Why India needs a separate exchange and regulatory framework for IPOs by NGOs

A scholarship exclusively for social purposes. Initial public offerings (IPOs) by Indian NGOs. Returns measured in kindness, not hard cash. Even as this all reads a bit la-la, National Stock Exchange (NSE) and BSE executives are finalizing trading platforms on these lines with trial runs in the pipeline. It’s serious business.

A Social Stock Exchange (SSE) is essentially a unique fundraising platform for social enterprises. A social enterprise can be either a for-profit enterprise (FPE) or a non-profit organization (NPO). To qualify for SSE, the company must demonstrate that social intent and impact are its primary goals, evidenced by its focus on qualifying social goals.

Depending on the type of issuer, one has distinctively different products one can choose to float. For an NPO, the flagship product that an SSE would offer for listing is a zero-coupon, zero-principal (ZCZP) bond, which will provide interest-free income to investors, and the entire investment will be amortized after the earmarked project is completed. completely. But it will have to deliver the desired social impact that it aims to achieve.

NPOs can also look into social venture funds, development impact bond structures and bespoke mutual fund arrangements. For an FPE, one can list its shares just like common stock. Or look for an issue along the lines of an Alternative Investment Fund (AIF) or Social Venture Fund (SVF). Only the social impact report will have to be made public in an SSE.

NSE has already uploaded product details on its website, where it highlights opportunities for both FPEs and NPOs. For FPEs, the exchange offers to list their shares in the motherboard, SME or innovation growth platforms, as well as the debt trading platform. For NPOs, the exchange offers both a public issue and a private placement mode for floating zero-coupon bonds. Also, the minimum issue size is pegged at 1 crore while the minimum application size for an investor would be 1 lakh.

The Institute of Chartered Accountants of India (ICAI) has published 16 Social Audit Standards (SASs), which correspond to the 16 subject areas specified by Sebi. Interestingly, the topic is aligned with the 17 UN Sustainable Development Goals (SDGs) and categories listed in the Companies Act, 2013.

If the exchange achieves most of the stated goals, it could represent a transformational change in how social responsibility (CSR) spending is implemented in India. Companies have a minimum subscription amount of 1 crore under this category. So if you are a CSR head looking for credible projects that meet your mandate to cover your shortfall, SSE can give you multiple opportunities with much less resources to maximize the potential to be a good corporate citizen . There are 1, 43,946 NGOs registered on NITI Aayog’s NGO Darpan portal. NGOs, or NPOs, play an important role in supporting the government(s) as a partner in nation building. They take different forms depending on the nature of the business and size – trusts, associations, unions, cooperative societies, Section 8 corporations, etc. All the laws of the land apply to them. But policy circles recognize that NGO activities, especially the way they raise and use funds, need more focused regulation.

A 2022 Sebi document on SSE listings, there are plenty of checks and balances – for example, religious and political organizations cannot be listed. But annual foreign funding to NGOs has also reportedly risen to 22,085 crore at last count. This, following the passage of the Foreign Contribution (Regulation) Amendment Bill in 2020. A social-only exchange with a separate regulatory framework for IPOs by Indian NGOs is clearly the impetus to create a growth-oriented domestic regulatory ecosystem.

Lal is a co-founder, Endurant Advisors, and Belliappa is a founding director, BlueSky Sustainable Business