A social stock exchange is a platform where social enterprises/organizations can raise funds from the public who in this case can be seen as the donors.

Just like equity, commodities, derivatives, and small and medium-sized enterprises (SMEs), the social stock exchange will be a segment on the stock exchange. Both BSE and NSE have received approvals to run an SSE. Organizations listed on the SSE can be For-profit Social Enterprises (FPEs) and Not-for-profit Organizations (NPOs).

In other words, SSE is a platform where NGOs can raise funds from the public similar to what companies raise money from the investors through an IPO. Organizations listed on SSE can be for-profit-organizations (FPEs) and not-for-profit-organizations (NPOs) or non-government organizations (NGOs).

But the question is why such a long route for charity? Donors could have easily paid the NGOs without this exchange too.

The Social Stock Exchange (SSE) also provides a solution to the concern of the donors who are eager to help but are uncertain about the legitimacy of NGOs or Non profitable organizations or the NPOs.

Social stock exchange addresses this concern by acting as a trusted intermediary and ensures that the donations reach the right hands. Investors can understand the intended purpose of their contributions and gain visibility on how the funds are utilised for a social cause. People investing money in these bonds can be assured that money is used for a noble cause and not siphoned.

What is the way?

NPOs can raise funds using a special bond known as Zero Coupon Zero Principal (ZCZP) bond.

ZCZP bond is different from other bonds. In a regular bond, the entity raising money using a bond, has to make interest/coupan payments and return the principal when the bond matures.

However in the ZCZP issuing entity does not have to pay interest (zero coupon) and does not have to pay the principal (zero principal) either. Therefor the ZCZP is issued by an entity for not raising loans but to receive donations.

As per the draft of the SEBI report, a Social Stock Exchange may be helpful in rebuilding the the livelihoods of people who are affected due to poverty or diseases like the COVID-19 pandemic.