence
The Court rejected Simbamanyo’s claims of misrepresentation and undue influence, observing that Equity Bank Uganda and Equity Bank Kenya only issued a certificate of liability which did not amount to advice to support the claim of misrepresentation.

In any case, Court noted that Simbamanyo was represented by independent advisors throughout the duration of the transaction negating the suggestion of reliance on the lenders for guidance.

Importantly, the Court noted that a fiduciary relationship arises in specific and exceptional circumstances in a banker customer relationship, typically when a bank acts beyond its banking role and provides advice to the customer which was not the case in this matter.

The Kenyan Position
Kenyan jurisprudence has generally held that foreign companies must be registered as such in Kenya to lawfully transact in Kenya and to have locus standing to institute legal proceedings in respect of those transactions. ¹However, a recent Kenyan decision(July 2025) departed from this position, holding that courts may entertain suits brought by unregistered foreign companies. ²This inconsistency has created uncertainty, particularly as registration in Kenya may also imply the need to obtain a regulatory license, which raises additional compliance concerns for foreign lenders.

Key takeaways

• Foreign entities can lend in Uganda without a license.
• The definition of “financial institution business” has been This is important, as it has been widely and previously misunderstood. The Court confirmed that it excludes foreign lending unless it involves money “held on deposit” locally.
• Syndicated lending, even with a non-licensed foreign bank, is not illegal under Ugandan law.
• Standby letters of credit are enforceable strictly on their terms and are independent from the underlying transaction. This pronouncement offers much needed clarity as SBLCs are not a common security in the Ugandan market.
• Banks should take care not to act as advisors to Customers lest a fiduciary relation is created and any statements construed as representations or misrepresentations.
• This decision offers much needed clarity and predictability to foreign lenders advancing various structures of financing into Uganda.

Conclusion
The Simbamanyo ruling is a welcome decision as it supports financial markets in Uganda even with offshore lenders because it re-confirms that Uganda’s legal framework supports cross- border and syndicated finance without licensing requirement in the borrower’s jurisdiction. It also

reinforces confidence that securities validly issued in support of such facilities will be enforced by the courts, provided they comply with statutory requirements.

For borrowers, the decision underscores that borrowers should not expect to escape liability for loans they freely entered by resorting to claims of illegality.

As Uganda continues to attract international capital for infrastructure and private sector growth, this decision offers muchneeded clarity and predictability to foreign lenders. The Simbamanyo decision sends a clear and confident message thatUganda is open for cross-border finance, and its Courts will uphold lawful commercial arrangements, both local and international.

At SM & Co. Advocates, we continue to advise on some of the region’s most sophisticated lending transactions, offering clients seamless guidance across borders.

1. In Stitching Rabo Bank Foundation v Ava Chem Limited & Christopher Irungu Mwangi, the High Court of Kenya held that, as Rabo Bank Foundation was not registered in Kenya, it lacked the legal standing to institute proceedings following the borrower’s default.

2. In Bruton Gold Trading LLC V African Banking Corporation Ltd HCCS E211 of 2023, the High Court of Kenya held that the requirement for registration under the Companies Act does not inform the locus standi of foreign companies.

Disclaimer:
This publication is for general consumption and should not be taken and relied upon without seeking specific legal advice on any of the matters above.