SEBI Panel Proposes Creation of ‘Social Stock Exchanges’

Non-profit organisations would be allowed to directly list bonds on social stock exchanges housed within existing exchanges such as the BSE or NSE, the SEBI panel said.

A SEBI (Securities and Exchange Board of India) working group has published a new report offering recommendations for creating a “social stock exchange” to help channel funding to social enterprises and voluntary organisations.

The working group was formed September 2019, comprising representatives from the Ministry of Finance, stock exchanges, NGOs and other stakeholders active in social welfare, social impact investing. The proposal to create a social stock exchange was part of Finance Minister Nirmala Sitharaman’s 2019-20 budget speech.

The working group held a series of consultations with voluntary organisations, social enterprises, philanthropic organisations and other stakeholders to assess the difficulties they face both in raising and donating funds.

Based on the consultations, the working group recommends that non-profit organisations be allowed to directly list bonds on the proposed social stock exchange – which would be housed within an existing stock exchange such as the BSE or NSE (National Stock Exchange of India).

“This will help the SSE leverage the existing infrastructure and client relationships of the exchanges to onboard investors, donors, and social enterprises (for-profit and non-profit),” the report said.

In addition, it suggests a range of other funding mechanisms be used, including existing mechanisms such as social venture funds, mutual funds, equity, ‘zero coupons zero principal bonds’, and various ‘pay-for-success’ structures.

A new minimum reporting standard has also been proposed for non-profit organisations raising funds via the social stock exchange, and enhanced reporting requirements for for-profit social enterprises.

“These recommendations, if implemented as a package, can result in a vibrant and supportive ecosystem, enabling the non-profit sector to realise its full potential for creating social impact,” the report said.

A INR 10 million capacity-building fund is proposed to develop social stock exchanges, investors in which would be exempt from paying securities transaction tax and capital gains tax.

The report comes as more than 3 million non-profit organisations in India face severe economic damage from Covid-19, impacting social structures and the most vulnerable households in the country.

The full report, available here, is open for comment until 30 June.

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