Social Stock Exchange

Social Stock Exchange

Deepshikha Chatterjee | October 15, 2022 | The Swaniti Blog

– In September 2022, the Securities and Exchange Board of India came up with a framework for a Social Stock Exchange platform solely for non-profit organisations and for profit social enterprises with the intent of directing funds and capital towards these organisations.

– The stock exchange platform in question will function under the existing market organisational structure and will have both NPOs and For-Profit Social Enterprises listed under it. – It will fall under the regulatory ambit of the Securities and Exchange Board of India.


Over the last two decades, Social Stock Exchanges (SSE) have been implemented in countries across the world with the goal of directing more resources, both financial and capital, towards groups and organisations with a clearly defined social purpose. To this end, the Finance Minister, in her Budget Speech for FY 2019-20, proposed setting up a similar stock exchange in India which would function under the regulatory ambit of the Securities and Exchange Board of India (SEBI) and list social enterprises and voluntary organisations on its platform. Following up on this, SEBI first constituted a Working Group (WG) for the proposed SSE in 2019, and its recommendations were made public by June 2020. Next, a Technical Group (TG) was constituted in 2020 to further detail out the WG’s comments and observations and place them in the context of the existing market infrastructure in India. Its recommendations were published in 2021. After internal deliberations and consultations on these sets of recommendations, a detailed framework for the SSE, specifying minimum and compulsory organisational disclosure requirements for Non-Profit Organisations (NPOs), was published by SEBI in September 2022.

The stock exchange platform in question will function under the existing market organisational structure and will have both NPOs and For-Profit Social Enterprises listed under it to help them raise funds and capital. NPOs would be able to avail funding through the issuance of zero-coupon, zero-principal instruments- which work more like donations where the borrowing entity is not required to pay the interest or the principal- while also maintaining the disclosure guidelines so investors are kept apprised of how their money is used. This kind of systematic listing is also expected to benefit investors who are more socially conscious and would like to direct their financial investments towards organisations working in the social or environmental spheres.

About SSEs: The International Context

Literature surrounding existing SSEs around the world have brought out common observations about the functionality and benefits of creating and maintaining such a platform. A recent paper published under International Centre for Not-for-Profit Law in collaboration with Samhita, conducted an organised review of SSEs across seven countries with varying degrees of operationality. These include Brazil who were the first to institutionalise SSE, the UK, Canada, Portugal, South Africa and Singapore among others. Certain key characteristics emerged as common across them all.

– Locally specific structures: SSE structures are typically moulded by national regulations on taxation, investments, and financial law. Countries with stricter guidelines on disclosure and financing of social enterprises, whether these enterprises are allowed to earn revenue in addition to receiving donations, would approach the SSE platform differently.

– Focus on specific thematic areas: While the platform itself is not cause-specific, the overwhelming presence of organisations in working certain social verticals has an effect on the visibility and perceived credibility of organisations under those verticals listed on the platform. Consequently, such sector-specific enterprises may generate larger revenue streams which might lead to an imbalance in fundraising. For instance, a 2016 report British Council cites skill development and education as the sectors engaging the maximum number of social enterprises in India. A greater number of organisations in a vertical will likely lead to a greater impetus to invest in said vertical. This might lead to unfair prioritising of certain sectors over others.

– Challenges and limitations: A review of the global SSEs suggests that without a stable system of market governance, the SSE platform would have difficulty in sustaining itself in the longer run. Among the SSEs studied, the researchers found that while initial costs for these impact platforms. were covered by philanthropic funding, operational costs within these enterprises were difficult to raise since not enough income was generated through the SSE platform.

The Indian Context

Under its efforts to systematise fund and capital raising for social enterprises, the Working Group constituted by SEBI to build the SSE platform recommended that the stock exchange should be directed to function within the existing stock exchange regulated by SEBI. This would help give the initial platform a starting push in terms of access, investor pools, and usage of existing frameworks and infrastructure. However, it is also important that the SSE be allowed to function as a niche area of investment with full understanding and transparency regarding the unique risks and opportunities of the social sector.

