FAQ

Social Stock Exchange (SSE) is a separate segment of the existing Stock Exchange, that can help Social Enterprise(s) (Please see Qs.2 for further details on Social Enterprise) to raise funds from public through the stock exchange mechanism. SSE will act as a medium between Social Enterprises and fund providers and that can help them to select those entities that are creating measurable social impact and reporting such impact. Certain type of Social Enterprises i.e. Not-for-profit organizations (NPOs) that meet the registration criteria (Please see Qs. 9 for details on registration criteria) can register on SSE and undertake to make continuous disclosures on their social impact. Such NPOs may or may not choose to raise funds through SSE, however, would continue to make disclosures including on social impact to stock exchanges.

Social Stock Exchange identifies the following two forms of social enterprises that are engaging in the activity of creating positive social impact and that meets primacy of their social intent.

In order to establish primacy of social intent, any entity [be it Not-for-Profit Organization (NPO) or For-Profit Social Enterprise (FPE)] should meet all three criterions mentioned under Regulation 292E(2) of the ICDR Regulations. Briefly, these criteria require that the entity must indulge in activities prescribed under Regulation 292E(2)(a), and that the entity must target underserved or less privileged population segments or regions which have recorded lower performance in the development priorities of central or state governments. Further, in order to be identified as a social enterprise, it shall demonstrate that 67% of its activities qualifying as eligible activities to the target population shall be demonstrated by either of the following:

• At least 67% of its revenue of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population.
• at least 67% of the immediately preceding 3-year average of expenditure has been incurred for providing eligible activities to members of the target population.
• members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries.

However, corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure, and housing companies, except affordable housing, shall not be eligible to be identified as a Social Enterprise.

The minimum reporting standards have been created by benchmarking elements from various national and international frameworks of measurement that have been developed and are being deployed. The main elements of the reporting standard are as:

Section 1- Strategic Intent and Goal Setting

(a) The social problem to be solved

(b) The target segment to be served

(c) The approach to solve the problem

Section 2- Social Impact Scorecard

(a) Extent of target segment served

(b) Intensity of impact on median individual

(c) Dimensions of income, social equity and diversity

Section 3- General information

(a) Members of governing body

(b) Demonstration of prior funding history

(c) Financials, Registrations or licenses

A Social Enterprise shall not be eligible to register or raise funds through Social Stock Exchange/Stock Exchange if –

1. Any of its promoters, promoter group or directors or selling shareholders ( in case of forprofit social enterprise) or trustees are debarred from accessing the securities market by SEBI
2. If any of the promoters or directors or trustees of the Social Enterprise is a promoter or director of any other company or Social Enterprise which has been debarred from accessing the securities market by SEBI
3. If the Social Enterprise or any of its promoters or directors or trustees is a willful defaulter or a fraudulent borrower
4. If any of its promoters or directors or trustees is a fugitive economic offender
5. If the Social Enterprise or any of its promoters or directors or trustees has been debarred from carrying out its activities or raising funds by the Ministry of Home Affairs or any other ministry of the Central Government or State Government or Charitable Commissioner or any other statutory body

A not for profit organization is an entity which meets the criteria to be identified as a social enterprise and is any of the following entities:

i. a charitable trust registered under the public trust statute of the relevant state

ii. a charitable society registered under the Societies Registration Act, 1860 (21 of 1860)

iii. a company incorporated under section 8 of the Companies Act, 2013 (18 of 2013); iv. any other entity as may be specified by SEBI

A Not-for-Profit organization after registering with Social Stock Exchange may raise funds on Social Stock Exchange through

i. Issuance of Zero Coupon Zero Principal Instruments [through private placement or public issuance].

ii.  Donations through Mutual Fund Schemes [as shall be specified by

iii. Any other means that SEBI may specify in future

A for profit social enterprise is an entity which meets the criteria to be identified as a social enterprise and is any of the following entities:

i. A company under the Companies Act, 2013, operating for profit and does not include a company incorporated under section 8 of the Companies Act, 2013 (18 of 2013)

ii.  A body corporate operating for profit

Yes, it is mandatory for a Not-for-profit organization to register with Social Stock Exchange before it raises funds through Social Stock Exchange.

