Social Stock Exchange India: ZCZP Bonds, Listings, and How It Works

We all have heard about India’s two biggest stock exchanges, the BSE (Bombay Stock Exchange) and NSE (National Stock Exchange), right? But seldom do we hear about SSE (Social Stock Exchange), which is a unique concept introduced by India’s market regulator SEBI a few years ago¹. 

During her Budget Speech for FY 2019-20, Finance Minister Nirmala Sitharaman had proposed the idea of an electronic fund-raising platform ‘Social Stock Exchange’. And just three years after that, the NSE and BSE had obtained SEBI's in-principal approval to set up a separate segment of SSE.

The Need For Social Stock Exchange (SSE)

Under the regulatory ambit of SEBI, a Social Stock Exchange (SSE) is a platform through which social enterprises/organizations can raise funds from the public. Just like equity, commodities, derivatives, and small and medium-sized enterprises (SMEs), the SSE will serve as a segment on the BSE and NSE. 

Organizations listed on the SSE can be ‘for-profit social enterprises’ (FPEs) or ‘not-for-profit organizations’ (NPOs). 

Key objectives of the SSE:

• Act as a bridge between donors and legitimate organizations doing real social work.
• Facilitate the funding and growth of social enterprises
• Enable a mechanism to ensure robust standards of social impact and financial reporting

Which Organizations Are Identified As Social Enterprise?

In order to be identified as a social enterprise, it shall demonstrate that 67% of its activities qualifying as eligible activities to the target population shall be demonstrated by either of the following: 

1. At least 67% of its revenue of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population.

OR

1. At least 67% of the immediately preceding 3-year average of expenditure has been incurred for providing eligible activities to members of the target population. 

OR

1. Members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries. 

However, its noteworthy that corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure, and housing companies, except affordable housing, shall not be eligible to be identified as a social enterprise. 

India’s First Listing On The Social Stock Exchange

In December 2023, India witnessed its first-ever listing on the SSE, with the debut of SGBS Unnati Foundation. The Bengaluru-based NPO had managed to raise Rs 1.8 crore from HNIs (high net-worth individuals) by listing on the SSE². 

Not Stocks, Investors Subscribe To ZCZP Bonds

By investing into a social organization through SSE, investors get to subscribe to zero-coupon, zero-principal (ZCZP) bonds of the not for profit organization, unlike the case of usual IPOs wherein you get allotted shares of the company in the stock market.

Now what are zero coupon zero principal bonds? Well, when a company raises money by issuing bonds, it promises to pay a coupon rate (maybe 8% or 10% p.a.) to the investors, and return the principal at the end of the tenure, right?

But in the case of ZCZP bonds, they have zero coupon (no interest rate) and no principal payment at maturity, given that the investors are more of donors who are giving their money for the fulfilment of specific social development projects/activities.

As per SEBI, the following rules need to be followed during the issuance of ZCZP Bonds³:

1.They  shall  be  issued  in  dematerialized form only and shall not be transferable from the   subscriber/ holder till the expiry  of  the  tenure of the bond.

2.The minimum issue size shall be Rs 50 lakhs.

3.The minimum application size shall be Rs 1,000⁴.

4.The minimum subscription required to be achieved shall be 75% of the funds proposed  to  be  raised  through  issuance  of such bonds.

Risk & Returns Associated With ZCZP Bonds Issued On SSE?

Well, as we mentioned above that there is zero coupon and zero principal payment attached to ZCZP bonds listed on the social stock exchange, the only return that is promised to the investor, is the ‘social return’, which is the actual social impact that the organization has to create, which it had promised during the listing on SSE. The offer document for the issue does contain all the details about the issue, including tax benefits, risks, and other consequences of investing in their ZCZP bonds. 

The risk? Well, as there is no monetary return, the key risk with ZCZP bonds is that the organization fails to deliver the social impact that they had promised to create. If they fail to do so, then they would lose investor’s trust and hence find it difficult to get donations in future.

Conclusion

The Social Stock Exchange (SSE) is a game-changing initiative by SEBI to connect genuine social enterprises with donors and impact-driven investors. While traditional stock exchanges reward with financial returns, the SSE emphasizes social impact as the ultimate return. With the introduction of ZCZP bonds, individuals can now participate in India’s social development journey with transparency and accountability. 

As more organizations list and raise funds, the SSE could redefine philanthropy by bringing it closer to mainstream investing, making it easier for contributors to create measurable change in society.

FAQs on Social Stock Exchange in India

1. What is the Social Stock Exchange (SSE) in India?
The Social Stock Exchange (SSE) is a SEBI-regulated platform under NSE and BSE that allows social enterprises and not-for-profit organizations to raise funds through instruments like Zero Coupon Zero Principal (ZCZP) bonds.

2. Who can list on India’s Social Stock Exchange?
Organizations that qualify as social enterprises—either for-profit or not-for-profit—can list on the SSE. However, political or religious organizations, professional associations, and infrastructure companies (except affordable housing) are not eligible.

3. What are Zero Coupon Zero Principal (ZCZP) bonds in SSE?
ZCZP bonds are fundraising instruments where investors do not receive monetary returns in the form of interest or principal repayment. Instead, they gain ‘social returns,’ i.e., the impact created by the organization’s projects funded through these bonds.

4. What are the risks of investing in SSE through ZCZP bonds?
The primary risk is non-delivery of promised social impact by the listed organization, as investors do not get any financial return. The credibility and accountability of the social enterprise are key factors to consider before investing.

References:

1. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/dec-2023/framework-on-social-stock-exchange_80233.html

2. Money Control, accessed from: https://www.moneycontrol.com/news/business/markets/not-a-bond-not-a-share-indias-first-social-stock-exchange-listing-a-story-of-many-wins-and-many-losses-11893291.html

3. SEBI, accessed from:  https://www.sebi.gov.in/legal/circulars/dec-2023/framework-on-social-stock-exchange_80233.html

4. Money Control, accessed from: https://www.moneycontrol.com/news/business/markets/sebi-cuts-minimum-application-size-for-issuances-on-social-stock-exchanges-to-a-tenth-from-rs-10-000-to-rs-1-000-12970344.html

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