“Social Stock Exchange”
Have you heard this term or concept for the first time?
Before we begin with the history of it, let’s understand why it was required in India.
In India at present, the social-development sector receives funding through multiple sources spanning corporate social responsibility (CSR), philanthropy, charity and government funding. However, the resources are not uniformly accessed by social enterprises.
The rationale of Social Stock Exchange is that it bridges the gap between the private sector and non-profit sector for utilization of these resources.
The concept of Social Stock Exchange gained momentum during the pandemic, highlighting the need for social capital for enterprises and voluntary organizations that are working for social welfare. This platform is meant to serve the For-Profit Enterprises and non-profit sector by channeling greater capital to them.
History of Social Stock Exchange in India
In her Budget speech in 2019, Finance Minister Nirmala Sitharaman proposed the creation of a social stock exchange (SSE).
In year 2019 to 2021, a working group and technical group were formed and issued their reports.
Based on the WG Report and TG Report, in year 2021 SEBI approved the broad framework for establishment of SSEs in India.
In year 2022, SEBI amended the regulations for Issue of Capital and Disclosure Requirements, Listing Obligations and Disclosure Requirements
and Alternative Investment Fund. Also, BSE and NSE received in principle approval to set up Social Stock Exchange.
The Progress to date
As of September 2023, a total of 40 Not for Profit Organizations have registered on NSE and BSE Social Stock Exchanges. So far, one of the Not-for-Profit Organization has filed draft prospectus with Social Stock Exchanges.
Global Scenario
The concept of Social Stock Exchange (“SSE”) came into existence in the year 2003 when the first Social Stock Exchange was introduced and launched in Brazil.
Thereafter, many other countries viz. South Africa (in the year 2006), Portugal (in the year 2009), Canada (in the year 2013), Singapore (in the year 2013), United Kingdom (in the year 2013) and Jamaica (in the year 2019) also launched Social Stock Exchanges.
However, three out of the seven Social Stock Exchanges that were set up still survive and function. They are based in Canada, Singapore and Jamaica.
Objectives & Benefits of Social Stock Exchange
Social Stock Exchange (SSE) is a segment of the existing Stock Exchange, that can help social enterprises raise funds from the public through the stock exchange mechanism. It aims to provide an alternative fund-raising instrument.
Definition of Social Stock Exchange
“Social Stock Exchange” means a separate segment of a recognized stock exchange having nationwide trading terminals permitted to register especially Not for Profit Organizations (NPOs) and to list their securities in accordance with the provisions of the SEBI regulations.
Objectives
- To Regulate the platform that brings together social enterprises and donors.
- To Facilitate funding and growth of social enterprises
- To Enable the mechanism to ensure robust standards of social impact and financial reporting.
Benefits of getting registered
- Enables NPOs to attract a wider pool of donors.
- New avenue of raising the fund
- Enhancement of reputation as leaders in the sector and more Publicity
- Negligible fees for registration and listing
Early movers will contribute to setting standards on reporting and impact measurement which will help in building confidence in India’s non-profit sector.
What is Not for Profit Organization and for-profit Social Enterprise?
As per ICDR Regulations, 2018: “Not for Profit Organization” means a Social Enterprise which is any of the following entities:
(i) a charitable trust registered under the Indian Trusts Act, 1882;
(ii) a charitable trust registered under the public trust statute of the relevant state;
(iii) a charitable society registered under the Societies Registration Act, 1860;
(iv) a company incorporated under section 8 of the Companies Act, 2013;
(v) any other entity as may be specified by SEBI
According to ICDR Regulations, 2018: “For Profit Social Enterprise” means a company or a body corporate operating for profit, which is a social enterprise for the purpose of ICDR Regulations and does not include a company incorporated under Section 8 of the Companies Act 2013.
Social Enterprise
A social enterprise is a type of organisation which aligns a nonprofit’s social mission with financial sustainability through commercial viability.
According to SEBI ICDR Regulations, a social enterprise means either a Not for not-for-profit organisation or a For-Profit Social Enterprise that meets the eligibility criteria specified in the SEBI ICDR Regulations.
- To be identified as a social enterprise, a Not for Profit Organisation (NPO) or a For-Profit Social Enterprise (FPSE), shall establish primacy of social intent.
The following activities shall be considered as Social Intent:
- eradicating hunger, poverty, malnutrition and inequality;
- promoting health care including mental healthcare, sanitation and making available safe drinking water;
- promoting education, employability and livelihoods;
- promoting gender equality, empowerment of women and LGBTQIA+ communities;
- ensuring environmental sustainability, addressing climate change including mitigation and adaptation, forest and wildlife conservation;
- protection of national heritage, art and culture;
- training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports;
- supporting incubators of Social Enterprises;
- supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building;
- promoting livelihoods for rural and urban poor including enhancing income of small and marginal farmers and workers in the non-farm sector;
- slum area development, affordable housing and other interventions to build sustainable and resilient cities;
- disaster management, including relief, rehabilitation and reconstruction activities;
- promotion of financial inclusion;
- facilitating access to land and property assets for disadvantaged communities;
- bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection;
- promoting welfare of migrants and displaced persons;
- any other area as identified by the Board or Government of India from time to time
- Social enterprise shall target undeserved or less privileged population segments or regions recording lower performance in the development priorities of central or state governments.
- Quantum of Social work- the Social Enterprise shall have at least 67% of its activities, qualifying as eligible activities to the target population, to be established through one or more of the following:
- at least 67% of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population;
- at least 67% of the immediately preceding 3-year average of expenditure has been incurred for providing eligible activities to members of the target population; (iii) members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries.
Barred organisation- Corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing shall not be eligible to be identified as a Social Enterprise.
