Non-profit companies eye bigger fund raise through social exchange

Recent filings aim to raise as much as 10x more than the norm

Organisations working in the social sector are eyeing a bigger fund raise through the social stock exchange (SSE) -- a platform that was introduced by domestic bourses and had gone live six months ago.

The two new filings by Swades Foundation and Manjari Foundation will be a litmus test of whether the platform can be used for a relatively large fund raise.

Swades and Manjari aim to raise Rs 10 crore and Rs 7 crore, respectively. Till now, nine non-profit organisations have raised funds of Rs 1-2 crore.

Nearly 60 non-profit organisations (NPOs) have registered with the National Stock Exchange (NSE) and BSE to raise funds through this new route for education, employment, skill and social development, medical research, and sustainability.

The SSE allows raising funds through zero-coupon zero-principal bonds, for which NPOs have to file draft documents similar to those for initial public offerings (IPOs), specifying the objects of the issue, capital structure, among others.

“Our learning from the initial phase has been that the SSE mechanism is per se working for the first time globally. In the next phase, we need to test other aspects like broad discovery of offer documents. While publishing the document on an exchange platform should help, stock brokers managing millions of folios can massively help augment this social message via pop-ups to investors during the subscription period,” said Amit Chandra, cofounder, A.T.E. Chandra Foundation, and chairperson, Bain Capital India Advisors.

Chandra’s foundation and stock brokers such as Zerodha have also been key contributors to the initial listings on the SSE.

“This can be via a mandate, costing them nothing, which comes from the market regulator or a voluntary social effort on their own part,” added Chandra.

In a bid to allow wider participation, the Securities and Exchange Board of India (Sebi) had reduced the minimum application size from the initial Rs 2 lakh to Rs 10,000.

To bring transparency and accountability, the regulator has directed already listed NPOs to submit their annual impact report by October 31.

Sebi has also recommended to the government amending Rules on corporate social responsibility (CSR) in the Companies Act, 2013, to include donations made by companies through social stock exchanges (SSEs) under the CSR mandate, according to whole-time member Kamlesh Varshney.

“Including CSR will be a good move but is frankly not a must-have. Its main benefit will be to get non-government organisations to encourage others to participate via signalling,” added Chandra.