What is Social Stock Exchange and How it is Raising Funds for Social Businesses?
The National Stock Exchange of India (NSE) has received final approval from the market regulator Securities and Exchange Board of India (Sebi) to launch its Social Stock Exchange (SSE) as a separate segment.
SSE will provide a platform for social enterprises such as non-profit organizations (NPOs) or for-profit social enterprises (FPEs) to raise funds to finance their social initiatives. It will also ensure transparency in fund mobilization and utilization.
The development of a social stock exchange under the regulatory authority of the Securities and Exchange Board of India (SEBI) was recommended by the Finance Minister, Mrs. Nirmala Sitharaman, during the 2019 budget session as a way to promote social enterprises in raising money. Only economically sustainable and lucrative ventures benefited from the interaction between investors and firms on the currency market.
The standard for all transactions in this case is the return on investment. As a result of their persistent underfunding, non-profit organizations are forced to rely on donations, charity, and free services to get by.
This article sheds light on a creatively proposed approach for raising capital for investments by social enterprises. Now let's dive deep into the sea of the Social Stock Exchange and see how it can raise funds for social enterprises.
What is Social Stock Exchange?
This type of appeal for donations for social causes appears frequently in postings and requests. We hear about them on the radio, we see them on television, but we mostly see them on social media. They are primarily based on requests for free donations made through crowdsourcing websites, particularly in cases of expensive therapies. A social stock exchange is an electronic platform that enables investors to purchase shares in a social enterprise that has been carefully vetted by the exchange platform. It is similar to a crowd-sourcing platform for fundraising.
For this purpose, a business that generates revenue and has a societal goal as its main goal would be considered a social enterprise. Clean energy, sanitation, healthcare, etc. are a few examples. To raise capital and fund, these platforms can get themselves listed on a social stock exchange.
How will the Social Stock Exchange benefit Social Enterprises?
To carry out social welfare activities and create social impact, social enterprises require financial resources.
According to NSE, SSE will give social enterprises a new way to raise funds for charitable causes, bring them attention, and promote transparency in how those funds are raised and utilized.
How Social Stock Exchange Can Raise Funds For Social Businesses?
A social enterprise must first register on the Social Stock Exchange before it can start issuing financial instruments like Zero Coupon Zero Principal to raise money.
"For eligible NPOs, the first step towards onboarding begins with registration in the Social Stock Exchange segment. After registering, NPOs can start the process of raising money with the help of instruments like Zero Coupon Zero Principal (ZCZP) through a public offering or a private placement "NSE stated.
As per the current regulations, the minimum issue size is 1 crore, and the minimum application size for subscription is 2 lakhs for ZCZP issuance, according to NSE.
NSE also added that The process for issuing and listing securities for FPE (For-Profit Social Enterprises) will follow the same procedures as those currently in place at the exchange (based on eligibility requirements for the main board, SME Platform, or innovators' growth platform, as applicable, in addition to the criteria provided to be eligible as social enterprises).
What is a 'zero-coupon, zero-principal' instrument?
An instrument called Zero Coupon Zero Principal (ZCZP) is one that NGOs issue on an SSE to raise money. Social businesses have up until now relied on donations to raise money. They can now raise money with ease using a stock exchange mechanism thanks to an SSE.
Need for a Social Stock Exchange
Presently, no market phenomenon exists for interaction between social, non-profit enterprises and investors wishing to contribute to such projects. Most non-profit, non-governmental organizations only have a few investors as their source of funding. Or the money from the mandatory corporate social responsibility spending of large companies.
While capital markets have historically met economic needs, the social security exchange would help close the gap between a company's capitalist goals and the need to maintain societal and environmental equity.
Not only would a platform like a social stock exchange help the government secure access to social resources like health and education, but it would also raise the quality and scope of such welfare programs.
While the majority of us care deeply about matters such as the environment, cleanliness, access to education, etc., we frequently find ourselves unable to make enough of a difference. Investors can identify with initiatives that share their principles and values by using a social security exchange.
Despite the difficulties, social security exchanges give regular people the chance to contribute to initiatives that could resolve social problems and to causes they support without engaging in "charity." Many nations, including Singapore, the UK, Canada, and South Africa, have established this well-known exchange platform. We can anticipate a future in which social businesses play significant roles in the Indian economy by providing accurate information on them and developing a supportive infrastructure. Feel free to contact CRSPL’s team of experts if you have any additional questions about the social stock exchange or any other government program, and they will help you with your needs.