The National Stock Exchange of India recently received the final approval from SEBI (Securities and Exchange Board of India) to set up the Social Stock Exchange (SSE). This news is significant in the financial sector as it opens new avenues for social enterprises to raise funds. This article will delve into the features of the Social Stock Exchange, its eligibility criteria, and how it can assist both for-profit and non-profit organisations to raise funds.
Understanding the Concept of a Social Stock Exchange
The SSE is designed to function as a separate segment within the existing stock exchange. It is aimed at assisting social enterprises to raise public funds through its mechanism. The SSE can serve as a medium for these enterprises to seek finance for their social initiatives, acquire visibility, and provide increased transparency about fund mobilization and utilization. As per norms, retail investors can only invest in securities offered by for-profit social enterprises on the Main Board.
Identifying Eligible Social Enterprises
An eligible social enterprise under SSE can be either a non-profit organization (NPO) or a for-profit social enterprise (FPSE) that primarily focuses on social intent. To be identified as a social enterprise, it needs to meet any of the 17 plausible criteria under the SEBI’s ICDR Regulations, 2018. These criteria include eradicating hunger, poverty, malnutrition, promoting education, employability, equality, and environmental sustainability, among others.
Ineligibility Criteria
Certain categories of organizations are deemed ineligible to be identified as social enterprises. These include corporate foundations, political or religious organizations, professional or trade associations, and infrastructure and housing companies, except those providing affordable housing. Moreover, NPOs dependent on corporates for more than 50% of their funding are also considered ineligible.
Raising Funds: NPOs and FPEs
NPOs can raise funds either through the issuance of Zero Coupon Zero Principal (ZCZP) Instruments from private placement or public issue or donations from mutual funds. These instruments entail zero coupon and no principal payment at maturity. For their issuance, the minimum issue size is prescribed as Rs 1 crore and minimum application size for subscription at Rs 2 lakhs.
On the other hand, FPSEs can raise funds without prior registration with SSE. They can do so by issuing equity shares or to an Alternative Investment Fund, including the Social Impact Fund, or by issuing debt instruments.
Understanding ZCZP Bonds, Development Impact Bonds, and other Financial Instruments
In addition to ZCZP bonds which are discussed above, NPOs can also raise money through Development Impact Bonds. These bonds become available upon completion of a project and are issued based on pre-agreed social metrics at pre-agreed costs/rates.
In the context of the Indian economy, short-term unsecured promissory notes are known as ‘Commercial Paper’, ‘Certificate of Deposit’ is a long-term instrument issued by banks or other eligible financial institutions, ‘Call Money’ is short-term finance used for interbank transactions, and ‘Zero-Coupon Bonds’ are interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations. Among these, Commercial Paper and Call Money statements are correct.
