Social Stock Exchange

In News

• Recently, the Capital markets regulator SEBI came out with a detailed framework for social stock exchange.

Background

• The idea of SSE was first floated by the Finance Minister in her Budget speech for the financial year 2019-20.
• With business impacted due to the COVID-19 induced lockdown, SEBI constituted a panel on social stock exchanges which recommended direct listing of non-profit organisations (NPOs) through the issuance of bonds and a range of funding mechanisms in a report submitted to the market regulator.

What is an SSE?

• An SSE allows the listing of non-profit or non-government organisations on stock exchanges, providing them with an alternative fund-raising structure. 
• It may be listed on BSE or NSE. 
• Countries like the UK, Canada and Brazil have SSEs.
• The fund-raising is proposed through several instruments such as zero-coupon-zero-principal bonds, social venture funds and mutual funds.

What is the size of the market?

• India has over 31 lakh NPOs more than double the number of schools and 250 times the number of government hospitals which amount to one NPO for 400 Indians.

Objectives of SSEs

• A Social Stock Exchange may be helpful in rebuilding the livelihoods of people who are affected during pandemics like COVID-19.
• The SSEs will aim at unlocking large pools of social capital, and encourage blended finance structures, so that conventional capital can partner with social capital to address the urgent challenges of COVID-19.

Tax benefits

• Investors will get Section 80G benefits which allow all investments in securities/instruments of NPOs listed on SSE to be tax deductible.
• Investment by companies will be considered as part of their Corporate Social Responsibility (CSR) initiatives.

Recent Guidelines/ Framework

• A Separate segment 
  • SSE will be a separate segment of the existing stock exchanges.
• Eligibility
  • Social enterprises eligible to participate in the SSE will be entities NPOs and for-profit social enterprises having social intent and impact as their primary goal.
• Non Eligibility
  • Corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing will not be eligible to be identified as a social enterprise.
• Minimum requirements for Not-for-Profit Organisation 
  • NPO needs to be registered as a charitable trust and should be registered for at least three years, must have spent at least Rs 50 lakh annually in the past financial year and should have received a funding of at least Rs 10 lakh in the past financial year.
  • Disclosure requirements for NPOs raising funds through the issuance of zero-coupon zero principal instruments and put in place annual disclosure requirements that need to be made by NPOs on such exchanges.
• Registration of NPO
  • The entities must be registered in India as a “charitable trust registered under the public trust statute of the relevant state” or under the Societies Registration Act, 1860, or the Indian Trusts Act, 1882, or incorporated as a company under Section 8 of the Companies Act, 2013. 
• Statement of utilisation 
  • Listed NPO will have to submit a statement of utilisation of funds to SSE, as mandated under SEBI’s rules within 45 days from the end of quarter.
• Annual Impact Report (AIR)
  • SEBI has asked social enterprises raising funds using SSE to disclose the Annual Impact Report (AIR) within 90 days from the end of the financial year.
    • It will Capture the qualitative and quantitative aspects of the social impact generated by the entity and where applicable, the impact that is generated by the project or solution for which funds have been raised on SSE. 

Significance of the move 

• Social objectives: Such intent should be demonstrated through its focus on eligible social objectives for the underserved or less privileged populations or regions.
• Social activity: The social enterprises will have to engage in a social activity out of 16 broad activities listed by the regulator.
  • It includes eradicating hunger, poverty, malnutrition and inequality; promoting healthcare, supporting education, employability and livelihoods; gender equality empowerment of women and LGBTQIA+ communities; and supporting incubators of social enterprise.

Source: ET