According to the working report, bringing the SSE under the ambit of SEBI has created a regulatory environment for the constituents. Regulatory and governance mechanisms proposed will provide increased credibility and market standing for the enterprises and the comprehensive reporting framework proposes to bring about standardisation and robustness in the financial and impact reporting framework by defining clear and concise metrics for measuring social impact for NPO and FPE’s.
For ease of implementation, the working report has suggested self-reporting in the immediate term and with increased rigour in the long term. These provisions can deliver the investors with clear and in-depth understanding of the work performed by these enterprises and access to verified and accurate information about their governance, the status of their legal/regulatory compliance and financial situation as self-reported by them.
However, recognising the difference in the ways NPO’s and FPE’s operate, the working group has suggested different approaches while unifying certain elements that can be brought under the common reporting requirements. In addition, the working group has put forth some key recommendations for the non-profit sector aimed at driving an overall sector level development and enabling its constituents to reap the benefits of a diversified pool of capital in the market to realise its full potential for creating social Impact.
Some of the Key recommendations have been highlighted below:
- Unlock the philanthropic capital available and mainstream it to the exchange through listing of Zero coupon and Zero Principal bonds (ZCZP). These are bonds which would be listed by the NPO’s on the exchange carrying a tenure equal to the duration of their projects and written off in the books on completion of the tenure. These, akin to donation certificates are apt for investors who would like their investments to create the social impact, but do not expect any financial returns or the principal returns.
- Activate and make available the existing underutilised funding structures like the AIF (Alternate Investment Fund) and (MF) Mutual Funds and enable new and innovative outcome-based funding mechanisms like SVF and Pay for success structures. The key to accessing additional pools of capital is creating an increased awareness in building and using these structures by the regulators. Equity and debt instruments can be listed by the FPE’s on the exchange by complying with the listing requirements.
- Developing an enabling ecosystem by promoting intermediaries like Information Repositories and Social Auditors. The IR’s play the role of providing credible and reliable information about the NPO’s to the potential investors and the social auditors will provide credibility of the performance of the organisations through independent impact audits.
- Building a 100-crore capacity building fund for the NPO’s, especially the grassroots and smaller organisations for building awareness, handholding in the capital-raising process and implementing standards.
While the proposed recommendations accrue benefits to the Social enterprises, the investor interests have also taken care of by proposals to provide incentives that attract them to the SSE.
Bold and attractive tax incentives for the funders-100% tax deduction under 80G instead of current 50%; removal of 10% cap on income eligible for deduction under 80G; tax exemption from Long-Term Capital Gains and Securities Transaction Tax on securities listed on SSE. FPE investors can expect interest/ dividends along with the appreciation of their capital similar to transactions in the financial exchanges. Social enterprises can also expect tax benefits – fast tracking of statutory registrations for 80 G and 12 A; Doing away with the periodic renewal of 80 G registration; increase in the limits for income from commercial activities to 50% from the current 20% and 5-year tax holiday for listed FPEs.
Substantial benefits are envisaged to incentivise CSR’s to participate in the SSE by authorising them to trade excess CSR spends with deficit spends and be able to claim tax exemption on funding through SSE.
The Future of the SSE: The Social Lens Perspective
The SSE in India is being offered as an evolved model, much more than a matchmaking or crowdfunding platform or an information exchange directory as some of the SSE models function across the globe. Modelled holistically, it is intended to provide workable solutions to the NPO’s and FPE’s, to transform the funding landscape in India and percolation of the benefits to the bottom of the pyramid.
The post-COVID-19 world, the slow economy and stringent regulations for the inflow of capital have compounded the woes of the social sector. It has become imperative for the sector to have access to unhindered financial resources and streamlined flow of capital through ingenious methods to enable the social enterprises to generate the intended impacts that they set out to. As a regulated platform, the SSE is more likely to garner the interest and support of the investors and bring the much-needed catalytic change in social financing.
1Social Stock Exchange for Social Enterprises and Social Incubators: An Exploratory Study for India Discussion Paper # 243
2 Analysing the concept of Social Sector Exchange in India- KPMG
