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Source: The post is based on the article “Explained | Combining social welfare and capital markets through SSE” published in The Hindu on 3rd March 2023.
What is the News?
The National Stock Exchange of India received final approval from the markets regulator Securities and Exchange Board of India(SEBI) to set up a Social Stock Exchange(SSE).
What is the Social Stock Exchange(SSE)?
The SSE would function as a separate segment within the existing stock exchange and help social enterprises raise funds from the public through its mechanism.
It would serve as a medium for enterprises to seek finance for their social initiatives, acquire visibility and provide increased transparency about fund mobilization and utilization.
Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board. In all other cases, only institutional investors and non-institutional investors can invest in securities issued by SEs.
Eligibility: Any non-profit organization(NPO) or for-profit social enterprise (FPSEs) that establishes the primacy of social intent would be recognised as a SE, which will make it eligible to be registered or listed on the SSE.
Ineligibility: Corporate foundations, political or religious organizations, professional or trade associations, infrastructure and housing companies (except affordable housing) would not be identified as SE.
– NPOs would be deemed ineligible if dependent on corporates for more than 50% of its funding.
How can non-profit organizations(NPO) or for-profit social enterprise (FPSEs) raise money for funding?
NPO’s money raising: NPOs can raise money either through the issuance of Zero Coupon Zero Principal (ZCZP) Instruments from private placement or public issue, or donations from mutual funds.
– ZCZP bonds differ from conventional bonds in the sense that it entails zero coupons and no principal payment at maturity.
– The minimum issue size is presently prescribed as Rs 1 crore and the minimum application size for subscription at Rs 2 lakhs for ZCZP issuance.
Development Impact Bonds are also available for NPOs upon completion of a project and delivered on pre-agreed social metrics at pre-agreed costs/rates.
FPEs money raising: For-Profit Enterprises (FPEs) need not register with social stock exchanges before it raises funds through SSE.
– FPEs can raise money through 1) the issue of equity shares (on the main board, SME platform or innovators’ growth platform of the stock exchange) or 2) issuing equity shares to an Alternative Investment Fund including Social Impact Fund or issue of debt instruments.
