Social Stock Exchange in India: Transforming Support for Social Enterprises

CA Ajmal Muhajir
Director, Chartered Accountant

04-May-2024

Social Stock Exchange in India: Transforming Support for Social Enterprises

Social enterprises are organizations that aim to create positive social or environmental impact while also generating financial returns. They can be either not-for-profit or for-profit entities, but they share a common vision of addressing some of the most pressing challenges faced by the society, such as poverty, health, education, environment, etc.

However, social enterprises often face difficulties in accessing adequate and appropriate funding to scale up their operations and impact. Traditional sources of funding, such as grants, donations, or bank loans, may not be sufficient or suitable for their needs. Moreover, social enterprises may lack visibility and recognition among potential investors or donors who are interested in supporting their cause.

This is where the Social Stock Exchange (SSE) comes in. The SSE is an innovative initiative launched by the Securities and Exchange Board of India (SEBI) in 2020, following the announcement made by the Hon’ble Finance Minister Smt. Nirmala Sitharamanji in her budget speech in 2019. The SSE is an electronic fundraising platform that connects social enterprises with impact investors and donors who want to invest or donate in a transparent and accountable manner.

Features of SSE

The SSE has the following features:

It is a separate segment on the National Stock Exchange (NSE), which is one of the leading stock exchanges in India.
It provides a regulated platform for listing and trading of securities issued by social enterprises, such as equity shares, debt instruments, mutual funds, etc.
It facilitates the disclosure of relevant information and the measurement of social impact by the social enterprises.

Benefits of SSE

The SSE aims to create a vibrant ecosystem for social enterprises in India by providing them with the following benefits:

Access to diverse sources of funding, ranging from investors to donors.
Enhancement of their credibility and visibility among the stakeholders.
Encouragement to adopt best practices in governance and impact management.
Creation of awareness and interest among investors and donors who want to support social causes and make a diﬀerence in the society.

Eligibility Criteria for Social Enterprises

The SSE has defined 17 eligible areas for demonstrating social intent based on Schedule VII of the Companies Act, 2013, Sustainable Development Goals (SDGs) and priority areas identified by Niti Aayog. These include areas such as education, health, sanitation, environment, rural development, gender equality, etc. The SSE has also specified that the social enterprises should target unserved or less privileged population segments or regions that record lower performance in the development priorities of the central or state government. The social enterprises should have at least 67% of their activities qualifying as eligible activities to the target population, which can be established through the immediately preceding three-year average of either revenue or expenditure or target population.

Eligible activities for demonstrating the primacy of social impact:

1	Eliminating hunger, poverty, malnutrition, and inequality
2	Advancing healthcare (including mental health), sanitation, and ensuring access to safe drinking water
3	Fostering education, enhancing employability, and promoting sustainable livelihoods
4	Advocating for gender equality, empowering women, and supporting LGBTQIA+ communities
5	Ensuring environmental sustainability, addressing climate change (both mitigation and adaptation), and conserving forests and wildlife
6	Safeguarding national heritage, art, and culture
7	Providing training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports
8	Supporting incubators for social enterprises
9	Backing platforms that strengthen the non-profit ecosystem through fundraising and capacity building
10	Promoting livelihoods for both rural and urban poor, including increasing the income of small and marginal farmers and workers in the non-farm sector
11	Developing slum areas, creating aﬀordable housing, and implementing interventions for sustainable and resilient cities
12	Managing disasters, including relief eﬀorts, rehabilitation, and reconstruction activities
13	Encouraging financial inclusion
14	Facilitating access to land and property assets for disadvantaged communities
15	Closing the digital divide in internet and mobile phone access, addressing issues of misinformation and ensuring data protection
16	Advocating for the welfare of migrants and displaced persons
17	Exploring any other areas identified by the Board or the Government of India from time to time

The SSE is open to both not-for-profit and for-profit social enterprises that meet the eligibility criteria and comply with the listing and disclosure norms. The not-for-profit social enterprises can issue zero coupon zero principal bonds (ZCZP bonds) or equity shares with diﬀerential voting rights (DVR shares) to raise funds from investors or donors. The for-profit social enterprises can issue equity shares or debt instruments to raise funds from investors. The SSE also allows mutual funds to invest in securities issued by social enterprises.

Zero Coupon Zero Principal (ZCZP) bonds: These are bonds that do not pay any interest or principal amount to the investors. Instead, they are issued at a discount and redeemed at par value at maturity. The diﬀerence between the issue price and the redemption value represents the donation made by the investor to the issuer. ZCZP bonds are suitable for NPOs who do not have any revenue stream or profit motive.

Equity shares: These are shares that represent ownership in the issuer. Equity shares are suitable for FPEs who have a revenue stream and a profit motive, but also have a social impact objective. Equity shares can be issued on the main board, SME board, or Innovators Growth Platform (IGP) for startups, depending on the eligibility criteria of the issuer.

Transparency and Accountability Framework

The SSE has established a robust framework for ensuring transparency and accountability of the social enterprises and their impact. The social enterprises are required to disclose information about their financial performance, governance structure, social intent, target population, eligible activities, etc. on a regular basis. The SSE also mandates the social enterprises to conduct an independent third-party impact assessment at least once in three years and disclose the results on the platform. The impact assessment should follow the principles and standards prescribed by SEBI.

Disclosure Requirements

Particulars	NPOs registered on SSE	NPOs with its securities listed on SSE	FPSEs Registered with SSE
Annual Disclosures	Within 60 days from the end of FY (format to be specified by SEBI)		As applicable under Ch. IV/V of LODR
Quarterly Disclosures	NA	Statement of utilization of the funds raised from the end of each quarter till such funds are utilized, in the manner:	As applicable under Ch. IV/ V of LODR
		Category-wise amount of money raised & utilized;
		Amount remaining unutilized

Event based Disclosures	NA	Any event that may have a material impact on the planned achievement of outputs or outcomes and steps being taken by the Social Enterprise to address the same, within 7 days from the occurrence of such event
Policy for Determination of materiality	NA	To frame policy for determination of materiality and disclose the same to Social Stock Exchange.
Annual Impact Report	Annual Impact Report audited by a Social Audit Firm employing Social Auditor, to SSE/ Stock Exchange (time period and format to be specified by SEBI)

How to register or list on SSE?

To register or list on SSE, the issuer has to follow these steps:

Apply to NSE with the required documents and fees.
Obtain approval from NSE after due diligence and verification.
Comply with the listing agreement and disclosure norms of NSE.
Submit an annual impact report along with financial statements to NSE.

Where to find more information about SSE?

NSE has recently launched its SSE segment with 19 NPOs being registered successfully on the platform. The platform has garnered incredible interest from various stakeholders, including social entrepreneurs, investors, and regulators, who see it as a means of achieving the Sustainable Development Goals (SDGs) set by the United Nations.

Being the largest exchange in India, NSE is committed to facilitate the social enterprises to tap the potential of this new segment and has conducted various outreach programs to build the capacity of the NPOs, create awareness and enable them to register on the segment. The detailed framework and FAQ’s regarding NSE SSE is available on NSE website.

The SSE is a pioneering initiative that has the potential to transform the landscape of social entrepreneurship in India. By providing a dedicated platform for fundraising and impact measurement, the SSE can enable social enterprises to scale up their operations and impact, while also attracting more investors and donors who want to support their cause. The SSE can also create a culture of social responsibility and accountability among all stakeholders involved in the social sector.

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