SEBI Proposes Sweeping Reforms to Social Stock Exchange Framework
The Securities and Exchange Board of India (SEBI) has unveiled a comprehensive set of proposed changes to India's Social Stock Exchange framework, aiming to dramatically broaden participation and enhance capital access for social impact initiatives. The market regulator's consultation paper, issued on Monday, outlines significant modifications designed to make social finance more accessible to retail investors while easing regulatory constraints for not-for-profit organizations.
Dramatic Reduction in Minimum Investment Threshold
In a landmark proposal, SEBI has recommended slashing the minimum investment requirement for individual investors in Social Impact Funds (SIFs) from ₹2 lakh to just ₹1,000. This represents a 99.5% reduction that could potentially bring millions of small investors into the social finance ecosystem for the first time.
Social Impact Funds represent a specialized sub-category of Alternative Investment Funds that are exclusively permitted to invest in securities issued by not-for-profit organizations listed or registered on the Social Stock Exchange. The exchange, which became operational in the 2022-23 fiscal year, functions as a regulated platform within established stock exchanges, enabling non-profits and social enterprises to raise funds specifically for projects with measurable social impact.
SEBI's proposal seeks to align the minimum investment threshold under Alternative Investment Funds regulations with the minimum application size for Zero Coupon Zero Principal Instruments (ZCZPs), which was reduced to ₹1,000 in March 2025 to improve investor participation. The regulator believes this alignment could effectively channel retail capital into social projects through professionally managed funds.
Addressing Limited Traction in Social Impact Funds
The proposed changes come against a backdrop of limited traction for Social Impact Funds within the investment landscape. Currently, only 1% of the Alternative Investment Fund space expresses interest in issuing social impact funds, while existing SIFs primarily attract high-net-worth individuals with substantial investment capacity.
"For the existing Social Impact Funds, there is only interest from big ticket investments. Reducing the minimum investment limit may also open doors to exploitation," cautioned Ranjit Jha, Chief Executive Officer at Rurash Financials, highlighting potential concerns about the proposed changes.
Easing Regulatory Constraints for Non-Profit Organizations
SEBI's consultation paper also proposes significant regulatory easing for not-for-profit organizations seeking to raise funds through the Social Stock Exchange. Currently, an NPO can remain registered on the exchange for a maximum of two years without raising funds. SEBI has proposed extending this period to three years, subject to approval by the exchange.
The regulator explained that this extension is intended to address practical challenges frequently faced by NPOs, including delays in obtaining income tax registrations and other statutory clearances that often impede fundraising timelines.
Revised Subscription Requirements for Social Projects
Another crucial proposal involves modifying the minimum subscription requirement for ZCZP issuances by non-profit organizations. Under current regulations, issuances must achieve at least 75% subscription to be considered successful. SEBI has proposed lowering this threshold to 50% for projects where costs and outcomes can be structured and implemented on a clearly identifiable per-unit basis.
The regulator emphasized that this flexibility would allow social projects to proceed even with partial subscriptions, provided the funds raised can be meaningfully deployed without compromising the stated social objectives. This adjustment recognizes the practical realities of fundraising for social initiatives while maintaining accountability for impact delivery.
Strengthening a Nascent Framework
SEBI's comprehensive proposals follow an extensive review conducted in consultation with the Social Stock Exchange's advisory committee, aimed at strengthening what remains a relatively new and evolving framework. The Social Stock Exchange represents India's innovative approach to creating a dedicated marketplace for social impact investing, and these proposed reforms signal SEBI's commitment to refining the ecosystem based on practical experience and stakeholder feedback.
The consultation paper invites comments and suggestions from market participants, investors, and other stakeholders, with the proposed changes potentially reshaping how social projects access capital and how investors participate in India's growing social finance landscape.
