Context: Securities and Exchange Board of India (SEBI) has proposed a new framework for Social Stock Exchanges with changes in the definition of Not-for-Profit (NPO) organisation and expansion of eligible activities to be identified as social enterprise.
Relevance of the Topic:Prelims: Key facts about Social Stock Exchanges.
What are Social Stock Exchanges?
- Social Stock Exchange (SSE) is a separate segment of the existing Stock Exchange that can help Social Enterprises to raise funds from the public through the stock exchange mechanism.
- The primary goal of an SSE is to channel funds towards entities that create measurable social impact.
- Objectives:
- Regulated platform that connects social enterprises and potential donors.
- Facilitate funding for the growth of social enterprises.
Eligibility for Registration on SSEs
- Social Stock Exchange identifies the following two forms of social enterprises (SE): Not-for-profit organisation and For profit social enterprise.
| Not-for-profit Organisations (NPOs) | For Profit Organisations |
| Not for profit organisations are either charitable societies registered under the Societies Registration Act, 1860 or company incorporated under section 8 companies under Companies Act 2013. | For-profit company is any company under the Companies Act, 2013, operating for profit and does not include a company incorporated under section 8 of the Companies Act, 2013. |
| A Not-for-Profit organisation may raise funds on Social Stock Exchange through: - Issuance of Zero Coupon Zero Principal Instruments. - Donations through Mutual Fund Schemes. | A For Profit Social Enterprise may raise funds through: - Issue of equity shares - Issue of equity shares to mutual funds - Issue of debt-instruments |
| Zero Coupon Zero Principal Instruments shall be issued only by a Not-for-Profit Organisation registered on a Social Stock Exchange. | For-profit organisations cannot issue Zero Coupon Zero Principal bonds. |
| The instruments issued by Not-for-Profit Organisations are not available for trading in the secondary market. | Instruments issued by For-Profit Organisations are available for trading in the secondary market on respective platforms of the Stock Exchanges, on which they are listed. |
- Ineligibility: However, corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure, and housing companies, except affordable housing, shall not be eligible to be identified as a Social Enterprise. NPOs would be deemed ineligible if dependent on corporates for more than 50% of its funding.
Zero Coupon Zero Principal (ZCZP) Instruments:
- ZCZP bonds differ from conventional bonds in the sense that it entails zero coupon and no principal payment at maturity.
- For ZCZP issuance, the minimum issue size is presently prescribed as Rs 1 crore and minimum application size for subscription at Rs 2 lakhs.
Proposed easing of norms for Social Stock Exchanges
1. Expanding definition of NPOs:
- Currently, an NPO means:
- Social enterprise registered under a charitable trust registered under Indian Trusts Act, 1882 or under the public trust statute of the relevant State.
- Charitable society registered under Societies Registration Act, 1860.
- Company incorporated under Section 8 of Companies Act, 2013.
- Expanded definition includes:
- Trusts registered under Indian Registration Act with relevant sub registrar.
- Charitable society registered under the society registration statute of the relevant State.
- Companies registered under Section 25 of the Companies Act, 1956.
2. Expanding Eligible list of activities: List of activities to be eligible as a social enterprise will include:
- welfare of disadvantaged children, women, destitute, elderly and disabled;
- vocational skills
- promotion and education of art, culture and heritage.
3. Expanding Target Segment: Target segment may be expanded to include cultural and environmental ecosystem entities, in addition to social entities.
4. Easing conditions for renewal of registration:
- Several NPOs register with SSE and do not graduate to listing or renewing the registration. This is due to the cost of annual reporting, including the social impact assessment of significant programmes.
- Now, NPOs shall be permitted to register with SSEs for two years without raising funds through SSEs.
5. Condition of business income:
- SEBI has proposed to prescribe the condition of business income of more than 20% of revenues in the latest annual year for the For-Profit Social Enterprises or Not for Profit Social Enterprises. This is done in order to comply with the criteria of 67% of activities qualifying as eligible activities.