-By Arbas Ahmed
Funding for the social development sector in India comes from various channels including corporate social responsibility (CSR), philanthropy, government grants, and individual donations. The establishment of an Social Stock Exchange aims to streamline these diverse platforms by implementing consistent frameworks for funding, utilization, impact assessment, measurement, disclosure, and reporting. During the Budget Speech for FY 2019-20, the Honorable Finance Minister Smt. Nirmala Sitharaman introduced the concept of a digital fundraising platform called the "Social Stock Exchange" (SSE) under SEBI's regulatory framework.
What is Social Stock Exchange ?
The Social Stock Exchange (SSE) is a distinct segment within National Stock Exchange to facilitate fundraising for Social Enterprises through the stock exchange mechanism. Acting as an intermediary between social enterprises and fund providers, the SSE plays a crucial role in selecting entities that demonstrate measurable social impact and commit to transparent impact reporting.
The Social Stock Exchange offers Social Enterprises including both Non-Profit Organizations (NPOs) and For-Profit enterprises (FPEs) engaged in specified eligible activities, an exclusive chance to register and raise funds through NSE. These registered NPOs and FPEs are required to provide continuous disclosures regarding their social impact, regardless of whether they choose to raise funds through the SSE. This commitment ensures transparency and accountability, enhancing trust among stakeholders and investors alike.
The objectives of the Social Stock Exchange include providing a regulated platform that connects social enterprises with donors, facilitating funding and expansion opportunities for social enterprises, and implementing mechanisms to ensure rigorous standards of social impact and financial reporting.
What are Social Enterprises ?
A social enterprise is a not-for-profit organization (NPO) or a for-profit social enterprise (FPE), that meets the eligibility criteria outlined in SEBI ICDR Regulations or as determined by SEBI periodically. Organizations meeting the eligibility criteria will only be allowed to register its securities on Social stock exchange
ELIGIBILITY CRTITERIA TO GET RECOGNISED AS SOCIAL ENTERPRISE
There are 3 criteria that an Organization must fulfill to be eligible as SSE
1.Predominance of any one of the following
2. List of eligible activities for demonstrating primacy of Social Impact
Organization should deal with any of the following activities to be eligible aa an SSE
Ending hunger, poverty, malnutrition, and inequality.
Advancing healthcare, mental health, sanitation, and clean water access.
Supporting education, employment, and livelihood opportunities.
Advocating for gender equality and empowering women and LGBTQIA+ communities.
Ensuring environmental sustainability and combating climate change.
Preserving national heritage, art, and culture.
Training for rural and recognized sports, Paralympics, Olympics, and supporting social enterprise incubators.
Backing platforms strengthening non-profit fundraising and capacity building.
Enhancing rural and urban livelihoods and small farmer incomes.
Developing slum areas, affordable housing, and resilient cities.
Managing disasters and aiding in relief, rehabilitation, and reconstruction.
Promoting financial inclusion for all.
Facilitating land and property access for disadvantaged communities.
Bridging the digital divide and addressing misinformation and data protection.
Advocating for migrant and displaced persons' welfare.
Exploring additional areas as identified by the Board or Government of India.
3. Targeted Segment:
Social enterprises should focus on serving marginalized or disadvantaged population groups or areas that have historically received less attention in the development agendas of central or state governments.
SOCIAL ENTERPRISES – REGISTRATION AND LISTING PROCESS
INSTRUMENTS TO RAISE FUNDS IN SSE
The Social Stock Exchange (SSE) offers different fundraising instruments under specified guidelines tailored to the nature of the social enterprise seeking funding. The instruments vary for non-profit organizations (NPOs) and for-profit enterprises (FPEs).
For Non-profit Social Enterprises:
1. Zero Coupon Zero Principal Bonds: NPOs can list on the SSE by issuing bonds in the form of zero coupon or zero principal bonds. These bonds provide a viable option to attract funds from donors, philanthropic foundations, and CSR allocations. They would have a duration matching the project being funded, and upon maturity, they would be written off from investors' books.
2. Social Venture Funds (SVFs): SVFs, categorized as Alternative Investment Funds (AIFs) by SEBI, can issue securities or units of social ventures to investors.
3. Mutual Funds: Asset management companies can offer closed-end mutual fund units to investors, with returns directed towards selected NPOs by the fund acting as an intermediary.
4. Pay-for-Success Models: Leveraging lending partners or grants, pay-for-success models ensure efficient and accountable capital deployment.
For For-profit Social Enterprises (FPEs):
Equity Listing: FPEs can list equity on the SSE, subject to specific listing requirements covering operational practices, financial reporting, governance, and social impact reporting.
Social Venture Funds (SVFs): AIFs and SVFs catering to FPEs also exist but do not mandate social impact reporting.
ADVANTAGES
Tax benefits - Investors will get Section 80G benefits which allow all investments in securities/instruments of NPOs listed on SSE to be tax deductible, and corporates to deduct CSR expenditure from their taxable income, among other things.
Investment by companies will be considered as part of their Corporate Social Responsibility (CSR) initiatives, providing them a better option to spend their CSR funds
The SSE serves as a unified and regulated platform, facilitating transparent interactions between social enterprises and investors/donors, ensuring financial integrity and accountability.
Monitoring the performance of SSE-listed enterprises encourages a culture of performance-driven philanthropy, emphasizing social returns alongside financial outcomes.
Establishing successful Social Stock Exchanges (SSEs) requires extensive and prolonged effort. However, in the post-Covid era, it's crucial for India to prioritize investments in human capital. This necessitates collaboration among various stakeholders including government bodies, investors, businesses, financial intermediaries, regulators, philanthropic organizations, and NGOs.
SSEs represent an innovative mechanism for socially conscious enterprises and non-profits to access dependable funding while being subject to public scrutiny. In India, SSEs could play a significant role in fostering professionalism, objectivity, and a culture of monitoring, evaluating, documenting, and reporting social impact. The transparency and the potential to drive social change at scale make SSEs a mutually beneficial proposition for all stakeholders involved.
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