Social Stock Exchange - In the making

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SEBI in its Board Meeting dated September 28, 2021 approved the creation of the Social Stock Exchange (SSE) for fund raising by Social Enterprises (SE). 

Series of steps taken to make SSE a reality!

Step 1:

The foundation of creation of SSE was laid by the Finance Minister in 2019-2020 Budget Speech where she quoted – 

“It is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. I propose to initiate steps towards creating an electronic fund raising platform – a social stock exchange – under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.”

Step 2:

Subsequently, the Working Group (WG) Report on Social Stock Exchange was released on June 01, 2020. 

The WG Report made high level recommendations for SSE, which included participation of Non-profit organizations (NPOs) and even For-profit enterprises (FPEs) on SSE subject to committing to minimum reporting requirements. It also made recommendations outlining the modalities for creating SSE that will serve as a platform for fundraising. 

Step 3:

Later, the Technical Group Report on Social Stock Exchange was released on May 06, 2021. TG Report deliberated at length on the following aspects:

  • Determining what constitutes an eligible Social Enterprises for SSE through primacy of social impact, 
  • Enabling on-boarding of social enterprises on SSE, and 
  • Disclosure norms 
  • Ecosystem development, especially on Social Auditors. 
  • Capacity building fund which will enable NGOs to navigate the SSE and its fund-raising mechanisms. 

Step 4:

And now, SEBI has finally approved the creation of SSE. The framework for the SSE has been developed on the basis of the recommendations of the working group and technical group constituted by SEBI. 

The salient features of the framework approved by the Board are as follows: 

  1. A part of Stock Exchanges: SSE shall be a separate segment of the existing stock exchanges 
  2. Eligible entities: Social Enterprises eligible to participate in SSE, shall be entities Non-Profit Organization (NPO) and For-Profit Social Enterprise (FPE) having social intent and impact as their primary goals. Social Enterprises will have to engage in a social activity out of the list of 15 broad eligible social activities approved by the Board. 
  3. Eligible instruments: Eligible NPOs may raise funds through equity, Zero Coupon Zero Principal (ZCZP) bonds, Mutual Funds, Social Impact Funds, and Development Impact Bonds. NPOs desirous of raising funds on SSE shall be required to be registered with SSE. 
  4. Social Impact Funds: Social Venture Funds under SEBI (Alternative Investment Funds) Regulations will be rechristened as Social Impact Funds (SIFs). The corpus requirements for such funds shall be reduced from Rs. 20 crs. to Rs. 5 crs. Further, the reference to “muted returns” shall be removed. 
  5. Disclosures and governance: SEBI shall make suitable amendments to its regulatory framework, towards mandating initial and continuous disclosures for Social Enterprises, covering aspects relating to governance, financial and social impact. 
  6. Audit: Audit of social impact, i.e. social audit shall be mandated for SEs raising funds/ registered on SSE. To begin with, only reputed firms/institutions having expertise in the area of social audit shall be allowed to carry out social audits employing social auditors who have qualified the certification course conducted by NISM. A separate sustainability directorate under ICAI shall function as an SRO for Social Auditors. 
  7. Capacity building fund: SEBI shall engage with NABARD, SIDBI and stock exchanges towards institution of a capacity building fund, with a corpus of Rs. 100 Crores. 
  8. Prospective amendments: Operationalization of the above framework will require amendments to applicable regulations such as ICDR Regulations, LODR Regulations, AIF Regulations, Mutual Fund Regulations etc. which will be taken up by SEBI.

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