SBP Modernizes Foreign Exchange Regulations to Facilitate Start-ups, FinTechs and Exports

[Morpheus]

SBP Modernizes Foreign Exchange Regulations to Facilitate Start-ups, FinTechs and Exports

Posted 43 mins ago by ProPK Staff

State Bank of Pakistan (SBP) has notified the revisions in Foreign Exchange Manual (chapter 20) to facilitate startups, fintechs, and exports.

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Accordingly, the new policy for equity investment abroad will attract foreign direct investment through the establishment of holding companies by Pakistani fintech and startups; support exports by facilitating exporters to establish subsidiaries or branch offices outside Pakistan; and, allow resident Pakistanis to acquire sweat equity, amongst other changes to the Foreign Exchange (FX) regulations.

Further changes in the foreign exchange regulations will facilitate portfolio investment in the country including mutual funds, Exchange Traded Funds (ETF), and Real Estate Investment Trust (REIT) Funds through Pak rupee-based Roshan Digital Account (RDA) and Special Convertible Rupee Account (SCRA).

SBP, after approval of the Federal Government, has introduced three new categories of investment abroad under its revised policy governing equity investment abroad and banks have been authorized to allow remittances under newly introduced categories.

1. Establishment of Holding Company abroad by residents for raising capital from abroad: Pakistan’s investment regime is quite liberal that allows full freedom to repatriate profit, dividend, and capital. However, some international investors prefer to invest indirectly through a holding company established abroad specially in the Fintech and Startup firms. SBP’s revised policy will enable the Pakistani Fintech and startup companies to channelize foreign direct investment in the country by establishing a holding company abroad against remittance of up to USD 10,000 and subsequent swapping of shares to mirror the shareholding of a local company in the holding company.
   
   
2. Establishment of subsidiary/branch office abroad by export-oriented companies/firms for promoting exports: The policy will enable the export-oriented companies to establish subsidiary/branch office abroad against remittance of 10 percent of their average annual export earnings of last three calendar years, or USD 100,000 whichever is higher. This will facilitate exploring new and non-traditional markets and capturing more export orders, as international buyers prefer dealing with subsidiaries/representative offices of foreign companies present in their country. Accordingly, the proposed policy would help in the growth of export-oriented companies and boost the exports of the country.
   
   
3. Investment abroad by Resident Individuals: The policy will allow the Resident Individuals of Pakistan to acquire an equity stake in international firms through share option plans or investment in listed securities subject to observance of the annual ceiling of foreign exchange defined in the policy. In the case of sweat equity, a person can acquire up to twenty percent shareholding in a foreign company. These policy provisions will provide opportunities to individuals to earn foreign exchange for the country in the form of repatriation of dividend/ capital gains to Pakistan.

Investment in Mutual/Private Funds in Pakistan by Non-Residents:

To attract investment in the country, SBP has allowed the trading of units of funds quoted at Stock Exchange, including Exchange Traded Funds (ETF), Real Estate Investment Trust (REIT) Funds, and closed-end mutual funds, through Special Convertible Rupee Accounts (SCRA) and PKR version of Roshan Digital Account (NRP Rupee Value Account (NRVA)).
These account holders have also been allowed to invest in units of Mutual Funds registered as Open End Schemes (OES) under the management of Asset Management Companies (AMCs) licensed by SECP to provide asset management services.

Further, SBP has also allowed the private funds established and operated by Private Fund Management Companies licensed by SECP to provide private equity and venture capital fund management services, to issue units of their funds to non-resident investors.

It is expected that these changes will help the mutual fund and private equity fund industry to grow by attracting foreign investment in the country. It will also facilitate overseas Pakistanis with Pak Rupee based Roshan Digital Account (RDA) and the non-residents, in general, to invest in funds in Pakistan.
Relevant provisions of Chapter 8 and Chapter 20 of the Foreign Exchange Manual have been updated, in this regard. The circulars issued to banks announcing the above policy measures can be accessed at the following links.

