Zero Coupon Zero Principal (ZCZP) Instrument

About Zero Coupon Zero Principal (ZCZP) Instrument

• Definition: They are financial instruments or securities issued by not-for-profit organisations (NPOs) registered on the Social Stock Exchange segment of a recognised stock exchange in accordance with regulations framed by the Securities and Exchange Board of India (SEBI). 
• Features:
  • Such organisations registered on the Social Stock Exchange segment of a recognised stock exchange will be permitted to undertake projects with a duration of not more than three succeeding financial years from the date of issuance.
  • The NPOs registered on a Social Stock Exchange may also make private issuance of Zero-Coupon Zero-Principal Instruments.
  • In the event of delisting or termination of the instrument, any unspent amount will have to be transferred to funds specified under the approved list of Corporate social responsibility (CSR) activities.
  • It carries neither interest payments nor repayment of principal, effectively making it a philanthropic funding mechanism routed through a market framework.
  • Form of issuance: It shall be issued in dematerialised form only.
• Limitations:
  • No Independent Impact Assessment Requirement: ZCZP instruments are exempt from independent impact assessments. The exemption is based on the assumption that SSE disclosure requirements provide adequate transparency.
    • However, listing on the SSE does not necessarily guarantee independent verification of social impact, which may concern company boards seeking greater assurance.
  • Limited Supply of Credible Listed Non-Profits: The number of reputable non-profit organisations currently listed on the Social Stock Exchange is relatively small.
    • This raises concerns about whether there will be enough high-quality ZCZP issuances to meet the increased demand generated by the new CSR framework.
• About the Amendment: 
  • Ministry of Corporate Affairs (MCA) has facilitated Corporate Social Responsibility (CSR) through Zero Coupon Zero Principal Instrument by expanding the scope of Schedule VII of the Companies Act, 2013.
    • Also, to facilitate the implementation Corporate Social Responsibility (CSR) through Zero Coupon Zero Principal Instrument, amendments to the CSR Policy Rules, 2014 have been made.
  • Aim: This amendment is aimed at providing significant ease of compliance to the companies and will also help Not-for-Profit Organisations (NPOs) to raise funding for public welfare projects in a transparent and regulated manner.
  • Limits: Expenditure incurred by the CSR-mandated companies for such instruments shall not exceed ten per cent of the total Corporate Social Responsibility expenditure for that financial year