Markets with a Mission: Can SEBI’s Social Stock Exchange Transform Impact Finance in India?

CCL NLUO
Aug 15
7 min read

Updated: Aug 16

Fourth year student at Gujarat National Law University, Gandhinagar

I. Background

In a pioneering effort to marry social objectives with financial markets, SEBI in March, 2025 has launched a Social Stock Exchange (SSE) framework. This platform builds on the 2019-20 budget proposal for an “electronic fundraising platform” that would let social enterprises and nonprofits raise capital as equity, debt, or mutual fund units.

By subjecting mission-driven organisations to securities regulation, India is sending a strong institutional signal- it is a vast but chronically underfunded social sector that now has a market-based vehicle. Similar models exist abroad – the UK, Canada, Singapore - as impact investing platforms for nonprofits/social businesses.

In the Indian context, the SSE thus represents more than technical reform. It is a paradigm shift, embedding transparency, accountability, and impact measurement into social finance and formally aligning private capital with Sustainable Development Goals (SDGs)

II. Why Does India’s Social Sector Struggle to Attract Sustainable Funding?

India’s social sector faces a severe funding gap. The social spending is only 8.3% of GDP (Financial Year 2023) and still far below the Organisation for Economic Co-operation and Development (OECD) levels, and this shortfall could swell to about Rs 15 lakh crore by FY2028. Moreover, roughly 95% of that spending is from government budgets, philanthropic giving, including private donations, CSR foreign aid Covers a mere fraction.

This over-resilience on erratic grants and mandated CSR contributions makes NGOs vulnerable, and funds come in bursts and require onerous compliance. Importantly, India lacks any uniform reporting or investment framework for social funding. NPOs operate under disparate charity laws, and donors have no standardized way to track outcomes. As a result, the absence of a uniform framework for funding, utilisation, impact creation, measurement, disclosure, and reporting breeds mistrust and transaction friction.

In practice, donors encounter opaque finance and weak accountability, which in turn slows capital flows into worthy causes. Therefore, without market-style instruments or metrics, India’s non-profits are caught in a fragmented, grants-driven ecosystem with chronic resource scarcity.

In this article author analyses the SSE framework and its impact on the market with challenges.

III. Existing Frameworks and Their Limitations

India’s traditional nonprofit statutes were never designed for capital markets. Societies and trusts can collect donations, but by law, they cannot issue equity or distribute profits.

Section 8 Companies under the Companies Act 2013 cannot pay dividends to shareholders, or in effect, even if they issue shares, then investors have no residual claim on earnings. Thus, no private vehicle offers private investors market returns. Likewise, the Foreign Contribution (Regulation) Act 2010 (FCRA) imposes strict vetting on overseas funding, and recent enforcement actions have even frozen millions in NGO accounts and making foreign capital a precarious source. The mandatory Corporate Social Responsibility (CSR) regime (2% of profit) under section 135 of the Companies Act 2013 has expanded funding, but only by directing prescribed contributions to select causes, not by creating tradable assets.

India’s social laws form a patchwork of silos. Each NGO forum (societies/trusts/section 8) follows separate central or state rules with no common financial market conduit. There are no stock market linkages or one-off CSR grants without any obligation to quantify or guarantee impact in market terms. Because these reforms have limited focus on outcomes and no built-in investor protection and donors often remain skeptical. In effect, the existing regime has enabled charity but de-incentivized investment by reinforcing a capital deficit in a sector with immense social returns yet no market-based funding instruments.

IV. Why Was a Capital-Market Intervention Necessary—and Why Now?

Given the structural void, a capital market solution was imperative. By creating an SSE where regulators aim to inject accountability and transparency into social funding. Listing on an exchange brings rigorous disclosure norms and independent audits that charities typically lack. For instance, SEBI’s SSE will require full due diligence on applicants and mandatory impact assessment by certified auditors and annual impact reports- essentially subjecting nonprofits to investor-grade scrutiny. As the NSE notes, the SSE’s objective is to ensure robust standards of social impact and financial reporting. This aligns with global precedents like UK and Singapore SSEs, for instance, serve as directories of accredited social enterprises, boosting investors’ confidence via standardised impact metrics.

Domestically, the policy push has been strong. The 2019 budget explicitly empowered SEBI to build this platform, and expert panels further shaped the rules. The NITI Aayog has also flagged the social enterprise gap, and SEBI’s consultation with NGOs, trustees, and philanthropy bodies has underlined the demand for a new capital instrument. In essence, the SSE fills a critical gap by empowering donors/investors to make data-driven social investments and builds on India’s broader ESG/SDG agenda. By allowing contributions to be tracked like any other securities investment. SSE bridges the free-wheeling world of giving with the discipline of markets and enables capital inflows to scale proven social solutions.

