Court cases in Uganda involving clients and commercial banks tend to take many years to be resolved, but this will soon change as banks in collaboration with the Uganda Law Society and commercial courts take a bold move to embrace alternative dispute resolution (ADR).
ADR refers to processes and techniques of solving disputes that fall outside of the judicial process or formal litigation.
This development follows the unveiling of the Alternative Dispute Resolution Framework for the Banking and Finance Sector on March 23 in Kampala by the Bank of Uganda Deputy Governor, Louis Kasekende.
The framework sets the stage for the establishment of an Arbitration Centre. The Centre to be housed at the Uganda Law Society will be administered by a Board of Trustees, tasked with the responsibility to ensure its sustainability.
The Centre will also have its detailed arbitration and mediation rules even as it complements the BoU’s newly set up Consumer Empowerment and Complains Section.
Kasekende said the new initiative would reduce the costs of resolving disputes between clients and commercial banks, resulting in the reduction in the costs of borrowing.
“It is estimated that, on average, commercial litigation requires a minimum of four years to be completed. Delays of this magnitude are extremely costly for financial institutions,” he said “…This, in turn, raises the cost of credit or induces banks to curtail the volume of their lending.”
The average lending rate on shilling denominated loans has recently eased to 20.2 percent in the first quarter of 2017/18, from 21.4 percent in the preceding quarter and 22.9 percent in the corresponding quarter of the previous year, according to the latest data from BoU.
This comes at the time commercial courts are said to be overwhelmed by a backlog of cases involving commercial banks and clients.
Last year, the Case Backlog Reduction Committee, chaired by Justice Richard Buteera, revealed that there were around 3,000 backlogs of cases in the country’s commercial courts.
Fabian Kasi, the chairperson UBA and the Managing Director of Centenary Bank said case backlog has had a significant impact on the banking sector over the years leading to subdued profitability.
“As a sector, we established the Assets Reconstruction Company (ARC), a private sector-led initiative that addresses some of the challenges facing the banking sector, and stressed businesses as a result of Non-Performing Loans,” he said.
“The second initiative for us is to support the establishment of the alternative dispute resolution framework being championed by the Uganda law society to address the issue of a case backlog, accumulated injunctions and delays in the formal justice system.”
Commercial banks established the ARC last year to wipe NPLs off their books, which had reached 10% of total industry loan book in the previous year, higher than 4% desired mark for the industry.
Currently, ADR is used in business and financial institutions in Nigeria, Namibia and Mauritius on the African continent for not only domestic disputes but also those that are cross-border, according to Bowman’s law firm.
The US, UK, Italy, Germany and France have also well-established mediation and arbitration mechanisms because, for certain types of transaction, its flexibility can be extremely advantageous.
The ULS President, Francis Gimara, said he welcomes the new initiative saying it will offer private mechanisms for resolving commercial disputes much faster.
“… Fast and efficient resolution of disputes will have on a banking and business sector, in general, is enormous,” he said.