India’s Social Stock Exchange: Aligning Capital with Conscience- Part I

(The Article is divided into two parts. This is the first part of the article. The second part of the article can be accessed- Here)

Introduction – Why India Needs a Social Stock Exchange

India’s non-profit sector is vast but chronically underfunded. Traditional equity markets focus on financial returns, leaving many social ventures starved for growth capital. Finance Minister Nirmala Sitharaman proposed a Social Stock Exchange (“SSE”) in 2019 to enable social enterprises and charities to raise funds.. Today, India’s SSE is being built to channel private capital into development goals. A Securities and Exchange Board of India (“SEBI”) report notes that access to finance is the “biggest hurdle” for India’s social enterprises, and India faces a financing gap of over $565 billion for its Sustainable Development Goals. The SSE is meant to unlock this capital by providing a regulated marketplace dedicated to social impact.

What Is a Social Stock Exchange? 

The SSE is a new segment within India’s existing stock exchanges- the Bombay Stock Exchange (“BSE”) and National Stock Exchange of India (“NSE”) are dedicated to Social Impact Fundraising. SSE is defined in Rule 292A(i) of the SEBI Notification dated July 25, 2022, as “a separate segment of a stock exchange wherein Not-for-Profit Organisations (“NPOs”) may register and list securities for trading”. In practice, the BSE and NSE have each launched an SSE portal. Both NPOs and for-profit social enterprises (“FPSEs”) can participate in listing on the SSE portal. NPOs (charitable trusts, societies, or Section 8 companies) can list Zero Coupon Zero Principal (“ZCZP”) bonds. FPSEs, businesses whose primary objective is social benefit, may list equity or debt securities, provided they “establish primacy of their social intent” and operate in approved sectors (e.g., poverty alleviation, healthcare, education, women’s empowerment, etc.). SEBI’s SSE framework explicitly excludes organisations engaged in political or religious activities, trade/professional associations, and purely commercial real estate/infrastructure firms.

Eligibility Criteria: Who Can Participate and List? 

SEBI has set strict criteria for registration on the SSE. For NPOs, an entity must have existed for at least three years, hold valid tax-exempt registrations (such as Income-Tax 12A/80G) and an IT PAN, and have no adverse tax notices. Its governing documents must declare ownership (government or private), and it must demonstrate a minimum financial scale (e.g.,≥₹50 lakh annual spending with ≥₹10 lakh funding as per audited accounts). Crucially, NPOs must confirm whether donations to them qualify for tax deduction under Section 80G of the IT Act.

For FPSEs, SEBI requires that the company “substantially engage” in one or more of SEBI’s listed social objectives (such as eradicating poverty, improving healthcare/education, gender equality, etc.). It must evidence its “primacy of social intent” (for example, via a social charter or impact mission). Businesses that are primarily commercial, conventional manufacturing, trading, or infrastructure firms (outside affordable housing) are deemed ineligible. In short, SEBI’s rules ensure only genuine impact-driven entities join the SSE.

Instruments Traded on the SSE

The SSE allows a mix of novel and traditional instruments, depending on the issuer type. NPOs can only raise funds via ZCZP instruments. A ZCZP is essentially a no-return bond: donors contribute funds and receive a dematerialised certificate, but they get no coupon or principal payback. In effect, the investor is treated as a donor – the instrument “shows up in a demat account but will not give monetary returns”. This aligns with the SSE’s charitable purpose: donors support a cause and receive only an intangible “social return.” Notably, SEBI amended the rules to encourage participation in late 2023. SEBI reduced the minimum issue size for ZCZPs from ₹1 crore to ₹50 lakh and the minimum application size from ₹2 lakh to just ₹10,000 (in 2025 to ₹1,000). SEBI has clarified that ZCZP subscriptions are eligible for 80G tax deductions under the Income Tax Act, with the allotment date considered the date of donation. Thus, NPOs raise money like a charity drive, but on a public, regulated platform.

By contrast, for-profit social enterprises can use conventional securities. They may list equity on the main board, Small and Medium Enterprises (“SME”) platform, or International Group Program (“IGP”), or issue debt under standard regulations. For example, a social enterprise could tap the mainstream stock market or raise debt just like any other company, with the caveat that its business activities must meet SSE social-objective criteria. SEBI also envisions impact-focused funds: “social impact funds” (AIFs dedicated to impact) were renamed under the SSE framework, with lower corpus and investment thresholds to encourage capital, which were incorporated by the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations,2022.

