In a significant development, the Securities and Exchange Board of India (SEBI) has introduced new norms for the issuance of ‘Zero Coupon Zero Principle’ instruments by Not-for-Profit Organisations (NPOs), which are to be listed on the Social Stock Exchange (SSE). This move is aimed at enhancing transparency and enabling informed decision-making among investors, while setting specific parameters for these non-transferable securities.
Key Highlights of SEBI’s New Norms:
- Procedure for Issuance: NPOs, through a lead manager, must file a draft fundraising document with the SSE and seek in-principle approval for listing the instrument on the SSE. The SSE is mandated to provide observations on the draft within 30 days from the filing, incorporating any clarifications required.
- Conditions for Instruments: The ‘zero coupon zero principle’ instruments will be issued only in dematerialized form and are non-transferable. The minimum issue size is set at Rs 50 lakh, with a minimum application size of Rs 10,000. The instruments must achieve a minimum subscription of 75% of the proposed funds to be raised.
- Under Subscription and Refunds: In cases where the subscription is less than 75% of the issue size, the NPO must provide details on how they plan to raise the balance capital and the potential impact on achieving their social objectives. If the subscription does not meet the minimum threshold, the funds will be refunded.
- Social Impact Disclosure: NPOs are required to disclose past social impacts, such as trends in key metrics, number of beneficiaries, cost per beneficiary, and administrative overheads, to provide a clear picture of their social contributions.
- Flexibility and Accessibility: The new rules are designed to provide greater flexibility and accessibility for NPOs in raising funds. The reduction in the issue size from Rs 1 crore to Rs 50 lakh and the minimum application size for donors from Rs 2 lakh to Rs 10,000 is expected to encourage wider participation from subscribers, including small donors.
- Social Stock Exchange Role: The SSE plays a pivotal role as a medium between social enterprises and fund providers. It ensures that entities creating measurable social impact are highlighted and that continuous disclosures, including on social impact, are made to stock exchanges.
In essence, these changes by SEBI are intended to foster a more inclusive and transparent environment for social investments, enabling smaller donors and senior citizens to contribute to social welfare projects with greater confidence and oversight. The adjustments to the Social Stock Exchange rules and the introduction of Zero Coupon Zero Principal Bonds are pivotal steps in bridging the gap between capital markets and social welfare projects.
These developments represent a crucial shift in how social impact investments are approached in India, offering a structured and regulated platform for NPOs to secure funding while ensuring accountability and transparency in their operations and impact