Social Stock Exchange – SEBI Shares A New Framework

21 September 2022
5 mins read
A new framework for the Social Stock Exchange has been shared by the Securities & Exchange Board Of India for NPOs (non-profit organisations). Let’s find out more details about the new framework.
Social Stock Exchange – SEBI Shares A New Framework

Social Stock Exchange is slowly evolving as a potential funding mechanism for a lot of 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.

Annual Disclosure by the NPO listed under SSE

Disclosures on General aspects Disclosures on Governance aspects Disclosures on Financial aspects
i. Name of the organization (legal and popular name)

ii. Location of headquarters and location of operations

iii. Vision / Mission / Purpose

iv. Organizational goals, activities, products and services

v. Outreach of an organisation  (Type and number of direct,  indirect and institutional beneficiaries/stakeholders reached)

vi. Scale of operations (Including Employee and Volunteer strength)

vii. Details of top donors or  investors of organisation

-List of Top 5 donors or investors (budget wise)

viii. Details of top 5  programs in disclosure period

-List of Top 5 interventions/programs (budget-wise)

i. Ownership and legal form

ii. Governance Structure (outlines board and management committee structures, mandates,  membership, charters, policies and internal controls)

iii. Details of governing body including names of the members of the body

iv. Executives with key responsibilities

v. Number of meetings by    governing body and other  committees formed by them   along with attendance and the process of performance review

vi. Organisation-level potential risks and mitigation plan

vii. Reporting of related party transactions

viii. Mechanisms for advice and concerns about ethics, along with conflict of interest and communicating other critical concerns

ix. Remuneration Policies

x. Stakeholdergrievance, the process of grievance redressal and number of grievances received and resolved.

xi. Compliance management  process and statement of  compliance from senior decision maker

xii. Organisation registration   certificate and other licenses   and certifications (12A, 80G, FCRA, GST, etc)

i. Financial Statement  (Balance Sheet, Income statement and Cash Statement). Also, program-wise fund utilization for the year

ii. Auditors’ report and auditor detail

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.