The State Bank of Pakistan has made it possible for startups to obtain loans in the form of “Convertible Debt” in order to help them raise funds from abroad. Convertible debt is a type of loan that can be convertible into equity shares of the borrowing business if certain requirements are met.
Prior to the most recent instructions, entities could borrow foreign currency loans within the parameters set out in Chapter 19 of the Foreign Exchange Manual, but there was no special category that permitted the loan to be converted into the borrowing company’s ownership.
This strategy is expected to assist Pakistan attract more foreign investment by giving international investors another choice to participate in startup enterprises operating in Pakistan.
Foreign investors that are apprehensive to invest in a start-up company’s equity at this time may procrastinate.
Source: State Bank of Pakistan / ProPakistani