While markets boom, what's up at India's Social Stock Exchange?

India's equity markets have been making news for past few years. Meanwhile, the Social Stock Exchange (SSE) has also made its appearance.

After the rollout of the regulatory framework for Social Stock Exchange (SSE) by SEBI, National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) obtained SEBI's in-principal approval to set up a separate segment of SSE last year. India witnessed its first-ever listing on the SSE in December last year with the debut of SGBS Unnati Foundation. The Bengaluru-based not-for-profit organization (NPO) raised a little less than Rs 2 crore from high net-worth individuals (HNIs) by listing on the SSE.

As per Economic Survey 2023-24, 51 non-profit organisations (NPOs) are registered on the BSE, and 50 (11 undergoing renewal) are registered on the NSE. Nine NPOs have raised funds on SSE, amounting to a total of Rs 12.4 crore. These projects span social projects in education, livelihood generation, skill development, etc.

What is Social Stock Exchange?

Social Stock Exchange (SSE) is a separate segment created by stock exchanges to help social enterprises raise funds from the public. The idea was floated by Finance Minister Nirmala Sitharaman in her Union Budget 2019-20 speech.

Certain types of social enterprises like not-for-profit organizations (NPOs) can register on SSE and undertake to make continuous disclosures on their social impact. Such NPOs may or may not choose to raise funds through SSE but would continue to make disclosures, including on social impact, to stock exchanges.

How can one invest on the SSE?

Investors can buy Zero Coupon Zero Principle (ZCZP) instruments through the application form which will be available on website of Social Stock Exchange. In case of payment by way of cheque/demand draft, the same shall be attached to the application form and should be submitted to the Registrar Transfer Agent (RTA) before the issue closing date. In case of electronic transfer to the escrow account then the application must mention UTR no. and date of Transfer in the application Form. Every investor should mandatory have a demat account in any of the depositories in their name in which their ZCZP instrument will be reflected in case of allotment.

Can one trade with these instruments?

No, Zero Coupon Zero Principle (ZCZP) instruments are not tradable. These instruments serve as a unique bridge between social enterprises or charitable organisations and potential donors. Unlike traditional bonds or equities, zero coupon zero principal instrument don't yield interest, nor do they return the principal amount upon maturity; instead, they operate as pure donations.

To encourage social sector spending, markets regulator Sebi has suggested that the government should allow tax benefits to companies investing in zero coupon zero principal bonds issued by not-for-profit organisations listed at the social stock exchange, PTI reported last month.

Outcome-driven philanthropy

The SSE aims to bridge the financing gap by providing alternative fund-raising instruments for achieving socio-development goals, says the Economic Survey. SSE is a separate segment of the existing stock exchange, which can help social enterprises like nonprofit organisations (NPOs) and non-government organisations (NGOs) raise funds from the public through the stock exchange mechanism. In this way, SSE is expected to stimulate the ecosystem of outcome-driven philanthropy in India in a transparent and regulated environment.

SSE also offers a platform for constructive engagement of NGOs and other enterprises working in the area of social projects related to health, education, livelihood generation, etc., to directly raise funds from the private sector, corporate entities and individuals (including high net worth individuals (HNIs)) and contribute to development goals, the survey says. With the increasing global appetite for socially responsible investments, SSE bridges this gap and brings the capital markets closer to the masses for meeting various social welfare objectives.