KARACHI: The State Bank of Pakistan (SBP) has almost doubled an exchange company’s minimum paid-up capital requirement to Rs1 billion.

On Friday, the SBP issued a detailed regulatory framework, making it more challenging to form new exchange companies, while many old companies could not meet the new requirements.

In September 2023, the State Bank issued a circular asking exchange companies to increase their minimum paid-up capital requirement to Rs500m from earlier Rs200m. The aim was to minimise the number of exchange companies.

At the same time, the State Bank asked all commercial banks to form their own exchange companies, and many have established them. The reason for this move was to bring the currency business under the control of the government.

It was a crucial step in launching a crackdown against illegal currency businesses, which had developed a parallel currency market that caused the smuggling of dollars, established the hundi and hawala system, and eroded the exchange rate stability.

According to the latest regulatory instructions, the minimum paid-up capital will be Rs1bn and a capital-deficient exchange company is required to meet the shortfall by reaching Rs600 million by Dec 31, 2025, Rs800m by Dec 31, 2026, and Rs1bn by Dec 31, 2027.

The company will also meet the Minimum Capital Requirement (MCR) of Rs1bn on an ongoing basis.

“The shareholders and directors of the company will neither, at any point in time, withdraw any funds from the company as loan or credit under deferred payment arrangement, nor will they extend any loan including a subordinated loan to the company unless specific approval, in writing, from SBP has been obtained.

The company shall not avail any financing facility, except leasing vehicles required for business needs, from any bank/entity/person for its business activities without prior approval from SBP.

Shareholders will not divest any part of their capital without prior approval from SBP, said the regulatory framework document.

The company will maintain 15pc of its paid-up capital as a regulatory reserve (RR) with the SBP in cash or approved government securities.

The SBP further said that prior approval of SBP regarding enhancement of authorised and paid-up capital by the existing directors/shareholders will not be required.

Published in Dawn, December 28th, 2024