Social investing is growing rapidly. Globally, about $1.57 trillion is now managed for impact. In India too, impact capital has surged: despite a COVID dip in 2020, impact enterprises attracted $2.6 billion in equity across 243 deals, rising to about $6.8 billion in 2021. (Financial inclusion and agri-tech startups garnered much of this flow.) These figures show India’s potential: domestic impact funds are small relative to global totals, but they’re growing at a 26% CAGR. Embedding such statistics underscores the SSE’s opportunity: a tiny fraction of global impact assets currently reaches India’s underserved sectors, so channeling even a bit more via social bonds or funds on the SSE could unlock large new resources for development.

In addition, SEBI is pushing to align Corporate Social Responsibility (“CSR”) policy with the SSE. Currently, companies cannot count donations to SSE-listed NPOs toward their 2% CSR mandate without legal amendment. SEBI officials have proposed amending Schedule VII of the Companies Act to allow CSR spending via the SSE. If enacted, corporate CSR funds could flow directly into social enterprises through the SSE, greatly expanding the investor base.

Regulatory Framework and SEBI’s Role

SEBI has built the SSE by amending several rulebooks. In July 2022, SEBI issued the ICDR Issue of Capital & Disclosure Third Amendment Regulations 2022 (“ICDR”) Chapter X-A, formally creating the SSE segment. Shortly thereafter, SEBI and the stock exchanges published detailed circulars, such as SEBI’s 19 September 2022 Circular, spelling out compliance norms. Key points include rigorous disclosure and governance requirements for listed entities:

• Reporting and Auditing: All SSE issuers must publish an annual Impact Report covering their social objectives, activities, expenditure, and outcomes. This report must be audited by a certified “social auditor” (now termed Social Impact Assessor). SEBI has collaborated with professional bodies [The Institute of Chartered Accountants of India (“ICAI”), National Institute of Securities Markets (“NISM”)] to train and certify these auditors. In practice, listed NPOs will file a Social Impact Report with the exchange each year. This audit attests to both financial and non-financial performance.
• Annual Disclosures: Beyond the impact report, NPOs on the SSE must also make annual disclosures on general, governance, and financial aspects, for example, mission statement, board composition, audited balance sheet, and a “statement of utilization of funds” from the SSE. For-profit issuers listed on SSE must lodge their reports within prescribed timelines. These include quarterly fund utilisation reports and annual reports within 60 days of the fiscal year-end. In addition to these reporting requirements, they must also comply with the usual Listing Obligations and Disclosure Requirements (“LODR”) norms for their board segment.
• Regulatory Oversight: SEBI governs the SSE segment just as it does mainstream markets. The SSE portal enforces eligibility checks, 12A/80G status, existence criteria, and hosts issuer documents. SEBI also continually refines the framework. For instance, in December 2023, it lowered fundraising hurdles for NPOs and allowed the inclusion of past impact data in offer documents. In early 2024, SEBI mandated that ZCZPs be non-transferable and confirmed that holding a ZCZP is formally treated as a charitable donation. Exchanges have even enabled bidding for ZCZPs through their e-Initial Public Offering (“IPO”) systems to streamline issuance. In short, SEBI’s technical group and circulars continue to sharpen SSE rules, striking a balance between investor protection and ease of funding for social causes.

How Impact Is Measured and Disclosed

A cornerstone of the SSE is impact accountability. SSE-listed entities must define and report on Key Performance Indicators (“KPIs”) relevant to their mission, for example, the number of beneficiaries served, health/education outcomes achieved, environmental metrics, etc. The SEBI technical report even provided sample indicator sets for sectors like livelihoods, health, and education. Each Social Enterprise must publish an Annual Impact Report (“AIR”) summarizing both qualitative narratives and quantitative data about its work. This AIR, covering strategic intent, programs, and an “impact scorecard,” is then audited by a social auditor.

In practice, the first AIRs will test the sector’s capacity: many NGOs lack experience with such detailed disclosure. At a recent SSE seminar, SEBI officials noted challenges: high compliance costs for small NPOs and “no standard taxonomy or metric” to compare social impact. Civil society observers echo this – measuring social change is inherently complex. Over time, however, the SSE is expected to institutionalize best practices via templates, guidelines, and the cadre of trained impact auditors. SEBI and the exchanges have introduced standard formats for impact reports, KPIs, and logic models, ensuring all entities consistently report outcomes. A growing pool of certified Social Impact Assessors, trained by NISM and ICAI, reviews these reports for accuracy. This framework aims to build transparency, comparability, and trust in the social impact space. The goal is that donors and investors will gain clear, trusted KPIs aligned with SDGs or NITI-Aayog frameworks to track how their funds translate into social outcomes.