• Revision Of Selected Chapters Of The Foreign Exchange Manual
• Amendment in Instructions regarding NRP Rupee Value Account (NRVA)

SBP Modernizes Foreign Exchange Regulations to Facilitate Start-ups, FinTechs and Exports

State Bank of Pakistan (SBP) has notified the revisions in Foreign Exchange Manual (chapter 20) to facilitate startups, fintechs, and

propakistani.pk

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SBP Proposes a New Type of Loan for Supporting Startups

Posted 29 mins ago by Abdul Rahman

State Bank of Pakistan has proposed a new type of loan for supporting startups to meet the specific needs in raising capital for setting up business and operations on a sustainable basis.

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A startup company may raise funds from abroad in the form of convertible debt, i.e., the lender shall have the option to convert the loan into the equity of the borrowing company.

These are the terms and conditions:

1. The borrowing company is incorporated as a private limited/public unlisted company under the Companies Act, 2017, (erstwhile Companies Ordinance 1984) for not more than seven years, provided that such entity is not formed by splitting up or reconstruction of a business already in existence.
   
   
2. The borrowing company has annual revenue below Rs. 2 billion since its incorporation.
   
   
3. The borrowing company has equity (including retained earnings) below Rs. 300 million as per the latest audited financials.
   
   
4. The requirement of long-term credit rating shall not be applicable.
   
   
5. In addition to the eligible lenders, funds can be raised from all those investors eligible for the issuance of shares.
   
   
6. The maturity of such loans shall range from one (1) year to five (5) years. The loans may be rolled-over subject to the condition that its total tenor will not exceed five years, in any case.
   
   
7. For the maturity period ranging from 1 to 3 years, borrowing cost ceiling excluding benchmark rate set at 250bps. For the maturity period ranging 3 to 5 years, borrowing cost ceiling excluding benchmark rate set at 350bps. The borrowing cost ceiling includes spread over relevant benchmark rate, loan-related insurance premium, and other loan-related fees payable in foreign currency, except the commitment fee, cost and expenses, and fees payable in local currency.
   
   
8. The funds borrowed under this category can be credited in a foreign currency account opened and maintained in terms of para 9, Chapter 6 of the Foreign Exchange Manual.
   
   
9. The principal can be repaid in bullet payment on maturity, and no prepayments would be allowed.
   
   
10. The outstanding loan amount, including accrued profit/mark-up, can be converted into equity of the borrowing company on or before the maturity of the loan. The borrowing company may issue shares in favor of the lender, per para 6 and 7 of Chapter 20 of the Foreign Exchange Manual. However, the shares cannot be issued below the latest break-up value as determined by the external auditors included in category A of the State Bank’s approved list of Auditors.
    
    
11. The rupee liability of the loan (including accrued profit/mark-up) shall be determined by converting the FCY loan amount, outstanding as per last month-end or quarter-end (in the case where the last month-end figures are not available) financial statement, into PKR by using the prevalent mark-to-market exchange rate (mid-rate) announced by the State Bank of Pakistan.
    
    
12. The facility of forward cover shall not be available.

Issues and Challenges of Startup Companies:

SBP proposed a new type of loan and the revision of foreign exchange rules after discussing with the representatives of Startups and Venture Capital (VC), which have highlighted that current foreign exchange regulations governing borrowing from abroad, do not meet the requirements of Fintech and Startup companies.

As per these stakeholders, foreign investors, at times, intend to invest in their companies in the form of convertible debt (i.e., loan convertible into equity) instead of directly investing as equity, according to the working paper released by SBP on this issue.
It has been observed that foreign investors, including Venture Capital/Private Equity funds and angel investors, usually take an interest to invest in startups. However, keeping in view the financial risks associated with startup companies, at times they prefer to provide funds initially as loans and subsequently decide about participation in the equity of the company.

Startup firms also face funding issues due to the unavailability of collateral/ security, which is a prerequisite by most lenders. However, VC firms and angel investors then try to cover the risk through alternate means. Thus, sometimes foreign investors charge a premium for taking such risk in the form of a high return on loan amount or discount at the time of issuance of shares.

