In the order to realise the effect and plannings of Hon'ble Finance Minister
's goal of inclusive growth and in a sustainable way in the budget speech of
2019-20 by harnessing the powers of the capital market. This covers regulatory
framework to allow Social Enterprises (SE) to raise funds through securities
Social stock exchange (SSE) is a novel concept in India under the ambit of the
Securities and Exchange Board of India (SEBI). The idea will impart a separate
segment of the existing stock exchanges. SSE, in simple words, are for the
listing of Not-For-Profit Organization (NPO) on stock exchanges.
During the period of lockdown, the concept of SSE was more enlightened and
became more impulsive by those enterprises who worked on social welfare
activities where there was a need of capital in the market and society. SSE
simplifies to be a separate segment on the existing stock exchanges for on
boarding of Social Enterprise (SE), such as: a) Non-profit organizations (Sec 8
companies, trust, societies) NGOs, b) For profit social enterprise (FPEs).
SEBI approved the implementation of SSE on September 28th, 2021.
Primarily one challenge what SEBI had was something which is not necessarily
related to finance. The main idea to help social ventures or enterprise raise
capital as equity, debt and units like capital under the regularity ambit of
SEBI. There is an extreme need to get help to all social enterprises which
should not bound by any legal definitions. In favor of social enterprises, if
helps to raise Zero coupons bonds to raise funds directly. As the trading will
be social in nature and not financial in nature.
Scope and Analysis:
Basic ground level fact states that common people rarely donate in NGO's. This
is because of lack trust factors involved and visibility of the organization.
Its hard to find out the actual functioning of NGO's, their real money use and
implementations. Concept of SSE will definitely help us find to out execution on
their side. Social Stock Exchange (SSE), the aspects will be a new way of
raising funds for Social Enterprises (SE). Till now SE were usually funded by
CSR, charitable institutions, crowdfunding, brand sponsors, etc.
Now, the scope of SSE will be expanded to large people covering the whole states
and nations a well. When SSE being listed, on stock exchange will be publicly
available to awareness to the mass population. Zero coupon Zero principle
instruments (ZCZP) investments will be issued by respective NPO through
registering on SSE. This way there will be steady funds in the market which has
a proof of payments to NGO. Any institutions or individual , when they donate to
any charitable trust or NGO/NPO, there are high chances of black money outflow.
Due to lack of provisions earlier, many NGO was also involved into corruption
practices accepting black money.
Zero coupon investment bonds is altogether designed for SSE for raising capital.
The regulatory framework to set up SSE are supported by few amendments announced
by SEBI in the recent circulations:
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 ("ICDR
- SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF
Meaning of Zero-Coupon zero principal instruments - These are type of new
instruments which are specifically designed by for Social Enterprise (SE) and
the listing to SSE. Zero coupon bonds and instruments are used to raise capital
from general people from the markets and it has no need to pay principal or
interest back to the investors.
The main benefits of such coupons and instruments are a kind of donations being
made which will be officially on records with SSE. This can only be issued by
NPO's and other charitable institutions under sec 8 companies, under Companies
act, 2013. As per SEBI circular dated 19th September, 2022, NPO issuing such
coupons shall submit a Statement of Utilization of Funds within 45 days to end
of each quarter.
Who all are eligible to get listed on SSE?
As per the recent amendment notifications circular by SEBI (ICDR Regulations)
2018, both enterprises which are, for profit enterprise (FPE) and not for profit
Organization (NPO) are counted themselves as Social Enterprise (SE). SE will be
entitled, such as Non-Profit Organizations (NPO). This should be a primary goal.
Such intent should be proved through their recent work and other future social
objectives. Social intent and work are mainly to focus on underprivileged people
in our society. Social welfare activities which include eradicating hunger,
poverty, inequality, it can help to maximize employment ratio, supporting
education among the society.
Who all are not eligible to get listed on SSE?
Any political or religious organization, profit motive organizations, Corporate
foundations, professional services providers etc. are not included under SE,
hence not eligible to get listed in SSE.
Need for SSE:
There is an extreme need to get help to all social enterprises which should not
bound by any legal definitions. In flavor of social enterprises, if helps to
raise zero-coupons zero instrument bonds to raise funds directly. As the trading
will be social in nature and not financial in nature. The pandemic also gives an
example for greater need to SSE towards financial help. The SSE will help in
this aspects by channeling greater capital to such organization.
Certain factors to need for SSE are pointed as below:
- SE have scare and irregular flow of funds and there is no sustained flow
of funds. That is where we require a formal structure or design to sustain
these activities. Grants and donations may not cover operational expenses as
- Lack of transparency and accountability which deters financial support.
