Bank of Uganda has just told commercial banks to set aside more money than ever before — 13.5% of every deposit, up from 11%, starting 24 September 2026. It’s the third such increase in under two years. It sounds like a small technical adjustment. It isn’t.
This single number will shape how easily businesses can borrow, how much government pays to raise money, and whether small banks stay standing over the next year. Officially, the move is about protecting the shilling and keeping the financial system safe.
Read between the lines, and it also tells you the central bank is worried — about a currency that has wobbled several times this year, and about inflation risks that haven’t gone away.
Here’s the simple version of how it works. Every time you deposit money in a bank, the bank is required to lock away a portion of it at Bank of Uganda instead of lending it out. That locked-away money earns nothing. Raising the requirement from 11% to 13.5% means banks suddenly have to lock away even more — likely close to a trillion shillings pulled out of circulation in one move, based on how much moved during the last increase. Central banks like this tool because it works fast and can be reversed quickly if conditions change, unlike interest rate decisions, which take months to feel and are harder to walk back.
For banks, the effect is simple: they now have less money available to lend out. But the money they still owe savers and depositors doesn’t shrink — they still have to pay interest on savings accounts and fixed deposits. So banks are squeezed from both sides, and the way most will respond is by charging borrowers more. Expect loan interest rates to creep up, approval processes to get stricter, and banks to become pickier about who they lend to. Many will also shift more of their money into government bonds and treasury bills instead of business loans, simply because government securities are safer and less work to manage than chasing down loan repayments. Foreign-owned banks, which can call on their parent companies abroad for support, will likely cope better than smaller, purely Ugandan banks — which means the gap between big and small banks will probably widen.
Lending to private businesses was a major reason Uganda’s economy grew by more than 6% last year. A higher reserve requirement works against that directly: banks have less to lend, loans get more expensive, and banks would rather buy safe government bonds than take a chance on a business loan. Small and medium-sized businesses will feel this first, because unlike big companies, they can’t negotiate better rates or easily find other places to borrow from. If lending to businesses slows down heading into 2027, expect slower hiring, delayed expansion plans, and fewer new investments — the opposite of what the economy needs right now. Some business owners locked out of bank loans will turn to more expensive, informal lenders instead, which helps them survive but doesn’t do much for the wider economy.
Uganda has set itself an ambitious goal: growing the economy roughly tenfold by the early 2040s. That kind of growth can’t come from government spending and foreign investment alone — it needs local businesses in manufacturing, agriculture, services, and the emerging oil sector to be able to borrow and grow. For that to happen, banks need to be lending generously, not holding back. A tighter money supply — even for good reasons — pulls in the opposite direction. It doesn’t make the 10x goal impossible, but it does slow down one of the main engines meant to get the country there, right when that engine needs to be running faster, not slower.
While businesses struggle to borrow, government usually finds it easier to raise money through treasury bills and bonds. Why? Because with less money floating around, banks look for the safest, easiest place to put what they have left — and lending to government is exactly that. No chasing down late payments, no risk assessment, just a guaranteed return backed by the state. So, the same policy that squeezes business loans can end up making it easier for government to keep borrowing. Banks earn steady money financing government debt instead of taking risks on local businesses. With Uganda’s public debt already sizeable, this pattern deserves more attention than it usually gets.
Big, well-established banks can absorb a 2.5-percentage-point jump without much trouble. Smaller banks can’t as easily — many are already stretched thin trying to meet Bank of Uganda’s higher capital rules from recent years. Now they face two squeezes at once: more money locked away for safety buffers, and more money locked away as reserves. Don’t be surprised if this pushes more small banks toward mergers, buyouts, or downgrading to a lower banking tier just to survive.
None of this means the decision was wrong. A stable currency and controlled prices genuinely matter for long-term growth, and Bank of Uganda has built real credibility by acting early and reversing quickly when needed. But this is a trade-off, not a free win — someone pays for stability, and right now that’s businesses trying to borrow and grow. If this higher requirement stays in place too long without any support for small business lending, or a clear sense of when it will be eased, Uganda risks winning short-term stability at the cost of the very growth it’s counting on. The central bank has said before that lowering this requirement is much easier than cutting interest rates. The real question is whether it will act on that as quickly as it raised it — before a temporary fix becomes a long-term drag on business ambition.
Mr. Were works to advance farming systems in Africa based in South Africa
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