SBP Proposes a New Type of Loan for Supporting Startups

State Bank of Pakistan has proposed a new type of loan for supporting startups to meet the specific needs in

propakistani.pk

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[Pakistansdefender]

I don't think much work has been done in sbp after 60s. Bravo

 

[ghazi52]

Interbank closing #ExchangeRate for today:

https://sbp.org.pk/ecodata/rates/m2m/2021/Feb/16-Feb-21.pdf

 

[Hakikat ve Hikmet]

It's quite a welcome move given the "apprehensions" that 80% of Pak financial activities are undocumented/unregulated/untaxed, and 80b$ from "recreational staffs", which fuel the likes of Elon Musk or Steve Jobs, pass through Pak...

Yet, some folks can't figure out the Pak Deep State's Deep Finances that the best from the Beni Israil/Iblis can't stop.....

 

[Syed1.]

I remember when Raza Baqir was appointed certain people like @El Sidd called him an IMF agent. Folks like El Sidd would struggle to balance the finances of a paan ka khoka but have the gall to raise fingers at a supremely talented person.


I wish we had more such 'IMF agents' and less 'patriots' who enabled loot and plunder.

 

[Morpheus]

SBP Makes Digital and Card Transactions More Secure and Easier

Posted 1 hour ago by ProPK Staff

In order to promote digital payments, SBP has been taking steps to make them more secure, introducing new features and promoting their use. In consultation with the industry and other stakeholders, SBP has taken more steps to make digital transactions and card payments more secure and easier.

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Now the consumers will only have Europay MasterCard Visa (EMV) Chip and PIN compliant payment cards, which will be active right from the day issued to them for payments and online e-commerce services. They will be able to make payments up to Rs. 3,000 by just tapping the card on POS machines and no PIN will be required. Consumers will also be able to make loan repayments through cards. They will be able to lodge complaints through digital channels without the need to visit a bank branch. State Bank has directed the banks to implement all these measures by June 30, 2021.

To eliminate the risk of skimming of payment cards by fraudsters, SBP has directed that ATM and POS networks in Pakistan shall only accept EMV Chip and PIN compliant payment cards in the country. The measure, aimed at further strengthening the security of digital payments and curtailing the risk of frauds, is a culmination of SBP’s efforts that started in 2016 outlining a detailed roadmap for adoption of EMV Chip and PIN standard for payment cards in Pakistan. Banks have also been directed to step-up their efforts to facilitate customers in case they face any issue while using their payment cards.

SBP has allowed those banks who have already implemented 3-D Secure (an international standard that secures online e-commerce transactions) can now activate their customers’ payment cards for online e-commerce transactions without the need for specific requests for activation. Earlier in 2019, SBP had directed banks to implement 3-D Secure protocol to prevent frauds in online transactions and as a result, 15 banks had already adopted this international standard for securing online transactions. The new measure is expected to promote the online e-commerce ecosystem and shape consumer behavior towards online e-commerce digital payments in the country.

To make it easier and quicker to make small payments, SBP has allowed banks to relax the requirement of entering PINs for transactions up to PKR. 3,000. Banks depending on their risk management policies may decide on the amount, which may be exempted from PIN requirement on card transactions including contactless payments. However, SBP has directed banks to ensure that customers are adequately protected from undue liability arising out of misuse of this facility. With this measure, SBP hopes to see wider adoption of card-based payment acceptance by merchants who may be reluctant to do so because of longer processing times.

Taking notice of consumer complaints regarding delays in receiving refunds after the resolution of disputes, SBP has directed all banks to immediately credit customer accounts once they receive funds from either the merchants or acquiring banks. The regulator has also directed banks to facilitate their customers in registering their complaints and disputes using Mobile apps and internet banking portals without the need for physically visiting branches.

Enhancing the drive towards digitization of payments, SBP has also directed all banks/microfinance banks to take measures to facilitate their borrowers in making repayments of loans such as consumer loans, auto loans, etc. digitally using the internet and mobile banking applications of any bank.

SBP Makes Digital and Card Transactions More Secure and Easier

In order to promote digital payments, SBP has been taking steps to make them more secure, introducing new features and

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[Bouncer]

This is an amazing development that received very little attention here on PDF.