Recently, the SGBS Unnati Foundation (SUF) became the first entity to list on the social stock exchanges (SSE). The Unnati program of SUF provides vocational training for underprivileged and unemployed youth. Furthermore, the Social Stock Exchange aims to help social and voluntary organizations raise capital for social welfare projects. In this article, we will discuss the significance of SSEs, the role of SUF, and the nature of Zero Coupon Zero Principal (ZCZP) bonds.
Social Stock Exchanges and Their Role
Social stock exchanges (SSEs) were introduced as a platform for listing social enterprises and other welfare organizations. These organizations can raise capital through the SSE, which was proposed in the Union Budget 2019-20. SSEs operate under the market regulator, the Security and Exchange Board of India (SEBI).
A social enterprise is a non-loss, non-dividend paying company created to address a social problem. Through SSE, such enterprises can raise capital as equity, debt, or a mutual fund unit. This new financing source for social welfare projects showcases India’s independence from foreign aid.
SEBI permits social enterprises registered on SSEs to raise funds via Zero Coupon Zero Principal Bonds (ZCZP).
The SGBS Unnati Foundation (SUF)
The SGBS Unnati Foundation, a not-for-profit organization (NPO), was established in 2011. Its Unnati program provides vocational training for the underprivileged and unemployed youth aged 18 to 25 years. After registering with the Social Stock Exchange, an NPO like SUF can raise funds on SSE through issuance of Zero Coupon Zero Principal Instruments.
Understanding Zero Coupon Zero Principal (ZCZP) Bonds
Zero Coupon Zero Principal bonds do not offer any interest, and investors do not receive any money back when the bond matures. The bonds are issued by non-profit organizations and are listed on the SSE. While they cannot be traded in the secondary market, they can be transferred to legal heirs since they are issued in a dematerialized form.
ZCZP instruments issued by for-profit organizations can be listed on the main board or SME platform of exchanges and are available for trading in the secondary market.
Benefits of ZCZP Bonds
Investing in a ZCZP bond is similar to making a donation to a charity. One significant advantage is the increased transparency regarding the social enterprise’s objective. Enterprises must disclose details about the utilization of funds and the remaining balance to exchanges, allowing the end use of the funds to be monitored.
Moreover, listing on the SSE provides visibility for social enterprises and allows them to approach the public regularly if they can demonstrate successful outcomes.
UPSC Civil Services Examination Question: Understanding Financial Instruments
In the 2020 UPSC Civil Services Examination, a question was asked about various financial instruments including ‘Commercial Paper,’ ‘Certificate of Deposit,’ ‘Call Money,’ and ‘Zero-Coupon Bonds.’ Here, we explain these financial instruments:
‘Commercial Paper’ is an unsecured money market instrument issued in a promissory note form. ‘Certificate of Deposit’ is a negotiable money market instrument deposited at a bank or other eligible institution for a specific time. ‘Call Money’ is a short-term loan made by one financial institution to another. ‘Zero-Coupon Bonds’ are debt securities that trade at a deep discount but render a profit at maturity when the bond is redeemed at its full face value.