V. Analysis of Social Stock Exchange- How Has SEBI Designed the Social Stock Exchange—and What Makes It Unique?

Legal Backbone and Eligibility- SEBI has anchored the SSE in its existing capital market laws. Under Section 11 of the Securities and Exchange Board of India (SEBI) Act 1992 and Regulation 299 of the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018, SEBI issued a dedicated circular in March 2025 formalizing the SSE. This builds on SEBI’s earlier guidelines (September 2022 and December 2023) and carves out a new regulatory segment within stock exchanges. Only entities with a pure social mission qualify: on the nonprofit side, only Section 8 companies can list. On the for-profit side eligible social enterprise must demonstrate that at least 67% of its activities serve approved causes.

SEBI has enumerated these causes (15-17 broad themes), drawing from the Companies Act (Schedule VII), the SDGs, and NITI Aayog priorities. Any political, religious, or commercial ventures are explicitly barred. In effect, the SSE is designed as a niche exchange where it operates under the same exchange regulations as conventional listings but only admits ventures with audited social impact objectives.

Models of Fundraising- The SSE innovates in funding instruments because NPOs cannot offer returns, and SEBI created Zero Coupon Zero Principal Instrument (ZCZPIs)- bonds that pay neither interest nor principal. Investors lend via ZCZPIs and receive only a refund of principal upon bond maturity, where all the capital effectively goes to the NPO as tax tax-advantaged gift. The March 2025 circular even lowered the minimum subscription size for ZCZPIs from Rs 10,000 to Rs 1,000 to improve retailer’s intake. NPOs can often channel larger philanthropic inflows by listing “social impact funds” or mutual fund schemes that pool donations to SSE projects. For-profit social enterprises, by contrast, are allowed to raise equity and debt in traditional ways. SEBI has explicitly permitted FPEs to list on SME boards or issue private placement equity/debt, provided they meet the social intent tests. In the last, SEBI has leveraged existing capital raising channels for FPEs while creating a sui generis donation vehicle (ZCZPIs) for pure charities.

Key Features (Disclosure and Oversights)- To earn a listing, SSE participants must submit much more information than before. All SSE entities must publish audited financial statements and annual Social Impacts Report with standardised scorecards of outputs/outcomes. NSE will host these reports and enable donors to verify fund utilisation. SEBI also mandates quarterly fund utilization certificates from NPOs and further tightening accountability. Governance disclosures are required in line with SEBI's norms. Critically, the SSE leverages a Social Audit mechanism where each NPO's projects funded by listed securities must be independently evaluated by a certified Social Impact Assessor to validate the programme against promised goals. The SSE imposes market-style discipline by combining financial diligence with impact verification in the social sector.

Institutional Support- The NSE and BSE have formally adopted the SSE as a new segment. NSE has launched a dedicated SSE website with eligibility criteria for issuers. SEBI is actively building capacity for thousands of professionals who are now qualified to audit SSE projects. The exchangers SEBI and NGOs have run awareness seminars in the existing market ecosystem. Because it operates under the same regulatory umbrella as main board /SME issuances, SSE-listed organisations enjoy the legal protections of securities law (Insider trading rules, investors' redress mechanism, etc), which is novel for the nonprofit world.

VI. What Are the Key Challenges Facing SEBI’s Social Stock Exchange Today?

First, the SSE is still in its infancy, and uptake has been slow. By mid-2024, only a handful of NGOs had been listed. Many nonprofits and social entrepreneurs may lack the resources to complete an IPO or comply with strict reporting, leading to an initial trickle of participants.

Second, no financial returns- ZCZPIs while innovative but offer no interest or dividends which making them unattractive to institutional or risk-averse investors. Measuring social impact itself is complex and can be subjective, or SSE reports rely on self-declared metrics that may not capture long-term outcomes.

Third, there is also limited awareness- few donors or charities are yet conversant with SSE rules, and regulatory harmonisation remains a concern. The SSE framework must be reconciled with existing CSR, FCRA, and tax laws to avoid duplication. For example, encouraging companies to invest CSR funds through the SSE (rather than separate schemes) will require incentives. Until these ecosystems (philanthropy, CSR, impact investing) converge, the SSE may struggle to reach its full potential.

VII. Conclusion and Way Forward

SEBI’s Social Stock Exchange is a pathbreaking regulatory bridge between profit and purpose. By institutionalizing social finance and it democratizes access to capital for mission-driven organizations and infuses accountability into giving. Its success, however, will depend on continued support- SEBI and the exchanges must sustain outreach to NGOs, simplify listing procedures, and possibly offer tax/CSR incentives to attract investors. Stakeholders should also invest in training and awareness campaigns. Over time, cross-pollination with ESG and CSR channels could create a seamless social investment ecosystem.

If well-implemented, the SSE could transform India’s social sector, making every donor an informed investor in social outcomes, and it will be aligning markets with social goals can unlock “sizeable and measurable impact” for the 129th-ranked HDI country. Ultimately, SEBI’s initiative is not just policy innovation, but it is a bold attempt to reimagine capital markets as engines of inclusive development. As India moves forward, the SSE stands poised to become one of the country’s strongest bridges between capital and compassion – a new paradigm where social missions are financed with the rigour of market discipline.

Note: This article has been reviewed by Mr. Anshuman Vikram Singh (Partner, AZB & Partners), at the Tier II Stage.