India’s Finance Minister Nirmala Sitharaman first introduced the idea of the Social Stock Exchange in the budget speech for FY20. After this, in September 2019, a working group (WC) was constituted under Ishaat Hussain’s ( Ex-Director, Tata Sons) Chairmanship. This working group recommended possible mechanisms and structures for SSE within the securities market domain.
In July 2022, SEBI laid down the regulations for successful Social Stock Exchange introduction and operations. On July 25, 2022, the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations), SEBI ICDR Regulations, and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) were amended to facilitate the framework of SSEs.
On December 27, 2022, the Securities Exchange Board of India (SEBI) granted final approval to introduce the Social Stock Exchange (SSE) as a separate section of BSE.
SSE is a novel concept in India. The Social Stock Exchange is a framework formulated to offer the SEs and non-profit sectors an additional avenue to raise funds for specific social welfare purposes.
Who can List on Social Stock Exchange?
Non-Profit Organisations (NPOs) and Profit Social Enterprises with social intent and social impact as their primary objective are eligible to be listed on the Social Stock Exchange. Also, such social intent must be evident with social goals appropriate for the underprivileged or under-served areas or populations.
However, infrastructure and housing companies (except affordable housing), corporate foundations, professional or trade associations, and political and religious organisations/groups/activities are not eligible as Social Enterprises (SE).
The SEs and non-profit organisations must be engaged in one or more of the 16 social activities approved by SEBI to be eligible to be listed on the Social Stock Exchange. Some of the approved social activities include.
- Eradication of Malnutrition
- Eradication of Inequality
- Eradication of Hunger
- Eradication of Poverty
- Healthcare Promotion
- Supporting Education
- Gender Equality
- Empowerment of Woman
- Empowerment of LGBTQIA Communities
- Improvement of Employability and Livelihoods
- Supporting Incubation of Social Enterprises
Eligible Social Enterprises can raise funds via the issue of zero coupon bonds, zero principal bonds, equity, social impact funds, mutual funds, and development impact funds. As per SEBI’s Framework, a minimum application size for a subscription of INR 2 Lakhs and a minimum issue size of INR 1 Crore are currently needed for SSE.
As per the terms of Regulation 292F(1) of SEBI (Issue of Capital and Disclosure Requirement) Regulations 2018 (ICDR Regulations), an NPO or a Social Enterprise interested in SSE registration is required to fulfil the following criteria.
- AN NPO is required to have spent at least INR 50 Lakhs annually in the past financial year. It should have received funding of not less than INR 10 Lakhs in the past financial year.
- An NPO is required to be registered as a charitable trust for at least the last 3 financial years.
- As per SEBI rules and regulations, an NPO is required to submit a statement of the utilisation of funds to the Social Stock Exchange within 45 days from the end of each quarter.
- NPOs are also required to make annual disclosure of all details of their top 5 investors or donors with respect to the scale of operations, governance structure, programme-wise fund utilisation, financial statement, auditor details and auditor’s report, volunteer strength, employee strength and budget.
- Social Enterprises are also mandatorily required to disclose their Annual Impact Report (AIR) within 90 days beginning from the end of each financial year, displaying all quantitative and qualitative aspects. Some such aspects include its mission, vision, composition, details of the governing body, details of the critical managerial staff, details of the board of directors, dates of board meetings held, target social segment, and approach to accomplish its planned activities.
The good news is that the donors or investors to the listed NPOs or SEs are allowed to claim a tax deduction under Section 80G of the Income Tax Act. Under this section, they can claim a deduction for making contributions to certain permitted charitable institutions and relief funds.
In establishing a well-functioning Social Stock Exchange in India for the purpose of bringing about massive social welfare across the nation, it follows its global precedents. Some countries that already have SSEs are The United States of America, Canada, the United Kingdom, Brazil, Jamaica, Portugal, South Africa, and Singapore.
In a vast country like India, with wide socioeconomic differences across multiple segments, a Social Stock Exchange is particularly relevant. The SSE is expected to offer a more organised structure and efficient functioning to NPOs and SEs and help them unlock more doors for funding for social welfare in India.
The Social Service Stock Exchange has the potential to become an agent of change for civil society. It can unlock new capital, introduce new instruments for donors to fund operations, promote equity, create an ecosystem of enabling frameworks for civil society and streamline regulations.
While there are upsides to a Social Stock Exchange, there are also various risks associated with the implementation of SSE, such as segmenting/further exacerbating inequalities between and within sectors, duplication of the operations of the conventional stock exchange, and failure to curate a robust culture of giving. To reduce the risks, the stakeholders are required to create a representative that implements the concerns and wisdom of civil society and social organisations continually.
Samhita’s report concludes that an SSE can be a means for the markets to serve society, not for society to serve the markets.
Overall, SEBI’s endorsement and credibility are expected to help decrease the trust deficit Indian social organisations face. SEBI is responsible for ensuring that SSE is a continually regulated platform that brings together investors, donors and social organisations to facilitate adequate funding to aid the growth of these social organisations and enhance the overall social impact of India in the years to come.
To know more about Social Stock Exchange, who can get listed on SSE and how to get listed on SSE, you can Connect with Team Eureka Now.
