Sebi notifies social stock exchange framework

Capital markets regulator Sebi has notified a framework for the social stock exchange to provide social enterprises with an additional avenue to raise funds.

The framework for the Social Stock Exchange (SSE) has been developed on the basis of the recommendations of a working group and technical group constituted by the regulator.

The social stock exchange is a novel concept in India and such a bourse is meant to serve the private and non-profit sectors by channelling greater capital to them. The idea of SSE was first floated by Finance Minister Nirmala Sitharaman in her Budget Speech 2019-20.


Under the new rules, SSE will be a separate segment of the existing stock exchanges, according to the three separate notifications issued by the Securities and Exchange Board of India (Sebi) on Monday.

Social enterprises (SEs) eligible to participate in the SSE will be entities — non-profit organisations (NPOs) and for-profit social enterprises — having social intent and impact as their primary goal. Also, such an intent should be demonstrated through its focus on eligible social objectives for the underserved or less privileged populations or regions.

The social enterprises will have to engage in a social activity out of 16 broad activities listed by the regulator. 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.

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Corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing, will not be eligible to be identified as a social enterprise.

Concerning fund raising, Sebi said eligible NPOs can raise funds through zero-coupon zero principal bonds and mutual funds, while for-profit social enterprises can mobilise capital through the issuance of equity shares on the main board, SME platform or equity shares issued to an alternative investment fund, including social impact fund.

NPOs desirous of raising funds on the SSE will be required to be registered with the exchange.

In respect of disclosures, a social enterprise, raising funds or registered on SSE, will be required to submit an “annual impact report” to such a bourse. The annual impact report will be audited by a social audit firm employing a social auditor.

Also, social venture funds under Sebi’s alternative investment funds norms have been rechristened as social impact funds in a bid to make such funds an attractive means for investment in NPOs. Further, the corpus requirements for such funds have been reduced from Rs 20 crore to Rs 5 crore and the minimum value of the investment by an individual investor in such funds will be Rs 2 lakh.

The amount of grant that may be accepted by the fund from any person has been reduced to Rs 10 lakh from Rs 25 lakh.

“A social impact fund or schemes of a social impact fund launched exclusively for an NPO registered or listed on an SSE shall be permitted to deploy or invest 100 per cent of the investable funds in the securities of NPOS registered or listed on an SSE,” Sebi said.

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The notifications came after the board of Sebi approved a framework in this regard in September 2021.

To give these effects, the regulator has amended rules governing alternative investment funds, ICDR (Issue of Capital and Disclosure Requirements) rules and LODR (Listing Obligations and Disclosure Requirements) norms.

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