Published: 29th Dec, 2022
Context
The National Stock Exchange of India (NSE) has received in-principal approval from the capital markets regulator Securities Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE) as a separate segment.
Background:
- Proposals were made by the government in the Union Budget of 2019-20 to create a platform for listing social enterprises and voluntary organizations.
- Sebi says non-profit organizations that work on eradicating hunger, poverty, and inequality, among other activities, can list on an exchange
- The Economic Survey 2021-21 highlighted the concept of setting up a social stock exchange (SSE).
About
About Social Stock Exchange (SSE):
- SSE will be a separate segment of the existing stock exchanges.
- SSE is a platform that allows investors to invest in select social enterprises or social initiatives.
- It may be listed on BSE or NSE.
- Countries like the UK, Canada, and Brazil have SSEs.
- These countries allow firms operating in social sectors to raise risk capital.
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Risk capital refers to funds allocated to speculative activity and used for high-risk, high-reward investments. Any money or assets that are exposed to a possible loss in value is considered risk capital, but the term is often reserved for those funds earmarked for highly speculative investments. |
- The fundraising is proposed through several instruments such as zero-coupon-zero-principal bonds, social venture funds, and mutual funds.
- Aim of SSE: The aim is to help social and voluntary enterprises to raise capital in form of equity or debt or a unit of the mutual fund.
- The government had announced a new security called “zero coupons zero principal” to enable fundraising for not-for-profit organizations.
What are 'zero-coupon, zero-principal' instruments?
- These are financial instruments that any non-profit organization can use to raise funds.
- Usually, such organizations raise money through donations from individuals or corporates.
- Those willing to donate money to their cause can buy these securities.
- It resembles a debt security like a bond.
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When an entity issues these securities and raises money, it is not a loan but a donation. So, the borrowing entity does not have to pay interest—therefore zero coupon—and it does not have to pay the principal (zero principal) either. |
How does it work?
- The SSE lists non-profit organizations (NPO) on stock exchanges.
- NPOs are establishments that work for the welfare of society or the community and are set up as charitable associations.
- The SSE aims to provide them with an alternative fund-raising avenue.
Need for it:
- The pandemic highlighted the need for greater capital investments toward voluntary organizations and enterprises working for social welfare.
- The SSE will help in this aspect by channeling greater capital to such organisations.
Eligibility criteria for SSE
- Social enterprises that are eligible to participate in the SSE will have to be NPOs and for-profit social enterprises having social intent.
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The social enterprises aspiring for SSE will have to engage in 16 broad activities listed by SEBI: healthcare, education, employability, and livelihoods; eradicating hunger, poverty, malnutrition, and inequality and supporting incubators of social enterprise and gender equality empowerment of women and LGBTQIA+ communities. |
Entities not eligible under the present rules include:
- Corporate foundations
- Professional or trade associations
- Political and religious organizations
- Infrastructure and housing companies, except affordable housing.
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