An SSE is a separate segment of recognized stock exchange having nationwide trading terminals permitted to register a Social Enterprise (as explained below) and / or list the securities issued by Social Enterprises, that acts as a platform for investors who are inclined in making investments that have a positive social and environmental impact, alongside financial returns. In this respect, Bombay Stock Exchange (“BSE”) and the National Stock Exchange (“NSE”) received the final approval from SEBI to introduce SSE segment on their platforms on December 27, 2022, and February 22, 2023, respectively.
In line with the above initiative, the Ministry of Finance issued a notification whereby ‘Zero Coupon Zero Principal Instruments‘ (“ZCZP Instruments”) were brought under the ambit of the definition of ‘Securities‘ under the Securities Contracts (Regulation) Act, 1956. Subsequent to the said notification, SEBI has also amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR”) to introduce the framework and rules for the setting up of SSE on a recognised stock exchange in India.
Any social enterprise being either a non-profit organisation (“NPO”) or a for-profit social enterprise (“FPSE”) (“Social Enterprise”), that is able to establish itself as a social impact enterprise and meeting the following criteria can get registered/listed on the SSE:
- The Social Enterprise is required to work in one of the 17 (seventeen) areas identified under the ICDR regulations, such as eradicating hunger, poverty, malnutrition and inequality, promoting gender equality and promotion of financial inclusion;
- The Social Enterprise shall target underserved or less privileged populations; and
- The Social Enterprise shall have at least 67% (sixty seven percent) of its activities being those set out under criteria (i) and (ii).
Corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing, are not eligible to be identified as a Social Enterprise.
Under the regulatory regime, Social Enterprises being NPOs may raise funds through either an issuance of ZCZP Instruments to institutional and, or, non-institutional investors; and, or, donations through mutual fund schemes as specified by SEBI.
FPSEs on the other hand may raise funds through issuance of equity shares on the main board, small & small and medium enterprises platform or innovators growth platform; issuance of equity shares to an alternative investment fund, including a social impact fund; and, or issuance of debt securities.
ZCZP Instruments are permitted to be issued only by NPOs registered on SSE. ZCZP Instruments are devoid of any coupon rate and further no principal amount is required to be paid on maturity. In addition to the aforementioned, the ZCZP Instruments must adhere to inter alia conditions in relation to mandatory dematerialisation of the ZCZP Instruments, minimum issue size (INR 1,00,00,000 /- (Indian Rupees One Crore Only)), minimum application size (INR 2,00,000/- (Indian Rupees Two Lakh Only)), and disclosure requirements.
The public issuance of ZCZP Instruments by NPOs shall additionally be required to comply with the provisions of the Securities Contracts (Regulation) Rules, 1957. Further, NPOs are now permitted to disclose past social impact reports in the fundraising document, subject to disclosure of key parameters such as number of beneficiaries, cost per beneficiary and administrative overhead.
While these positive steps have been taken for furtherance of social objectives which is a need of the hour, there are still some aspects that may require liberalisation. Presently, foreign investors including Non- Resident Indians, foreign foundations, foreign entities foreign social impact funds are presently not permitted to invest in NPO fundraising under the current regulatory regime. Several foreign not for profits and foundations have been keen on furthering social and charitable work in India and this would provide them with an avenue to further their goals as well as provide support to organisation in India with much needed funds/ resources in India.
Since the introduction of the SSE segment on the BSE and the NSE, there has been an upward rise in the number of NPOs that have registered with the SSE. Until recently, over 40 NPOs are registered with the NSE and over 30 NPOs are registered with the BSE. We will keep tracking updates in this sector, so watch this space for more ….