Social Stock Exchange is a new potential funding mechanism for non-profit organisations in India. Many NPOs face trust deficits which prevent them from doing many social activities. SSE was introduced to reduce this problem so that NPOs face fewer challenges to operate. SSE is formed with the intent to give social enterprises an additional avenue to raise money. This novel concept was built with the sole purpose of serving the private and non-profit sectors by routing greater capital to them. Let’s get into more details to understand what SSE is and how the new framework can help a lot of NGOs to continue with their good deeds.
On Sept 19, 2022, SEBI proposed a new framework for
the Social Stock Exchange (SSE). This new framework would allow the listing of
non-profit organisations (NPO).
What is Social Stock Exchange?
Social Stock Exchange was first proposed by Finance
Minister Nirmala Sitharaman as a part of the budget speech for FY
2019-2020. This was initiated with the aim to list social enterprises and
voluntary organisations.
The exact speech was “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 fundraising platform- a social
stock exchange-under the regulatory ambit of Securities and Exchange Board of
India 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.”
To list, SEBI further added, “SSE under the
guidance of SSE Governing Council (SGC) shall mandate the structure of the
draft fundraising document/ final fundraising document. SSE shall host such
requirements on its website.“
SSE is formed with the intent to give social
enterprises an additional avenue to raise money. This novel concept was built
with the sole purpose of serving the private and non-profit sectors by
routing greater capital to them.
The information that is mandated for SSE to collect
is the NPO’s vision, strategy, details of key management personnel,
financial statements for the last three years, and the risks that the NPO sees
to its work.
“The SSEs will aim at unlocking large pools of
social capital, and encourage blended finance structures so that conventional
capital can partner with social capital to address the urgent challenges of
COVID-19” SEBI stated.
In 2019, a working group was created under the
chairmanship of Shri Ishaat Hussain (Ex-Director, Tata Sons). This working
group consisted of representatives from social welfare, social impact
investing, representatives from the Ministry of Finance, the stock exchanges
and NGOs.
Eligibility criteria for the NPO to get listed
- The
primary goal of the NPOs that want to get listed should be social intent
and impact. These intents should be focused on various social objectives
for unattended and underprivileged populations or regions.
- The NPO
should be engaged in 16 broad social activities listed by the board. The
eligible activities include 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.
- In the
circular, SEBI stated that any NPO which wants to get listed should be
registered as a non-profit entity and the registration certificate should
be valid for 12 months. There should not be any ongoing scrutiny or notice
by the Income Tax.
- The
firm should be registered in India as a “charitable trust registered under
the public trust statute of the relevant state” or under the Societies
Registration Act, 1860, or the Indian Trusts Act, 1882, or incorporated as
a company under Section 8 of the Companies Act, 2013.
- The
minimum age of NPO should be 3 years.
- The NPO
should declare whether it is government or privately owned.
- Any NPO entity that wishes to get listed should have 80G registration under the Income Tax Act. Each entity should have a minimum spending of Rs.50 lakh in the last fiscal year and minimum funding of Rs 10 lakh in the past financial year.
The NGO industry in India is quite
large. There are over 31 lakhs of NPOs which amounts to one NPO per 400
Indians. This new framework suggested by SEBI will definitely help these NPOs
to take an advanced route for the betterment of the people.