On 19th September 2022, the capital markets regulator SEBI notified a detailed framework on Social Stock Exchange (SSE), specifying the minimum requirement for registration with SSE, minimum initial disclosure requirements for raising funds, annual disclosures and disclosure of annual impact report (AIR). Various amendments were also made in the ICDR, LODR and AIF Regulations to lay down broader regulatory framework for social enterprises. All of this would provide an additional avenue to social enterprises for raising funds.
Under the framework, the non profit social enterprises (refer regulation 292E of the ICDR Regulations) can raise funds through zero coupon zero principal instruments. These zero coupon zero principal instruments are effectively donation instruments which can be issued by any non profit organization (NPO) seeking to raise funds for specific project or activity of social impact which has to be completed within the period specified in the fund raising documents. These instruments are listed on social stock exchange (SSE) and can be purchased by individuals or corporates who are willing to donate for any specific project.
However, there is lack of clarity regarding the trading of these instruments by the original purchaser on the SSE.
It is possible for anyone to donate to any particular NPO without these specific instruments, then what is the need to have a separate instruments and a separate exchange for these instruments?
The intent, as it appears, could be to bring in more transparency and accountability for the donations received by an NPO. The buyers of these instruments would get better insight as to how their donations would be utilised. More so, they would also be able to track the social impact their donations would have made.
Moreover, in this manner, NPOs would be incentivised to perform better in terms of social impact it creates as that would help them in mobilization of funds in future.
Even though there are no additional taxation benefit to the registered NPOs at present, it is reported in some publications that the government is also working on taxation benefits for these instruments and these could be notified soon.
•Posted on 26 September 2022
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