Home » News » Finance » Franchise arrangements for exchange companies laid down

Franchise arrangements for exchange companies laid down

KARACHI (February 15 2004): The State Bank of Pakistan (SBP), in order to facilitate the exchange companies which have been allowed to set up franchise arrangements, has decided to place special arrangements for the smooth functioning of Franchiser and Franchisee.

In a Circular Letter No 1 EPP 1 (95)EC-Policy-2004, issued to the exchange companies and authorised dealers on Saturday, attention of the exchange companies has been drawn to rule No 13 of Annexure II of FE Circular No.09 dated July 30, 2002, in terms of which exchange companies are allowed to have Franchise Arrangements with the other entities.

The SBP stated that following Franchise Arrangement has been decided to be allowed with immediate effect:

i) Franchiser and Franchisee would enter into a formal agreement which should be duly registered as per existing laws of the land.

ii) Franchisee may be an existing company or partnership firm or sole proprietorship carrying on only Money Changing business, or a new company or partnership/firm or sole proprietorship specifically formed to carry on Money Changing business.

It is re-iterated that Money Changers presently allowed to function would cease to exist after 30th June, 2004.

iii) Franchisee by virtue of the Agreement, in consideration of the same, would pay the Franchiser an agreed amount–as Franchise Deposit. This Franchise Deposit would be maintained by the Franchiser in his books during the currency of the Agreement.

iv) Franchise Deposit would be treated as 'Second-Tier Capital' in the books of the Franchiser. For the purpose of calculation of 25 percent SLR requirement and 50 percent of the Exposure Limit.

This 'Second-Tier Capital' would be added to the paid up capital of the Franchisen It may, however, be noted that at any point of time, combined Exposure of Franchiser and Franchisee should not exceed 50 percent of the sum of paid up capital and Second Tier Capital (Franchise Deposit) of the Exchange Company.

v) Franchiser and Franchisee will have to make arrangement for a completely integrated/compatible computerised system so that Exchange Company may provide a consolidated reporting of exchange business transactions carried out by Franchiser and Franchisee as per requirement of the SBP.

vi) In addition to the clauses of the Franchise Agreement, all the Rules and Regulations specified by the State Bank for the Franchiser shall be equally applicable to the franchisee.

vii) Franchiser will be required to immediately notify to SBP all franchise agreements forwarding a copy to the SBP. In the absence of any objection from SBP, franchiser may deposit requisite enhanced SLR amount with SBP after 15 days from the date of notifying of the Agreement. Only thereafter franchisee would be allowed to commence its operations.

viii) Franchiser would be fully responsible for the activities of the Franchisee and shall also have the right to inspect/visit franchisee's operations as per their agreement.

ix) State Bank reserves the right to inspect Franchisees' books of accounts and premises as and when it may deem fit and necessary.

x) In case of any violations of related rules SBP shall hold the Franchiser directly responsible for the same, reserving, however, the right to take such direct action against Franchisee as it may deem fit.

Leave a Reply