SGBS Unnati Foundation, a Bengaluru-based not-for-profit organisation (NPO), became the first such entity to be listed on India’s social stock exchanges (SSE) just a year after the authorities allowed for such listings in order to promote a transparent and credible way for NPOs to raise funds

In a first-if-its-kind deal, the listing involved the issuance of a zero-coupon-zero-principal (ZCZP) bond offering for 20 million rupees ($240,000) with a minimum application size of 200,000 rupees. These bonds are listed on the SSEs of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Richa Choudhary, a partner in Trilegal’s capital markets practice who guided SGBS Unnati on its listing, says that since then, SSE activity in the country has seeing an uptick, given the low cost and regulatory barriers in listing. However, the process still has some teething issues.


According to Choudhary, an SSE is a separate segment of a recognised stock exchange having nationwide trading terminals, which is permitted to register NPOs and list the securities issued by them. “Accordingly, SSEs provide a platform for NPOs to raise funds by issuing securities, namely ZCZPs. SSEs also allow NPOs to accept donations from mutual funds,” she notes.

ZCZP is an instrument tailored for the social development sector. Technically, a security under law is “neither equity nor debt. It acts as a mode of raising funds, and its tenor is tied to completion of the purpose for which the money was raised. It is currently a non-tradable instrument, and the subscriber will hold it till the tenor expires. There is no principal, which is repaid upon maturity, and there is no interest payable. Accordingly, it is a new avenue for providing donations,” Choudhary explains.

“It also has potential in structured impact financing, where it can be coupled with other financing structures to fund social development projects,” she adds.

But what makes listing on an SSE more efficient for an NPO than traditional funding methods? SSEs will act as a catalyst to NPO fundraising by providing access to larger pools of capital, increasing transparency and donor confidence, minimising compliance costs, and increasing the geographical reach, Choudhary explains.

“The advent of SSEs has provided NPOs an opportunity to tap into capital markets akin to how traditional body corporates access capital markets to raise funds. This will provide them with access to liquid capital, which is available on the bourses, similar to body corporates. On an aggregate basis, an NPO can raise large amounts of funds on SSEs. Further, from a donor perspective as well, individual donation sizes can also be larger as NPOs can now raise funds from domestic institutions as well. This opens up a completely new avenue of fundraising for the social sector and will result in a much larger inflow of funds over time,” she adds.


While SSEs have the potential to change how NPOs secure funding in the long term, the regulation is still in its nascent stage, and Choudhary explains that Unnati’s listing required significant regulatory analysis of the capital raising framework and liaising with India’s security regulator, the Securities and Exchange Board of India (SEBI), stock exchanges and the Ministry of Corporate Affairs.

Detailed guidance on disclosures, filing, subscription, applications, and listing were unavailable and had to be drawn from scratch in consultation with other intermediaries.

“The treatment of hybrid instruments such as ZCZPs from an accounting perspective was also unclear. Accordingly, solutions had to be devised for such issues in consultation with regulators,” Choudhary says.

There are teething issues with eligibility of donors as well, she explains. “Retail individual investors aren’t permitted to access SSEs, and investing in corporate social responsibility funds is also a grey area. As per present guidance, no foreign investors are permitted to participate, and subscription is limited to domestic institutional and non-institutional investors.”


SSEs have remained untapped due to these teething issues, a lot of which have been tackled by Unnati’s pioneering issuance through constant discussions among stakeholders and regulators. This will pave the way for easier listings on SSEs in the future.

Choudhary points out that listing on SSEs in India is more advantageous as they are embedded within the NSE and the BSE, which are fully functional exchanges with robust market infrastruc-ure. “Unavailability of state-of-the-art infrastructure, which has been a problem in other jurisdictions which implemented SSEs, will not be a hurdle in India.”

“The uptick in the SSE trend is also indicative of SSE activity. After Unnati, two more NPOs have filed their draft fundraising documents, which is a good indicator,” she adds.