- There are no statutory legislation mandating reporting of social stock
impact to the donors.
- It is an opportunity for SSE that social enterprise no longer depending
on private foreign donors.
- This is given relaxation to government's fiscal spend which will trigger
growth in other sectors.
- This will open up avenues for investors who wants to contribute and play
a role in social developments.
- This will open up foreign donors which is the most important need
- Income tax deduction for individual donors.
As we discussed above earlier about SE (Social Exchange), what are covered
under meaning of SE:
- Social Enterprise (SE):
(a) For Profit Social Enterprise (FPSE), (b) Not for Profit Organization (NPO).
As per SEBI (ICDR) Regulations, 2018:
Vide notification dated July 25th, 2022 SE will be defined as both inclusions
such as; NPO & FPE.
The SSE will operate as a separate segment under the rules of existing stock
exchange. Further entities which are listed under Social Stock Exchange (SSE)
are Social Enterprise (SE). These SE are can either be, for profit enterprises (FPE)
and non-profit organization (NPO), which should satisfy common primary factor of
social welfare intent.
Social enterprise (SE) should comply all the eligibility conditions under ICDR
An enterprise once listed should adhere all the norms of corporate governance.
Further SE should conduct social audit by an appointed social auditor and carry
out social audit committee under, Regulation 18 of SEBI (LODR) Regulation 2015.
The amendments of SEBI (ICDR) Regulation notifies about certain category which
has to be fulfilled for a SE. In order to establish the primacy of social
intent, SEBI has recognized a list of activities (Eligible Activities) in which
NPOs and FPEs can engage.
The activities of SE should be targeted towards underserved, less privileged
population segment or regions recording lower performance in the development
priorities of central or state government (Target Segments). SEs are also
required to show that: (a) at least 67% of their customer base in the preceding
three years belong to the Target Segments; or (b) either 67% of their revenue or
67% of their expenditure in the preceding three years has been derived from or
incurred on the Eligible Activities
There are few frameworks which needs to be considered by SSE issued by SEBI in
recent circular dated 19th September,2022 which are as follows;
- Minimum requirements for an NPO to be registered with SSE - Regulation
292F of ICDR Regulations.
- Minimum initial disclosure requirement for NPO's raising funds through
the issuance of ZCZP instruments regulation 292K(1) ICDR Regulations.
- Annual disclosure requirements for NPO - Regulation 91C of LODR
- Disclosure in the Annual Impact Report (AIR) - Regulation 91E of the
- Due date for submission of statement of utilization of funds should be
within 45 days from the end of every quarter.
Furthermore, there are also regulations where, Investors can also claim a
deduction under Section 80G of the Income Tax Act, which lets them claim a
deduction for making contributions to certain relief funds and charitable
- Eligibility criteria for SSE where Non-Profit Organizations (NPO) can
list themselves and will have access to public funding, which are;
- Should be registered as a charitable trust for at least 3 years.
- Annual spend in the PY should be at least 50 lakhs.
- Donation of at least 10 lakhs in the PY.
- Engaged in eligible charitable activities like eradicating hunger,
poverty, access to healthcare, education, etc.
Listing norms and reporting norms are stringent. Small and medium size NGO may
not be able to take benefit of this due to their inadequate policies and
procedures. These may be kept bit lenient for small social entities for initial
The SSEs will provide a platform for SEs to reach out to the larger pool of
investors & can give raise funds easily for building a Social Impact. The
Investors willing to create Social Impact will also be buoyed by the Increased
Transparency, super vision, accountability & Corporate Governance along with
Taxation Benefits & fulfillment of CSR Expenditures for Corporates (If benefit
of these two proposals made by the working Group is also accepted by the
These Social Stock Exchanges can create a Social Fund in the hands of Social
Enterprises & help the Society solving its problems, disasters, emergencies like
COVID-19, but a lot will depend upon how the Corporate Governance Issues of SSEs
& SEs are taken care of, how well the disclosures & other requirements are
penned for the SEs, how the trading of Instruments will be made possible on SSEs
& lot more. The Social Stock Exchange is certainly a promising concept and the
need for which is clearly evident. It might open a number of new opportunities
for both Social Enterprises and impact investors.
A number of recommendations made by the working group and the technical group
were approved by SEBI and the reports did address concerns raised by non-profits
and experts. However, as admitted in the technical group's report, there is a
lack of a sufficiently mature ecosystem in place since this is a novel concept
in India. The SSE should focus on building Social Enterprises' ability to
attract more capital, shifting investor focus from short-term gains, and
educating the stakeholders or professionals required.