Enhancing Retail Participation In SSE: SEBI’s Zero Coupon Zero Principal (ZCZP) Investment Proposal

Posted On - 13 March, 2025 • By - Aravindh

Introduction

The Securities and Exchange Board of India (SEBI) has recently released a consultation paper which proposes a review of the minimum application size for contributions towards Zero Coupon Zero Principal (ZCZP) instruments issued by Non-Profit Organizations (NPOs) on the Social Stock Exchange (SSE).[1] The proposal aims to enhance retail participation and expand the reach of SSE in India’s social impact investment landscape.

Background and Context

  • SEBI had previously issued a circular on September 19, 2022, governing the issuance of Zero Coupon Zero Principal Instruments (ZCZP) by Non-Profit Organizations (NPOs) on the Social Stock Exchange (SSE).[2] This was later amended on December 28, 2023.[3]
  • Per the amended circular, currently, the minimum application size for subscribing to ZCZP instruments is set at ₹10,000.
  • The SSE is introducing a Unified Payment Interface (UPI) facility to block funds for individual investors applying for ZCZP instruments with an application value of up to ₹5 lakhs. This facility will be available through Syndicate Members with 3-in-1 accounts and Registered Stock Brokers.

Feedback from Stakeholders

  • A special outreach session was organized by the Social Stock Exchange Advisory Committee (SSEAC) and SEBI. This session was meant for NPOs and donors to promote the SSE platform.
  • The initial 10 listing on the SSC clearly demonstrated the proof of the concept for fundraising by NPOs through the issuance of ZCZP. Post these initial listing, it was observed that several upcoming ZCZP issues are expected to have substantial sizes, exceeding ₹5 crore.
  • The issuers have highlighted that there is a growing interest from the retail sector in contributing to social causes through the SSE. However, the current minimum application size of ₹10,000 may be a deterrent for many potential retail investors.

SSEAC Recommendation

  • Keeping in mind the deliberations during the outreach session and the anticipated benefits of introducing UPI for applications, the SSEAC has recommended reducing the minimum application size for ZCZP issuances.
  • The reduction that has been proposed is to ₹5,000 or an even smaller amount. The aim of such a reduction is to encourage greater retail participation in ZCZP issuances by NPOs on the SSE.

Matter for Public Consultation

SEBI has sought public feedback on whether the minimum application size for ZCZP issuances by NPOs should be reduced from the current ₹10,000.

The consultation paper specifically seeks feedback on the following:

  1. Should the minimum application size be reduced to ₹5,000?
  2. Should it be further reduced to ₹1,000?

Proposed Amendment to SEBI Circular

  • Paragraph 1(AC)(4) of the SEBI Circular dated September 19, 2022, will be revised to reflect the new minimum application size.
  • The revised text will state: “(4) The minimum application size shall be rupees xyz* thousand.”
  • The value of “xyz” is to be determined based on the feedback received during the public consultation process.

Implications and Significance of the Proposal

Expanding Retail Participation in Social Investing

  • The present ₹10,000 minimum contribution requirement poses a pretty high entry barrier. This has the effect of discouraging small donors who want to participate in impact investing.
  • What a lower threshold of ₹5,000 or ₹1,000 would do is that it would allow individuals from a variety of financial backgrounds to contribute. This would then democratize the SSE platform.
  • This reduction would also be in consonance with the government’s push for financial inclusion and digital payment adoption. This is because it would encourage small-scale philanthropy in an organized manner.
  • It is likely that the SSE would witness higher transaction volumes as a consequence of making social investing more inclusive. This higher volume is beneficial, even if individual contributions might remain small.

Strengthening Fundraising for Non-Profit Organizations (NPOs)

  • A lot of NPOs heavily depend on institution donors for funding. This leaves them vulnerable to fluctuations in large-scale philanthropic commitments.
  • If the minimum application size is reduced, it would significantly help the NPOs as they would then be able to tap into a much broader retail investor base. This would provide a steady and diversified funding stream.
  • When these smaller contributions would be pooled together, it could match or even exceed large institutional investments. This would have the effect of ensuring a sustained funding for social initiatives.
  • The introduction of UPI for blocking funds simplifies the process. This reduces friction for retail donors and encourages more frequent contributions.

Boosting Awareness and Engagement with Social Stock Exchange (SSE)

  • Since the SSE is still comparatively a newer concept in India, public awareness regarding this continues to be limited.
  • A lower financial entry point would encourage more individuals to explore SSE as a legitimate option for impact investing.
  • Increased visibility and engagement would also encourage more NPOs to list on SSE, which would enhance its overall credibility.

Potential Impact on Regulatory and Compliance Frameworks

  • A lower financial entry point is likely to lead to an influx of retain investors. Consequently, SEBI may need to strengthen regulatory oversight to ensure transparency and accountability in fund utilization.
  • Since there would be more participants, there would also be a higher scrutiny of NPOs. This would compel the NPOs to maintain clear and detailed disclosures regarding the usage of fund and impact assessment.
  • There might be a need for SEBI to introduce stricter compliance mechanisms to ensure that there is no misuse of funds and that the money contributed by retail investors is utilized effectively for social causes.

Aligning with India’s Digital and Financial Inclusion Agenda

  • The introduction of UPI payments for ZCZP instruments is in consonance with India’s broader push toward a digital-first financial ecosystem.
  • Since the retail participation would expand, the SSE has the potential to become a mainstream funding tool. This would be similar to crowdfunding platforms, but with stronger regulatory backing.

Possible Challenges and Countermeasures

  • Risk of Lower Commitment: Smaller ticket sizes may lead to less accountability from retail investors. This would make impact assessment more challenging. To resolve this, SEBI could introduce mandatory progress reports or impact measurement tools to ensure donors stay engaged.
  • Increased Administrative Burden: A higher volume of transactions may require stronger digital infrastructure for processing and tracking. Thus, SEBI and NSE/BSE will need to enhance digital backend systems to efficiently handle increased transactions.
  • Potential for Fraudulent NPO Listings: Such an increase in retail investments could attract unscrupulous entities, which would then risk the misuse of funds. Dealing with this would require stricter due diligence measures and real-time audits for all SSE-listed NPOs.

Conclusion

SEBI’s proposal to lower the minimum application size for ZCZP instruments on the SSE has the potential to make social investing more accessible, attract a broader range of investors, and provide NPOs with a diversified funding base. By integrating UPI for seamless transactions and encouraging smaller contributions, SEBI’s proposal could enhance participation and awareness. However, it will require careful implementation to balance accessibility with accountability.

[1] https://www.sebi.gov.in/reports-and-statistics/reports/mar-2025/consultation-paper-on-review-of-the-minimum-application-size-for-contribution-towards-subscription-of-zero-coupon-zero-principal-instruments-issued-by-non-profit-organizations-on-social-stock-exchange-_92527.html.

[2] https://www.sebi.gov.in/legal/circulars/sep-2022/framework-on-social-stock-exchange_63053.html?trk=public_post_reshare_feed-article-content.

[3] https://www.sebi.gov.in/legal/circulars/dec-2023/framework-on-social-stock-exchange_80233.html.

King Stubb & Kasiva,
Advocates & Attorneys

Click Here to Get in Touch

New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Mangalore | Pune | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com