India opens CSR funding to non-profits via social stock exchange in landmark policy shift
The Ministry of Corporate Affairs amended Schedule VII of the Companies Act, 2013 to allow companies to channel Corporate Social Responsibility (CSR) funds t...
What Happened
- The Ministry of Corporate Affairs amended Schedule VII of the Companies Act, 2013 to allow companies to channel Corporate Social Responsibility (CSR) funds toward Zero Coupon Zero Principal (ZCZP) instruments issued by Not-for-Profit Organisations (NPOs) on the Social Stock Exchange (SSE).
- The amendment caps CSR expenditure on such instruments at 10% of a company's total annual CSR spending for a given financial year.
- The move is designed to give NPOs a regulated, transparent fundraising avenue while providing CSR-mandated companies an additional compliant channel for deploying mandatory spend.
- ZCZP instruments are donation-like bonds — they pay no interest (zero coupon) and repay no principal at maturity — making them distinct from conventional debt securities.
- The policy shift builds on the Social Stock Exchange framework already operational on BSE and NSE since late 2022.
Static Topic Bridges
Corporate Social Responsibility (CSR) Mandate under Companies Act, 2013
Section 135 of the Companies Act, 2013 mandates that companies meeting the prescribed thresholds (net worth ≥ ₹500 crore, or turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore) spend at least 2% of their average net profit from the preceding three financial years on CSR activities listed in Schedule VII. India was among the first countries to make CSR legally mandatory rather than voluntary. Non-compliance triggers an explanation requirement and potential penalties under the Act.
- Section 135 of the Companies Act, 2013 — the operative provision.
- Schedule VII lists eligible CSR activities (education, poverty alleviation, environment, healthcare, etc.).
- The amendment adds NPO fundraising via SSE-listed ZCZP instruments as a Schedule VII-compliant activity, capped at 10% of total CSR spend per financial year.
- Oversight: CSR Committee of the Board and annual disclosure in the Board's Report.
Connection to this news: By explicitly placing ZCZP instrument subscriptions within Schedule VII, the amendment formally integrates impact investing through the SSE into the existing CSR compliance architecture.
Social Stock Exchange (SSE) — SEBI's Impact Investing Framework
India's Social Stock Exchange was established under SEBI's regulatory framework announced in September 2022 (amending SEBI ICDR Regulations 2018, LODR Regulations 2015, and AIF Regulations 2012). BSE received final SEBI approval to operate an SSE segment in December 2022, followed by NSE. The SSE allows both For-Profit Social Enterprises (FPEs) and Not-for-Profit Organisations (NPOs) to raise funds from the public in a regulated, disclosure-bound manner. NPOs can raise funds via ZCZP instruments; FPEs can issue equity or social venture funds.
- SEBI SSE Framework notified: September 19, 2022.
- NPO minimum registration requirements: registered as charitable trust, at least 3 years old, annual spend ≥ ₹50 lakh, funding received ≥ ₹10 lakh in the previous year.
- ZCZP instruments: no coupon, no principal repayment — treated as regulated donations, not debt.
- NPOs must file an Annual Impact Report (AIR) within 90 days of financial year end.
- ZCZP instruments are not tradeable in the secondary market.
Connection to this news: The MCA amendment unlocks corporate CSR capital — potentially large and recurring — as a new investor class for ZCZP instruments on the SSE, significantly expanding the exchange's funding pool for social sector NPOs.
Zero Coupon Zero Principal (ZCZP) Instruments — Mechanics and Innovation
ZCZP instruments represent a novel financial instrument category specifically designed for the social sector. Unlike bonds (which carry coupon payments and principal repayment obligations) or equity (which carries ownership rights), ZCZP instruments function as structured, regulated donations. Issuers raise capital for specific social projects, and investors receive social impact disclosures — not financial returns. SEBI classified them under its securities framework, bringing transparency and disclosure norms without imposing financial return expectations.
- Categorised as securities under SEBI's framework — giving them regulatory recognition without commercial return structure.
- Minimum application size for retail investors was a subject of SEBI's March 2025 consultation paper.
- Funds raised are project-specific and must be deployed for the stated social purpose.
- Impact measurement and reporting is mandatory.
Connection to this news: The 10% CSR cap ensures ZCZP subscriptions remain a supplementary channel rather than cannibalising other CSR activities, while giving NPOs access to a new, large, corporate funding stream.
Key Facts & Data
- CSR cap on ZCZP instruments: up to 10% of total annual CSR expenditure per company.
- Operative legal section: Section 135, Companies Act, 2013 (CSR mandate); Schedule VII (eligible activities).
- SEBI SSE framework notified: September 19, 2022.
- BSE SSE final approval: December 27, 2022.
- NPO minimum age for SSE registration: 3 years.
- NPO minimum annual spend threshold: ₹50 lakh.
- ZCZP instrument features: zero coupon, zero principal, no secondary market trading.
- CSR mandatory spend threshold: 2% of average net profit over preceding 3 financial years.