Social Stock Exchange: What kind of organisations can list on it?

Sebi says non-profit organisations that work on eradicating hunger, poverty, and inequality, among other activities, can list on exchange

The Securities and Exchange Board of India (Sebi) has notified a framework introducing a social stock exchange in India, which will provide social enterprises an additional avenue to raise funds. Following up on this, the Institute of Chartered Accountants of India’s (ICAI’s) central council has reportedly approved the formation of an ‘Institute of Social Auditors of India’.

So, what is a social stock exchange (SSE), and how does it work?

What is it?

The SSE lists non-profit organisations (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.

The pandemic highlighted the need for greater capital investments toward voluntary organisations and enterprises working for social welfare. The SSE will help in this aspect by channelling greater capital to such organisations.

How does it propose to do this?

Organisations with social intent and impact as their primary goals will be eligible to list on the SSE. The organisation should be able to demonstrate this intent through its work with underprivileged sections of the population, or regions. Sebi has a list of 15 broad activities that qualify as social work including eradicating hunger, poverty malnutrition and inequality, promoting gender equality, ensuring environmental sustainability, and promoting education. The NPO should be engaged in activities specifically from this list.

The regulator has proposed that eligible NPOs may raise funds through equity, zero-coupon-zero-principal bonds, mutual funds, social impact funds, and development impact bonds. Zero-coupon-zero-principal bonds are instruments issued by an NPO which will be registered with the SSE and regulated by the RBI.

Investors can also claim a deduction under Section 80G of the Income Tax Act, which lets them claim a deduction for making contributions to certain relief funds and charitable institutions.

Global precedents

In establishing such an exchange India is following global precedents. Countries like the United States, the United Kingdom, Canada, and Brazil already have SSEs.