[Opinion] Exploring the Two Pillars of the Social Eco-system | Social Entity & Social Stock Exchange
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- Last Updated on 9 June, 2023
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“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 the 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.”
– FM Nirmala Sitharaman
Introduction
In the fiscal year 2019-20 budget, N. Sitharaman announced plans to establish a ‘Social Stock Exchange’ to facilitate fundraising for social institutions and non-profit organizations focused on social welfare. The Social Stock Exchange serves as a dedicated platform that promotes and supports social enterprises, acting as a bridge between these enterprises and potential investors.
The responsibility of regulating the Social Stock Exchange was entrusted to the Securities Exchange Board of India (SEBI) by the Finance Minister. The SEBI subsequently developed comprehensive regulations and frameworks related to various aspects of the Social Stock Exchange, which encompassed the eligibility criteria for social enterprises, registration procedures, social impact funds, and social audits.
I. What is a Social Enterprise?
Social enterprises mean either For-profit social enterprise (FPE) or Not-for-profit organization (NPO) which satisfies certain eligibility criteria to be a Social Enterprise.
II. What eligibility criteria are required by an entity to qualify as a social enterprise?
To establish the primacy of its social intent (i.e. the main objective is social welfare), the entities shall meet the following eligibility criteria:
a) Indulge in at least one of the prescribed activities
b) Target less privileged and underserved population segments or region
c) Satisfy minimum 67% welfare criteria
III. What is Social Stock Exchange (SSE)?
Social Stock Exchange means a separate segment of a recognized stock exchange (e.g. NSE) having nationwide trading terminals permitted to register Not for Profit Organizations and/or list the securities issued by Not for Profit Organizations.
It is worth noting here that an NPO shall mandatorily seek registration with the Social Stock Exchange before it raises funds through Exchange. However, an NPO may choose to register on a Social Stock Exchange and not raise funds through it.
IV. Why to List on Social Stock Exchange?
a) Zero Listing and Admission cost
b) Synergy between investors and investee in social aims
c) Improved market access
d) Additional avenue for Social Enterprises
e) Performance-based philanthropy
V. Who governs the Social Stock Exchange?
To keep an oversight of the functioning of the SSE, every SSE will constitute an SSE Governing Council (SGC).
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