Political, religious firms not allowed on social stock exchange: Sebi panel

Recommends creation of capacity building fund of Rs 100 cr

Sebi’s technical group (TG) on social stock exchanges (SSEs) has recommended that corporate foundations, political and religious organisations should be made ineligible to raise funds using the SSE mechanism.

 

Market regulator on Thursday made public the report on SSEs prepared by the expert panel headed by Harsh Bhanwala, ex-Chairman, Nabard.

 

“Corporate foundations, political or religious organisations and activities, professional or trade associations, infrastructure and housing companies (except affordable housing) will not be permitted on SSE,” the report says.

 

The panel says both for-profit (FP) and not-for-profit organisations (NPO) should be allowed to tap the SSE provided they are able to demonstrate that social intent and impact. The TG has suggested three parameters to establish primacy of social impact objective.

 

The panel has recommended different instruments of fund raising for NPOs and FPOs.

 

“Modes available for fundraising for NPOs shall be equity, zero coupon zero principal bond (ZCZP), development impact bonds, social impact fund, currently known as social venture fund (SVP) with 100 per cent grants-in grants out provision, and donations by investors through mutual funds,” the report says.

 

Modes available for FP enterprises will be equity, debt, development impact bonds, and social venture funds.

 

To boost investor participation in SVP- the Sebi panel has recommended that the minimum corpus size for such funds be reduced from Rs 20 crore to Rs 5 crore and the minimum subscription amount be reduced from Rs 1 crore to Rs. 2 lakh. The SVP will fall under category-I Alternative Investment Fund (AIF) and will allow 100 per cent grants-in and grants-out.

 

The TG has recommended that the capacity building fund for SSE should have a corpus of Rs 100 crore. This fund should be housed under Nabard. Exchanges and other developmental agencies such as SIDBI should be asked to contribute towards this fund.

 

The Sebi panel has put emphasis on disclosures for entities using the SSE mechanism.

 

“Entities on SSE shall disclose social impact (for NPOs and FPEs) report on annual basis covering aspects such as strategic intent and planning, approach, impact score card,” the report says.

 

The report has drawn a list of broad activities based on those identified by Niti Aayog under sustainable development goals that SEs can engage in.

 

These include eradicating hunger, poverty malnutrition and inequality; promoting gender equality by empowerment of women and LGBTQIA+ communities; training to promote rural sports; and slum area development, affordable housing.

 

The expert panel has said FPEs that 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.

 

The TG has said the for-profit enterprises can opt to list on the innovators growth platform (IGP), small and medium enterprises (SME) platform or the main boards of the NSE and the BSE. However, a separate segment under existing stock exchanges can be created for listing of not-for-profit firms

 

The panel has said the SEs that wish to list will need to then it will need to comply with the listing requirements of the exchanges.

 

The proposal to set up SSEs in the country was first floated during the Union Budget in 2019. In September 2019, Sebi constituted a working group under the chairmanship of Tata group veteran Ishaat Hussain. In September 2020, Sebi set up the TG as it felt further expert advice and clarity was needed on the WG’s recommendation. The regulator has invited public feedback on the report by June 20 following which it will firm up rules around setting up of SSEs.