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The market regulator has proposed slashing the minimum issue size for non-profit organisations (NPOs) on the social stock exchange (SSE) by half and the application size by 95 percent to facilitate fund-raising.
It has proposed that the minimum issue size be reduced from Rs 1 crore to Rs 50 lakh, and the minimum application size be reduced from Rs 2 lakh to Rs 10,000.
Both NSE and BSE have set up the SSE segment and as of August 23, 2023, 31 NPOs have been registered in this segment with the two Exchanges.
In a consultation paper titled “Flexibility in the framework on Social Stock Exchange (SSE)” and dated August 29, 2023, the Securities and Exchange Board of India (Sebi) has put forward the recommendations of Social Security Exchange Advisory Committee (SSEAC) and the exchanges to make it easier for NPOs to raise funds through the SSEs.
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Among the several recommendations made are reducing the issue size and application size. The other recommendations are on permitting entities that do not possess valid certificate under Section 80 G but are established under Section 10(23C) and 10(46) of the Income Tax Act as NPOs on Social Stock Exchange; doing away with the requirement of no pending notice or ongoing scrutiny by Income Tax against NPOs for the purpose of registration on SSE; substituting the term Social Auditor with Social Impact Assessor; and permitting NPOs to provide past social impact but not strictly as per the format specified by SEBI in their fund raising document.
On the reason for suggesting slashing the minimum issue size by half, the consultation paper stated, “SSE is at an initial stage and NPOs may find it difficult to raise Rs. One crore from a limited set of investors. The investors are also not aware of SSE framework which will develop through more and more awareness programs. It may therefore not be easy for such NPOs to find investors to raise Rs. One crore. Further, it is also noted that minimum fund flow requirements for the past financial year of the NPO on the SSE has been fixed at Rs. 50 lakhs (for annual spending) and Rs. 10 lakhs (for funding).”
On the rationale for suggesting the reduction in the application size, the consultation paper said, “Lowering the minimum application size threshold will help a large number of investors who may like to subscribe to ZCZP (Zero Coupon Zero Principal instruments) of more NPOs. Further, the minimum application size of Rupees 2 lakh may be too large for people who donate on a regular basis.”
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