Sebi panel suggests framework for onboarding social enterprises on SSE

The Securities and Exchange Board of India (Sebi) has sought comments from public till June 20 on the report.

New Delhi: A Sebi-appointed panel on Thursday suggested a detailed framework for onboarding social enterprises and non-profit organisations on the proposed social stock exchange.

Corporate foundations, political and religious organisations, among other entities should not be allowed to be on the bourse, the panel said as it listed out 15 broad activities that will make a social enterprise (SE) eligible to be onboarded on the exchange.

In its report submitted to Sebi, the panel, under the chairmanship of NABARD former chairman Harsh Kumar Bhanwala, also deliberated on aspects related to the ecosystem development, especially on social auditors.

SE eligible to participate in social stock exchange (SSE) should be entities – non-profit organisation (NPO) and for-profit social enterprise (FPE) – having social intent and impact as their primary goal. And, such intent is demonstrated through its focus on eligible social objectives for the underserved or less privileged populations or regions, as per the recommendations.

The 15 broad areas of eligible activities included eradicating hunger, poverty, malnutrition and inequality; promoting health care, supporting education, employability and livelihoods; gender equality empowerment of women and supporting incubators of social enterprises.

Besides corporate foundation, political or religious organisations, the committee has recommended that professional or trade associations, infrastructure and housing companies should not be permitted on the exchange. However, it said that entities in the affordable housing segment can be allowed.

Also, the panel has made certain recommendations for capacity building fund which will enable NGOs to navigate the SSE and its fundraising mechanism.

“These concepts of social auditors and capacity building fund are unique to fundraising for social enterprises in India, and would facilitate SSE in its activities,” according to the report released by Sebi for public comment.

The Securities and Exchange Board of India (Sebi) has sought comments from public till June 20 on the report.

The panel or the technical group (TG) was constituted by Sebi in September 2020 for developing framework to onboard NPOs and FPEs on the SSE, including defining for-profit social investing/ enterprises, prescribing disclosure requirements related to financials, governance, operational performance and social impact.

To inculcate a cultural shift towards a disclosure-based regime, the technical group has recommended prior registration of NPOs with SSE before fundraising. The registration criteria for NPOs include parameters such as minimum annual spending and receipts, and valid IT registration certificate.

The instruments of raising finance recommended for NPOs include equity, zero-coupon zero principal bonds, mutual funds, social impact funds, and development impact bonds. For FPEs, they include equity, debt, social impact funds, and development impact bonds.

With regard to disclosure, the panel said all entities on SSE would be required to make disclosure of social impact on an annual basis comprising of strategic intent and planning, approach and the impact scorecard.

A capacity building fund (CBF) of Rs 100 crore may be instituted to enable NPOs and other stakeholders to navigate the SSE and its processes, instruments among others apart from creating awareness. The technical group has recommended the CBF can be housed in NABARD as an administrative fund.