"If it were not for the social stock exchange (SSE), Unnati would not have received this kind of recognition and accolades in decades," believes Ramesh Swamy, lead trustee at the SGBS Unnati Foundation. Unnati will be the first NGO to be listed on the Social Stock Exchanges of the BSE and the NSE on December 13.
The NGO wanted to raise Rs 2 crore to train about 10,000 graduates from government colleges and assist them in employment placement through its UNXT program. The issue was subscribed 90 percent, raising about Rs 1.8 crore. However, the NGO has no complaints regarding the undersubscription.
"We did roadshows and got donors on board before opening the issue. We had to ensure that the issue was subscribed 75 percent, or else it would have been deemed unsuccessful," said Swamy.
A minimum subscription clause exists for mainboard initial public offers (IPOs), too, but there have been far and few cases of undersubscription in recent times. Investment bankers make sure that issues sail through.
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Meanwhile, an NGO does not have similar resources to ensure a full subscription. Unnati is grateful to its legal advisor and merchant banker, who helped with the filing of the offer documents on a pro-bono basis, said Swamy. On average, an NGO might have to spend Rs 5-10 lakh to complete pre-offer formalities.
"As the market matures, upcoming NGOs will hopefully see more participation, especially from retail," he said. For Unnati, Zerodha was the knight in shining armour, with a donation of Rs 1 crore. NABARD, Govind Iyer, and Ashish Kacholia donated Rs 30 lakh, Rs 20 lakh, and Rs 30 lakh, respectively.
Also Read: SEBI cuts minimum issue size on Social Stock Exchanges by 50% to Rs 50 lakh
What happens after listing?
What the donors have subscribed to is essentially a zero-coupon, zero-principal security. It is neither a bond nor a share. The securities cannot be traded and will carry a tenure equal to the duration of a given NGO's project.
Moin Ladha, Partner, Khaitan & Co, said that like a regular exchange, the SSE will facilitate the listing of instruments, except that instead of a profit and loss (P&L) status, the listed NGOs are required to do social and environmental impact reporting.
Initially, the minimum issue size was set at Rs 1 crore, which was later brought down to Rs 50 lakh. Similarly, the minimum application size was brought down from Rs 2 lakh to Rs 10,000. Swamy says that the market regulator, Securities and Exchange Board of India (SEBI), consulted with Unnati's team frequently since it was the first mover in the space.
What's in it for the NGO?
Usually, NGOs have a concentrated donor base, and they approach the same names again and again for funding of new projects. In turn, they are subject to high scrutiny and are often snubbed. The social stock exchange is expected to ensure that NGOs get wider access to donors across the country.
"Furthermore, NGOs automatically get a credibility tag if names like SEBI, NSE, and BSE are attached to it," said Swamy.
What's in it for the donors?
Currently, the deployment of corporate social responsibility (CSR) funds is not allowed in SSE issues. Donors also cannot claim deduction under Section 80G if they go through this process. This makes the case for subscribing to an SSE issue even weaker.
But what SEBI is batting for is outcome-based funding. Donors will be able to track how the funds are being used. A 'social impact assessor', who is a qualified chartered accountant, will review the progress and issue a report.
Ladha also said that as the performance of enterprises would be closely monitored, the social sector would become more attractive.
The road ahead
Sonam Chandwani, Managing Partner at KS Legal & Associates, said, "The experiences of SSEs in other countries suggest that careful planning and regulation, along with active engagement with civil society, are crucial for the effective functioning of an SSE."
Countries such as Canada, the United Kingdom, Singapore, South Africa, Brazil, Jamaica, and Kenya have already set up SSEs.
To bring about more donor participation, tax benefits will also help. In fact, this is one of the main demands of the industry. Currently, 39 NGOs have registered themselves with the NSE and 37 with the BSE.
Nonetheless, every drop contributes to making an ocean, and Swamy believes that Unnati has set the stage for a transformative step towards integrating social responsibility with capital markets.
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