What is the Social Stock Exchange and what are the latest recommendations of SEBI on SSE?
Finance Minister Nirmala Sitharaman in her Union Budget 2019-20 speech in July 2019, proposed a Social Stock Exchange (SSE) to help social enterprises, voluntary and welfare organisations working for social welfare to raise capital via debt, equity and mutual funds. The Social Stock Exchange is regulated by SEBI (Securities and Board Exchange of India). In September 2019, SEBI constituted a group in this regard under the chairmanship of Ishaat Hussain, Director, SBI Foundation.
Recently, SEBI's expert panel has recommended allowing non-profit organisations to be directly listed on the Social Stock Exchange (SSE).
What are the recommendations made by the panel?
1- The expert panel constituted by the Securities and Exchange Board of India (SEBI) has recommended allowing non-profit organisations to be directly listed through the issuance of bonds in the form of zero-coupon bonds. This will, in turn, encourage donors, philanthropic foundations and Corporate Social Responsibility (CSR) spenders to invest in zero-coupon bonds and the funds can be generated.
2- The panel also recommends various funding avenues such as Social venture Funds (SVFs) to be listed under Alternative Investment Funds (AIFs).
3- For organizations that raise funds via the Social Stock Exchange (SSE), a new minimum reporting standard has been defined.
4- For-profit organizations to be listed on SSE but with newly defined reporting requirements.
Why are these recommendations made?
The panel has made these recommendations to strengthen existing infrastructure and client relationships with investors, donors, etc. The incentives given will encourage the participation of various stakeholders. This participation will make social and economic growth more inclusive.
What are zero-coupon bonds?
Zero-coupon bonds are those bonds which are issued at a deep discount and when the bond reaches maturity, they are redeemed at par. This means that at the time of investing, the investor will be provided with a discount and upon reaching its maturity the bond is redeemed for its face value. It must be noted that these bonds do not pay interest. The difference between the purchase price and par value is the return that the investor will get upon maturity.
What is the Social Stock Exchange (SSE)?
Mooted in Union Budget 2019-2020, SSE is a platform that helps organisations working for social welfare to raise capital via debt, equity and mutual funds. It is regulated by SEBI. The aim is to raise funds to help organizations working for social well-being. Social Stock Exchange (SSE) exists in countries like Singapore, UK, Canada, etc. These countries allow the firms operating in the health, environment and transportation sector to raise funds.