KARACHI: The State Bank of Pakistan (SBP) has revised its regulatory framework concerning small and medium enterprises (SMEs), including a significant redefinition of what constitutes a start-up.
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FBR asked to facilitate startups, e-commerce
ISLAMABAD: Federal Board of Revenue (FBR) has been asked to facilitate startups and e-commerce across border exporters in the country.
Special Assistant to the Prime Minister (SAPM) on E-Commerce, Senator Aon Abbas Buppi on Tuesday issued the directives at a meeting with FBR Chairman Dr. Muhammad Ashfaq.
The SAPM also stated that startups is a growing economy and this segment needs all the facilitation by the government to promote digital economy and promoting e- Commerce, said a press release issued here.
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Aon Abbas Buppi specifically asked to abolish minimum turnover taxes for new startups to provide a conducive business environment for them.
SAPM discussed with the FBR chairman to offer facilitation for startups and e-Commerce cross border exporters, Chairman FBR agreed to work on proposals from SAPM and assured that FBR will work along with the Ministry of commerce to create a conducive environment for the e-commerce ecosystem.
Meanwhile Special Assistant to the Prime Minister (SAPM) on E-Commerce said the government has built the first e-commerce university in the country and is pursuing a revolutionary program to provide skilled labor in the sector.
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The e-commerce university will start its work by March 2022, which will provide affordable and quality education to the students. The country needs standard e-commerce university time.
He said that the government of Pakistan Tehreek-e-Insaf (PTI) has introduced the first e-commerce policy in October 2019, which would create new avenues of employment opportunities for the youth of the country.
Aon Abbas said that E-Commerce policy provides communities with a guideline on how they can take advantage of this innovative opportunity.
He said the country currently has more than 50 percent youth population for whom there would be huge job opportunities in the e-commerce sector.
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SAPM said that Prime Minister Imran Khan has given us a target to open 10 million new jobs through the e-commerce sector.
He said that 10,000 new companies have to be opened and 10,000 new people have to be trained to create more manpower in this sector.
He said that at present the global market for e-commerce is $30 trillion, of which Pakistan’s share is very small.
It has $4 trillion in Business to Business and $4 trillion in Business to Companies trade.
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SEC Pakistan amends regulations to facilitate startups
ISLAMABAD: The Securities and Exchange Company of Pakistan (SEC Pakistan) has amended regulations to facilitate startups and small companies in raising equities through conventional modes.
The regulator introduced amendments in the Companies (Further Issue of Shares) Regulations, 2020 to address the impediments faced by the corporate sector, particularly startups and small companies, in raising equity through conventional modes, according to a statement issued on Wednesday.
Key changes include permission to convert one class of shares into another class, issuance of shares with differential rights without the approval of the SECP, and specification of mechanism for valuation of non-cash assets.
As per the law, companies can have more than one kind of share conferring varying rights of dividend, voting, and participation depending upon the needs of its capital providers. The requirement of prior approval of SECP has now been abolished. Such a measure will considerably help reduce the administrative burden and will contribute towards the growth of the fast-paced corporate world by removing a layer of regulatory approval.
Another vital amendment is to permit conversion of one class or kind of shares into another class or kind e.g. ordinary into preference shares. Currently, the Regulations only allow conversion of preference shares into ordinary shares while no mechanism is provided for other classes of shares.
The change aims to facilitate companies in maintaining an optimal capital structure considering their own financial needs and the demands of their shareholders.
Besides, a complete mechanism for the valuation of immovable property, intangible assets, or services has been introduced.
Now, the consulting engineers registered with Pakistan Engineering Council and QCR rated chartered accountant firms will be eligible to conduct valuation for the purposes of the Act.
These amendments have been introduced in consideration of numerous queries and suggestions received from small companies and startups, and are at par with the international jurisdictions.
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PKIC to make Rs500 million investment in Planet N
KARACHI: Pakistan Kuwait Investment Company (Private) Limited (PKIC) announces that it is making an equity investment of Rs500 million in Planet N (Private) Limited. This is the largest equity investment by a local Financial Institution in a Tech Investment Platform in Pakistan. It was approved by the Board of PKIC in December, 2020.
This investment will help Planet N expand its operations and will also motivate other investors to explore opportunities to develop and strengthen tech entrepreneurship and disruption in the country.
With total assets of over rs107 billion and equity of over Rs38 billion, PKIC is Pakistan’s leading DFI engaged in investment and development financing activities in the country. PKIC was established as a joint venture between the Governments of Pakistan and Kuwait in 1979. It is a “AAA” (Triple A) rated financial institution.
Planet N has invested and nurtured tech start-ups such as Tapmad TV, Dawaai.pk, PublishEx, Tez Financial Services, Datalift, PiePie, Kashat, JinglePay, etc. spread across various jurisdictions including Pakistan, UAE, Egypt, Singapore and USA. It currently has more than 30 companies in its portfolio focusing on financial inclusion, fintech, digital media, data science & AI. This portfolio is expected to grow further after the equity investment by PKIC.