However, a Not-for-profit organization may continue to raise funds through any other means, as permissible under the law, whether it is registered or not with Social Stock Exchange.

SEBI vide its circular dated September 19, 2022 has prescribed certain minimum requirements in order for a not-for-profit organization to register on Social Stock Exchange. In brief, these criteria include mandatory age of NPO as 3 years, valid certificate u/s 12A/12AA/12AB of the Income Tax Act, valid 80G registration, minimum INR 50 lakhs as annual spending and minimum INR 10 lakhs of fund in the past year etc.

Social Stock Exchanges are also permitted to prescribe additional requirements in order for a not-for-profit organization to register on it.

It is not mandatory for Not-for-Profit Organizations which are registered with Social Stock Exchange under regulation 292F of the ICDR Regulations to seek listing, however it shall mandatorily seek registration with a Social Stock Exchange before it raises funds through a Social Stock Exchange.

A Not-for-Profit Organization may choose to register on a Social Stock Exchange and not raise funds through it. It can also continue to raise funds through any other means.

DIBs is one form of the structured finance product available on SSE:

Development Impact Bonds:

These are structured finance products where upon completion of a project that meets pre-agreed social metrics at pre agreed rates, the service provider of the project receives grants from the donor, who is called as the “outcome funders”. The basic principle of a DIB structure is that a grant is made to an NPO after it delivers on preagreed social metrics at pre-agreed costs/ rates. The donor who makes the grant when the social metrics are achieved is termed as “Outcome Funder”. Given that the outcome funder makes the payment on a post facto basis, the NPO needs to raise funds to finance its operations. Such a funder is termed as ‘’Risk Funder’’. A risk funder not only enables financing of operations on a pre-payment basis, but also undertakes the risk of non-delivery of social metrics by the NPO. To compensate for this risk, a Risk Funder typically earns a small return if the social metrics are delivered.

No, a for profit social enterprise need not register with Social Stock Exchange before it raises funds through SSE. However, a for profit social enterprise shall comply with all provisions of ICDR Regulations, AIF Regulations [as applicable for its fund-raising modes] before it can raise funds through SSE.

A For Profit Social Enterprise may raise funds through-

i. Issue of Equity Shares (On Main Board, SME Platform or innovators growth platform of stock exchange as the case may be) Fund

ii. Issue of Equity Shares to an Alternative Investment Fund including Social Impact

 iii. Issue of Debt Instruments

 iv. Any other means that SEBI may specify in future If for-profit-organizations issue equity shares on Main Board, SME Platform or innovators growth platform of stock exchange as the case may be, it shall also need to meet the eligibility criteria for the respective platform as mandated under the SEBI (ICDR Regulations) 2018. Similarly, for issuance of equity shares to AIFs, issuance of Debt Securities etc. would require compliance with respective SEBI Regulations.

Retail investors are permitted to invest only in securities offered by For-profit social enterprise under the Main Board. In all other cases, only institutional investors and noninstitutional investors can invest in securities issued by Social Enterprises. As per SEBI (Issue of capital and disclosure requirements) Regulations, 2018, a retail individual investor is one who applies or bids for specified securities for a value of not more than two lakhs rupees and non-institutional investor is separately defined as an investor other than a retail individual investor and qualified institutional buyer.

Yes. An unlisted For-Profit Organization can issue Equity Shares to an Alternate Investment Fund.

No, you are not eligible to apply for registration or listing on the SSE till the 3-year average of your activities is not greater than or equal to 67% of your total activities.

If the NPO is dependent on the corporate for more than 50% of its funding, then it shall not be eligible to apply.

Yes, a Not-for-Profit Organization is mandatorily required to be in operations for 3 years before registering on the Social Stock Exchange

Documents such as Certificate of Incorporation and audited financial for three years is required to demonstrate that the NPO has been in operation for 3 years.

No, the registration of NPO on the NGO Darpan portal is mandatorily required for registering it on Social Stock Exchange.

The documents are required to be certified by CEO/Managing Trustee/Statutory Auditor/ any two authorized signatories from governing body.