To make it easier for startups to secure foreign funding , the State Bank of Pakistan has allowed to borrow in foreign currency as “convertible debt.”
Convertible debt is a kind of debt with an option that, under certain conditions, Principal amount can be converted into shares of the borrowing company.
Prior to the circulation of the latest Directive, companies were allowed to borrow foreign currency from abroad in accordance with the criteria specified in Chapter 19 of the Foreign Exchange Manual, but no specific category provided the credit company with the ability to borrowed in the form of convertible debt.
The said amendments are expected to attract more foreign investment as it provides international investors with another opportunity to invest in startups in Pakistan.
Foreign investors who do not initially want to take equity stake of a start-up can provide financing under this category and may decide to participate in the equity at a later stage throughh conversion. To implement these changes, the relevant provisions of Chapter 19 of the Foreign Exchange Guidelines have been updated in FE Circular No. 4 of 2021 dated May 26, 2021 of the State Bank of Pakistan.
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