Why in news?
The Securities and Exchange Board of India (SEBI) has revised rules for Not‑for‑Profit Organisations (NPOs) issuing zero coupon zero principal (ZCZP) instruments on social stock exchanges. Meanwhile, new corporate social responsibility (CSR) rules allow companies to invest a portion of their CSR budgets in these instruments. These changes aim to make social finance more attractive and accessible.
Background
A ZCZP instrument is a philanthropic bond issued by an NPO through a social stock exchange. Unlike conventional bonds it carries no coupon and does not repay the principal; investors receive a “social return” in the form of measurable impact rather than financial gain. Only NPOs registered on the exchange can issue these instruments to fund specific projects. Issues must be dematerialised, have a minimum size of ₹50 lakh and require applications of at least ₹10,000.
Recent regulatory changes
- SEBI circular of April 2026: The regulator extended the period for NPOs to remain registered on the social stock exchange from two to three years. It also reduced the minimum subscription requirement for ZCZP issues from 75 percent to 50 percent. If at least half the issue is subscribed and due diligence confirms that the funds can be meaningfully deployed, the issue need not be cancelled because of under‑subscription.
- CSR investment window: Amendments to CSR rules now permit companies to invest up to 10 percent of their annual CSR expenditure in ZCZP instruments. Such investments must fund projects not exceeding three financial years; unused amounts must be transferred to a designated government fund. Companies are exempt from impact assessments for these investments, simplifying compliance.
- Purpose and benefits: By allowing NPOs to raise funds without promising financial returns, ZCZP instruments channel philanthropic capital into socially impactful projects. Reduced subscription thresholds and CSR participation are expected to expand the pool of issuers and investors.
Conclusion
The regulatory tweaks demonstrate India’s commitment to innovative financing for social development. With relaxed issuance norms and new CSR channels, ZCZP instruments can mobilise more resources for healthcare, education, environment and other community projects while offering investors a transparent measure of social impact.