The country’s major stock exchange BSE has got markets regulator Sebi’s in-principle approval to set up a social stock exchange (SSE) as a separate segment. The new exchange will help profit and non-profit organisations raise funds. It comes after the markets regulator in July notified a framework for SSE to provide social enterprises with an additional avenue to raise funds. Here’s all about the social stock exchange and how will it work:
What Is A Social Stock Exchange?
The social stock exchange is a novel concept in India and such a bourse is meant to serve the private and non-profit sectors by channelling greater capital to them. Through this, profit and non-profit organisations will be able to raise funds. The idea of SSE was first floated by Finance Minister Nirmala Sitharaman in her Budget Speech 2019-20.
How Will It Work?
The social stock exchange will see for-profit and not-for-profit social enterprises listed on it. Its working will be different from the regular stock exchanges. However, SSE will also work under the Sebi regulations. Social enterprises are non-loss, non-dividend-paying companies established to address social problems.
The SSE will allow social enterprises to directly issue zero-coupon or zero-principal bonds through the platform. Zero-coupon bonds are debt securities that do not pay interest. However, these bonds are instead traded at a deep discount, which draw a profit at maturity when the bonds are redeemed for their full face value.
This would help them access funds from donors, philanthropic foundations and corporate social responsibility (CSR) spenders through the zero-coupon bonds.
Both not-for-profit organisations (NPOs) and for-profit social enterprises will be eligible to participate in the SSE. However, for-profit social enterprises will be allowed to list on the platform with enhanced reporting requirements.
What Kind of Organisations Can Raise Funds Through SSE?
Sebi in July issued a detailed framework for the SSE, in which the markets regulator specified minimum requirements for entities to register with the exchange.
According to the Sebi rules, the social enterprises will have to engage in a social activity out of 16 broad activities listed by the regulator — including 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.
According to the income tax rules, a social enterprise will not include corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing.
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