Context: National Stock Exchange of India received the final approval from the markets regulator Securities and Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE).
About Social Stock Exchange (SSE)
- The SSE would function as a separate segment within the existing stock exchange and help social enterprises raise funds from the public through its mechanism.
- It would serve as a medium for enterprises to seek finance for their social initiatives, acquire visibility and provide increased transparency about fund mobilisation and utilisation.
- Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board.
- In all other cases, only institutional investors and non-institutional investors can invest in securities issued by SEs.
- Regulation: Social enterprise should submit an annual impact report in a prescribed format.
- The report must be audited by a social audit firm and has to be submitted within 90 days from the end of the financial year.
- Social Enterprise (SE): Social Stock Exchange identifies social enterprises as the ones engaged in creating positive impact in the society. These are the following two forms of social enterprises:
- Not-for-profit organization (NPO): NPOs work for the welfare of society, the community and are set up as charitable associations.
- For profit organisation (FPO): A for profit organisation is a corporate body or a company in the social space, operating for profit.
Eligibility for SSE
- Eligible Activities
- Eradication of hunger, poverty, malnutrition and inequality;
- Promoting education, employability, equality, empowerment of women and LGBTQIA+ communities;
- Working towards environmental sustainability;
- Protection of national heritage and art or bridging the digital divide.
- At least 67% of their activities must be directed towards attaining the stated objective.
- Ineligible Activities: Corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure and housing companies (except affordable housing) would not be identified as an SE.
- NPOs would be ineligible, if they are dependent on corporates for more than 50% of its funding.
Fund Raising by Social Enterprise (SE)
Non-Profit Organisation (NPO)
- Zero Coupon Zero Principal (ZCZP) Instruments: ZCZP bonds differ from conventional bonds in the sense that it entails zero coupon and no principal payment at maturity.
- Such Coupon must have a specific tenure and can only be issued for a specific project or activity that is to be completed within a specified duration.
- The minimum issue size is presently prescribed as Rs 1 crore and minimum application size for subscription at Rs 2 lakhs for ZCZP issuance.
- Development Impact Bonds: They are a performance-based investment instrument intended to finance development programmes in low resource countries
- Investors identify a problem and then ‘risk investor’ or a group puts money upfront to roll out the programme.
- Upon the completion of a project and having delivered on pre-agreed social metrices at pre-agreed costs/rates, a grant is made to the NPO.
- The donor who makes the grant upon achieving the social metrics would be referred to as ‘Outcome Funders’.
For-Profit Enterprises (FPEs)
- For-Profit Enterprises (FPEs) need not register with social stock exchanges before it raises funds through SSE.
- It can raise money through issue of equity shares or issuing equity shares to an Alternative Investment Fund including Social Impact Fund or issue of debt instruments.