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On January 20, 2025, the Securities and Exchange Board of India (SEBI) released a Consultation Paper proposing a comprehensive review of the framework for the Social Stock Exchange (SSE). This initiative, driven by recommendations from the Social Stock Exchange Advisory Committee (SSEAC), aims to refine elements of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) to simplify the process for social enterprises to access capital and enhance transparency.
The consultation paper put forth important reforms aimed at broadening the SSE’s scope, including:
- Expanded Eligible Activities: The list of activities qualifying as eligible for social enterprises is proposed to be significantly expanded. This now includes organisations focusing on promoting and educating about art, culture, and heritage, as well as those assisting disadvantaged children, women, the elderly, and individuals with disabilities. It also covers vocational skills training, sustaining and stewarding natural ecosystems and the environment, pollution control, addressing climate change, conserving forest and wildlife, and animal welfare.
- New Eligible Structures for Not-for-Profit Organisations (NPOs): The framework proposes recognising a wider range of legal structures as NPOs. This includes trusts registered under the Indian Registration Act, 1908 (especially in States without a Conditioned Legislation), charitable societies registered under relevant State laws, and companies registered under Section 25 of the Companies Act, 1956 (equivalent to Section 8 of the Companies Act, 2013).
- Extended Registration Tenure for NPOs: Recognising practical challenges, SEBI has proposed allowing NPOs to remain registered on the SSE for a maximum of two years without necessarily raising funds through the platform.
- Enhanced Reporting and Accountability: The paper suggests various measures for improved reporting, including:
- Separating reporting for listed and unlisted significant projects.
- Reworking annual disclosure schedules and splitting annual disclosures into financial and non-financial components.
- Introducing Mid-Term and End-Term Reports for listed projects of three years or more, alongside annual reports, to measure long-term impact.
- Integrating baseline measurement for listed projects with the Solution Implementation Plan.
- Business income for For-Profit or Not-for-Profit social enterprises must constitute greater than 20% of revenues in the most recent annual year to meet the 67% eligible activities criterion, reinforcing the primacy of social intent.
- Refinement of ZCZP Instrument Provisions: The paper also discusses modifications to certain provisions of the ICDR Regulations regarding the procedure for public issue of Zero Coupon Zero Principal Instruments (ZCZP), including the wording of the fund-raising document, and other conditions relating to their issuance. This includes a proposal to include “Project/Programme Proposal” along with minimum initial disclosures for ZCZP instruments. (Note: A subsequent SEBI Circular on March 19, 2025, after the consultation paper, formally reduced the minimum application size for ZCZP instruments from Rs. 10,000 to Rs. 1,000, aligning with the objective of engaging retail investors and making them more accessible).
The evolution of the SSE, from its conceptualisation to its active implementation and continuous refinement, underscores India’s progressive approach to social finance. We will continue to track these developments and provide further insights in our upcoming editions.
