The Intermediary for NGOs and NPOs

The Social Stock Exchange allows non-profit and non-government organizations list on stock markets, allowing them to raise funds in a different way.

The Social Stock Exchange (SSE) is a new concept that stems from the need for transparency. The greatest approach to bring in transparency is through public inspection, and capital markets are known for providing a transparent platform with direct public monitoring. SEBI came up with the innovative and practical idea of building an SSE that will function similarly to any other stock exchange.

Social business securities will be listed on a dedicated exchange and can be traded by the general public. For socially concerned investors, it would provide a new investment option. The listed Social Enterprises will have to provide proper initial and ongoing financial and social impact disclosures so that investors are aware of their operations, which is an interesting aspect.

Social enterprises seeking funding from the capital markets will be required to register with the Social Stock Exchanges, and governance criteria will be established. For Social Enterprises soliciting funding and registered on SSE, a mandated audit of social effect will be required.

On existing stock exchanges, SSE is expected to be a separate division. Social Enterprises will be able to participate in SSE if their primary goals are social intent and social effect. Those businesses must participate in one of the eligible social events. Eligible businesses may be able to raise funds by issuing non-dividend bearing equity capital in the form of equity shares. Dividends are not paid by companies incorporated under Section 8 of the Companies Act.

Foreign businesses, such as multinational corporations and foreign funds, allocate a percentage of their Corporate Social Responsibility funding to such platforms, therefore allowing them to participate will help SSEs grow. When an Indian NGO, for example, wants to receive foreign donations, additional precautions exist in India. It will be interesting to see if the same holds true in the case of SSE.

One of the primary difficulties at hand is with a law under which any foreign contributions received by businesses engaging in activities of "political" character or "speculative activities" need to present a specific register of such investments for MHA audit every year. Speculative activities must submit a specific register of such investments for MHA audit every fiscal year, according to FCRR regulation 4. Speculative activities, according to FCRR rule 4, include any investment that is "connected to market forces" and involves a "risk of appreciation or depreciation of the original investment."

Since SSE functions like a stock exchange, Sebi seeks an explanation from MHA as to whether investing in SSE is considered a speculative activity. Seen in this way, the compliance burden on both SSE-listed companies and foreign donors will increase significantly. "Under the proposed Sebi rules on SSE, these foreign companies cannot control SSE-listed companies. They have a say in where they can deploy their resources."

Thank you.

Regards,

Kishan Mashru,

Kautilya,

IBS Mumbai.