SEBI’s recent framework defines 17 broad areas for a social enterprise’s operational presence and impact to be eligible for the SSE listing. This list is jointly based on Schedule VII of the Companies Act, 2013, Sustainable Development Goals, and priority areas identified by NITI Aayog. Some of the areas of involvement are:

  • 1. Eradicating hunger, poverty, malnutrition, and inequality; promoting health care (including mental health) and sanitation; and making available safe drinking water
  • 2. Promoting education, employability, and livelihoods
  • 3. Promoting gender equality, empowerment of women, and LGBTQIA+ communities
  • 4. Ensuring environmental sustainability, addressing climate change (mitigation and adaptation), and forest and wildlife conservation
  • 5. Protection of national heritage, art, and culture
  • 6. Training to promote rural sports, nationally-recognised sports, and Paralympic and Olympic sports
  • 7. Supporting incubators of social enterprises
  • 8. Supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity-building
  • 9. Promoting livelihoods for rural and urban poor, including enhancing income of small and marginal farmers and workers in the non-farm sector
  • 10. Slum area development, affordable housing, and other interventions to build sustainable and resilient cities
  • 11. Disaster management, including relief, rehabilitation, and reconstruction activities
  • 12. Promotion of financial inclusion
  • 13. Facilitating access to land and property assets for disadvantaged communities
  • 14. Bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection
  • 15. Promoting welfare of migrants and displaced persons.

The framework further mentions that the intent of these social enterprises should showcase activities which ideally target marginal, underserved, and underperforming sectors among priorities of governments at all levels. A listed NPO is additionally required to submit a document stating the utilisation of funds disbursed under SSE within 45 days from the end of the quarter while social enterprises raising funds to also submit an Annual Impact Report 90 days from the end of the financial year elucidating qualitative and quantitative aspects of the impact captured by the organisation’s overall activities or the specific project for which funding has been secured.

Organisations willing to be listed also need to go through a mandatory social audit by an auditor from a self-regulating institute and certified by the Institute of Chartered Accountants of India.

Expected Way Forward

With particular care given to transparency and accountability, the SSE platform has the potential to result in a steady and dependable option for fund and capital raising by social enterprises. The framework developed by SEBI is expected to build on the best practices of SSE systems around the world while also learning from its limitations and drafting regulations to mitigate them accordingly. Some of the Working Group’s recommendations take into account the basic structure of international SSEs and address them accordingly. For instance, SSE platforms in countries like the UK, Canada, and Singapore rose out of a particular need to provide a platform to small and mid-size companies which were unable to raise sufficient capital and to strengthen the social impact investment ecosystems for these organisations. In India, the need was for the social sector to streamline and standardise impact investigations which led to the Working Committee guidelines on strict reporting and transparency.

Furthermore, the framework relies on self-declarations by organisations about whether they want to be categorised as social enterprises and then commit to the minimum disclosure guidelines as provided. This is different from countries where there are formalised systems of categorisation for social enterprises for organisations. The idea behind this was to encourage more organisations to build their activities around the primary function of impact. However, the absence of clear, formalised regulations would also require a strong system of checks in place to ensure that organisations are able to deliver what they promise and take on.

To this end, the Indian SSE framework is also an inclusive platform allowing listings of both NPOs and For Profit enterprises. This is different from mature economies that limit the listings on SSE platforms to either for-profits or revenue generating non-profits. In this case, India will follow developing economies like Jamaica and Brazil by including non-profits. This is probably because of the unarguably massive role that nonprofits.

play in the delivery of basic essential services in India. They work as a system of service delivery parallel to the government and their indispensable role has been officially recognised multiple times.

Dependence on foreign philanthropic funding is expected to reduce with more focus on methods to raise capital domestically. Funding for social enterprises, particularly those dependent on global philanthropic sources for fundraising, have increasingly taken a hit as a result of unfriendly policies, bureaucratic hurdles around foreign funding and the COVID-19 pandemic. The SSE in India is expected to democratise the ecosystem of social impact fundraising by allowing both retail (individuals, lower amounts, irregular) and institutional (foundations and/or high net worth individuals, more stable stream of funding) investors to participate in the stock exchange. Measurable and general standards of impact measurement are being looked into to protect investor interests within the niche sphere of risks attached to the social sector.

DISCLAIMER: The opinions expressed herein are entirely those of the author(s). Swaniti makes every effort to use reliable and comprehensive information, but Swaniti does not represent that the contents of the report are accurate or complete. Swaniti is a non-profit, non-partisan group. This document has been prepared without regard to the objectives or opinions of those who may receive it.