Speaking on the occasion of the signing ceremony, MD PKIC Mubashar Maqbool expressed his elation at this investment by PKIC and stated that PKIC has a firm desire to support all priority sectors of the economy, especially the growing technology sector, by providing traditional as well as innovative financing solutions to its prospective customers.
Maqbool hoped that this landmark investment should inspire other players, investors, family business houses, and investment companies to do the same and would also encourage the young entrepreneurs in the tech sector.
CEO Planet N Nadeem Hussain said he has always tried to encourage local investors to aid young entrepreneurs with innovative ideas. His initial investment in tech companies has seen exponential gains and he hopes that having PKIC as an equity partner will initiate a big disruption in the local- investors- horizon and their approach towards tech-based investments.
Irfan Siddiqui, CEO and President Meezan Bank Ltd, chief guest to the occasion said that this is one of its kind investment by a local DFI into a Tech disruption investment company paving the way for further investment by other financial institutions that will help tech start-ups in Pakistan.
Also, present on the occasion were Ariful Islam, Deputy CEO Meezan Bank Ltd, Khurram Hussain, MD Pak Libya Holding Co. and senior management from PKIC, Planet N, and Arif Habib Limited (AHL). AHL acted as the Financial Advisor to this landmark transaction.
Planet N was founded by Nadeem Hussain in 2016; with a vision to invest in growth oriented hi-tech companies. Hussain is the founder and ex-CEO of Telenor (previously Tameer) Microfinance Bank.
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State Bank modernizes forex rules to facilitate startups, fintechs
KARACHI: State Bank of Pakistan (SBP) has modernized foreign exchange regulations to facilitate startups, Fintechs and exports, a statement said on Wednesday.
The central bank notified revisions in chapter 20 of the Foreign Exchange Manual to facilitate Start-ups, Fintechs and Exports.
The new policy for equity investment abroad will attract foreign direct investment through the establishment of holding companies by Pakistani fintechs 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).
The 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.
i. 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 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 local company in the holding company.
ii. 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% 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 growth of export-oriented companies and boost the exports of the country.
iii. Investment abroad by Resident Individuals: The policy will allow the resident Individuals of Pakistan to acquire equity stake in international firms through share option plans or investment in listed securities subject to observance of annual ceiling of foreign exchange defined in the policy. In case of sweat equity a person can acquire upto 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:
With an objective 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 close-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.
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SECP drafts framework to facilitate startups in Pakistan
ISLAMABAD: Securities and Exchange Company of Pakistan (SEC Pakistan) has issued draft regulatory framework to facilitate startups in the country.
The SECP said that with the objective to promote growth in the startups sector of Pakistan, it is necessary to make relevant changes in Company Law to facilitate the incorporation process for the startups and provide a conducive regulatory environment.
A) Proposed changes in the Parent legislation (Companies Act)
i) Definition of Startups
In the Third Schedule to the Companies Act, the following category is proposed to be added:
An entity shall be considered as a Startup:
a) Upto a period of 10 years from the date of incorporation/registration
b) Turnover of the entity for any of the financial years since incorporation/registration is not greater than 100 Million Rupees
c) Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided further that an entity formed by splitting up or reconstruction of an existing entity or a separate company with similar objects and ownership shall not be considered a “Startup Company”
i) Amendment in the Section “83 – Further issue of capital” to offer “Employee Stock Option Scheme (ESOS)” shall help address the employee retention and reward issues being faced by startups.
The following new proviso is proposed to be added:
“Provided that the directors of private limited company may allot the declined or unsubscribed shares to its employees under “Employees Stock Option Scheme”, on such conditions, as may be specified.”
ii) Amendment in the clause “88 – Power of a company to purchase its own shares” shall facilitate ESOS option and shall facilitate buy back of shares by companies, since they do not have a secondary market. It would also facilitate startups in case, any founding member needs to exit from the company by allowing return of shares to a company.
B) Changes required in Companies (Further Issue of Shares) Regulations, 2018
i) Amendment in the clause “7. Application to the Commission for issue of shares other than right” is a consequential change whereby no application for approval shall be required to be made to the Commission under Section 83 of the Act, by a Private Company, and shall only be required to maintain and file the documents with the Commission not later than two months from the decision to issue such shares, as specified in sub-regulation (2) below.
ii) Conditions for issuance of shares with differential rights
The requirement for the company not to default in filing financial statements and annual returns for three financial years immediately is being changed to preceding the financial year in which it is decided to issue such shares.
iii) Furthermore, for a private limited company, the valuation mechanism of non-cash consideration and further conditions, if any, will be amended in Companies (Further Issues of Shares) Regulations, 2018.
Introduction of Regulatory Sandbox
Regulatory Sandbox is a tailored regulatory environment for conducting limited scale, live tests of innovative products, services, processes, and/ or business models in a controlled environment for a limited period of time so as to assess their viability to be launched on full-scale, and to determine the compatible and enabling regulatory environment that will be conducive for the innovative solutions. The objective of these Guidelines is to purposefully meet the above.
The Regulatory Sandbox is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations; or these new ideas bring an innovative approach to the market and there exists considerable uncertainty in terms of unexpected adverse outcomes or existing regulatory framework does not fully address the solutions proposed to be experimented through the regulatory sandbox.