Context: A technical group on social stock exchanges (SSEs), constituted by the Securities and Exchange Board of India (SEBI), has issued certain recommendations.

• The social stock exchange is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them.

Who are SSEs?

• A social stock exchange (SSE) enables Indian social enterprises to list their securities or other financial instruments, providing them with an avenue for raising capital for their operations and growth, and reducing their dependency on ad hoc funding like grants or donations.
• This would operate as a separate segment under existing Indian stock exchanges, enabling socially minded investors to diversify their investment portfolio and developing a strong social securities market in the country.
• SSE are engaged in at least one of the 15 broad eligible activities.

Benefits of SSE

• Help improve visibility and knowledge, among all stakeholders, especially funders, issuers and customers, about the contributions of social enterprises to the economy.
• They target underserved or less privileged population segments or regions; and should have at least 67 per cent of its activities qualifying as eligible activities to the target population.
• Establish procedures to standardise social finance transactions, build awareness about the needs and challenges of this sector and develop social capital.
• Bridge the funding gap for social enterprises and enable a growth of strong professional networks of investors and subject matter experts in order to guide social enterprises.
• Create the necessary social investment ecosystem for enterprises and investors, whose objective is to generate maximum positive social impact and place environmental, social and governance (ESG) features within the pursuit of profits and growth.

Recommendations of SEBI are

• Political and religious organisations, trade organisations as well as corporate foundations should not be allowed to raise funds through SSEs.
• Both For Profit Enterprise (FPE) and Not for Profit Organisation (NPO) will be eligible to tap the SSE if they are able to show their primary goals are social intent and impact.
• For NPOs it has recommended fundraising through equity, zero coupon zero principal bond, development impact bonds, social impact fund with 100 per cent grants-in grants out provision, and donations by investors through mutual funds. And for FPEs it has recommended fundraising through equity, debt, development impact bonds, and social venture funds.
• Made a list of eligible activities that social enterprises can engage in such as eradicating hunger, poverty malnutrition and inequality; training to promote rural sports; promoting gender equality by empowerment of women and LGBTQIA+ communities; slum area development/ affordable housing;forest and wildlife conservation; promoting livelihoods for rural and urban poor; promotion of financial inclusion among others.
• The report said that entities listed on SSE will have to disclose their social impact report on an annual basis covering aspects such as “strategic intent and planning, approach, impact score card”.
• The expert panel has said FPEs, which wish to list their equity or debt, will first have to demonstrate their track record through social performance. This will allow investors to gain an insight into the FPE’s activities.