The Securities and Exchange Board of India (SEBI) has recently formed an expert panel that has made the suggestion of allowing non-profit organisations to list directly on Social Stock Exchanges (SSE). This step could make a significant impact on the way funds are raised by these organisations, with the potential to cultivate a culture of ‘giving’ among various stakeholders.
Issuance of Bonds by Non-Profit Organisations
The panel recommended the issuance of bonds by non-profit organisations as an effective method of listing directly on SSE. They suggested that zero coupon or zero principal bonds could be issued in this process. Zero-coupon bonds are a type of debt security that does not pay interest. Instead, they trade at a deep discount and yield a profit at maturity when redeemed for their full face value. This move could encourage donors, philanthropic foundations, and Corporate Social Responsibility (CSR) spenders to invest in these bonds, facilitating access to necessary funds for non-profit organisations.
The Role of Social Venture Funds
The expert panel also discussed the potential role of alternative funding routes. One such avenue pointed out was Social Venture Funds (SVFs) under Alternative Investment Funds (AIFs). SVFs target early-stage social enterprises working to expand opportunities for impoverished individuals by investing in them.
The Importance of Enhanced Reporting Standards
The committee also stressed the need for enhanced reporting standards. According to their recommendations, profit social enterprises should be allowed to list on the platform but must meet these increased reporting standards. They proposed housing the social stock exchange within national exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The Significance of the Expert Panel’s Recommendations
These recommendations carry significant implications for the growth and development of SSE. By using existing infrastructure and nurturing relationships with investors, donors, and social enterprises, the SSE could leverage these advantages to encourage participation.
About the Social Stock Exchange (SSE)
Introduced in the Union Budget of 2019-20, the concept of the Social Stock Exchange was developed to facilitate the listing of social enterprises and welfare organisations. This exchange aims to help these entities raise capital either as equity, debt or a unit of mutual funds. This new, cost-effective funding source could greatly benefit social welfare projects, enhancing India’s independence from foreign aid.
Looking Forward
Given that India is home to more than 2 million social enterprises, the recommendation for non-profit organisation listing on SSE needs careful consideration. An exhaustive approach towards accreditation, valuation, and monitoring is required when formulating such recommendations. There is also a need to draw insights from other countries’ experiences. In London, the SSE acts as a directory linking social enterprises with potential investors. In contrast, Canada’s online platform allows even retail investors to buy into companies or funds with a focus on social impact.