Debenture as Alternate Scheme of Raising Investment Fund and Its Prospects under Ethiopian Company Law

Abstract

With a view to attracting investors, the Government of Ethiopia has offered a variety of incentives and financing schemes. However, the incentives or loan options can be inadequate, susceptible to corrupt practices and inaccessible to many business undertakings. This article examines other possible options of raising investment fund privately from the general public by issuing debt security (debenture). Instead of looking for hand outs of governments or sole reliance on bank loan, investors can raise investment fund from the general public –even beyond national borders– by offering debenture bonds for public subscription. A debenture is debt security that entitles its holder to collect periodic interest until the loan is paid back. Compared to bank loans, raising investment fund through the instrumentality of debentures is more advantageous. The rate of interest, the volume of loan needed for running business, and the time for repayment can be determined by investors. Moreover, the loan is not generally subject to collateral. This article highlights the nature, form, and class of debenture under Ethiopian law, and discusses the legal requirements for the issuance of debenture, the amount of money that can be raised by issuing debentures, the status of debentures in Ethiopia, and legal safeguards for repayment of the loan.

Key terms

Debenture, Bond, Investor, Floating charge, Creditor, Debtor, Ethiopia