In this article, we will discuss the Social Stock Exchange, what is it and what are its mechanism. Let’s discuss the same in this article as we move ahead.Social Stock Exchange:
Mechanism of Social Stock Exchange:
- Recently, the Securities and Exchange Board of India (SEBI) has given in-principal approval to Social Stock Exchange to the Bombay Stock Exchange (BSE).
- Social Stock Exchange may be constituted as a separate segment under the existing stock exchanges.
- A Social enterprise may be eligible for onboarding on SSE if it demonstrates that social intent and impact are its primary goals and it reports such impact. This is irrespective of the legal structure of the enterprise.
- Social Stock Exchange is an exchange proposed to serve private and Non-Government Organizations (NGOs) which will help them in raising funds via exchanges.
- There are around 31 Lakh NGOs in India and with this Social Stock Exchange, the government aims to bring these NGOs under the regulatory framework.
- Through this social stock exchange, NGOs with non-profit motives will be able to raise money but via full disclosures just like the public companies
- Corporate Foundations, political organizations, and religious organizations will not be able to participate in this stock exchange. Only those NGOs which work on social evils like poverty, education, hunger, etc.
- The condition for the NGOs to get listed on SSE is that the NGO or the non-profit entity has spent around Rs. 50 Lakh in the last year for social welfare and has raised around Rs. 10 Lakh towards the same during the last 1 year.
Some Examples of SSE across the Globe:
- Currently, Zero Coupon Zero Principal Bond issuance is allowed.
- Individuals donating the amount will not get any units, shares, or ownership. There will be no trading as well.
- The major agenda of SSE is to bring transparency to the non-profitable organization community.
- But the Donor (the person who donates) will be able to see how his/her money is being invested by the NGOs
- Further, there are also ongoing plans of allowing Alternative Investment Funds (AIFs)/Mutual Fund to invest in the NGOs registered in SSE.
Benefits of SSE:
- India is not the first country to introduce Social Stock Exchange. Here Brazil was the first country to launch SSE in the year 2003.
- Some other examples of SSE Markets in the world are as follows:
What Should Individuals Do?
- Total Disclosure of Fund Usage: Target Segment, Strategy, Management Details, Risk, Finances, etc.
- The social impact created due to the fund
- Rigorous Regulatory Scrutiny
- Tax Benefit under Section 80G.
- Allowing all investments through NPO listed on SSE to be tax deductible
- Allow Corporates to deduct CSR expenditure from their taxable income (currently companies are not allowed to)
- Allow first-time SSE retail investors to get 100% tax exemption on their investments up to Rs. 1 Lakh.
The concept of the Social Stock Exchange is new to India but is an interesting thought process to bring transparency among the NGOs. It will also be interesting to watch how new instruments will be introduced for NGOs, retail investors, and Donors. There are more details regarding SSE that an individual should closely track. One should follow due diligence before making any investment decisions.