Our Recommendations on the Working Group Report on Inclusive Regulatory Framework for Social Stock Exchange (SSE) in India

Cover Letter to SEBI Social Stock Exchange Working Group

Shri Ishaat Hussain

Chairman, SEBI Social Stock Exchange Working Group

Plot No. C 4-A , G Block, SEBI Bhavan, Bandra Kurla Complex, Bandra East,

Mumbai – 400051

Dear Sir,

Re: Our Recommendations on the Working Group Report on Social Stock Exchange (SSE)

At the outset we would like to congratulate you and the working group and the SEBI team along with the external agencies that have worked on drafting the regulations for the SSE for the nation. We believe that a SSE would lead to widening the investor base and also bring to fore the impact investments into this country. We had been involved in discussions with SEBI even before the formation of the working group and provided inputs on what should be the nature of the regulations to guide the investments in the healthcare industry in India.

We are India’s first healthcare infrastructure fund under SEBI AIF-II regulations. We propose to list our fund as a Healthcare REIT. We have therefore focused our note on the issues with respect to healthcare only. As healthcare is a social infrastructure, we and our limited partner and investors believe that a regulation from the SSE and its inclusive definition would go a long way in bringing to the fold of the investment ambit healthcare infrastructure which is being operated under trusts and societies. In addition, we believe that the measurement of impact for healthcare is not only primary but also secondary level. As part of our note we have outlined our recommendations which would be inclusive in nature and would appreciate be considered into the working draft recommendations.

Our review and recommendations for the draft regulations are under the following heads:

  1. All encompassing definitions of operators/players in the social sector
  2. Increased definition of scope of impact which are acceptable by ESG and impact investors
  3. Sustainability and limitations of grants and aids for social projects
  4. Wider inclusion of Alternative Investment Funds (AIF) and relaxations of various limitations under SEBI AIF Regulations
  5. GST waivers and set offs for the social sector like healthcare infra
  6. Regulations for social sector ventures for social credit rating
  7. Sale and lease back for infrastructure under the trusts and societies for asset monetization
  8. Listing and trading norms for wider market participation on the SSE including market making
  9. Participation of CSR funds into healthcare infra
  10. Special purpose vehicles (SPVs) listing of healthcare PPPs with community and social impact
  11. Regulations for pivoting from for profit to not for profit and vice versa and exit for failed ventures
  12. Other regulatory issues

Further, this note may not have been possible during the times of Covid, with inputs and efforts put in by our limited partner who are multilateral agencies, impact and ESG funds, sovereign

funds and several family office investors from India and abroad. We would like to also mention the efforts of our legal counsels Khaitan & Co, Mr. Siddharth Shah, Mr. Divaspati Singh and Mr. Anindya Roy who have worked in compiling the recommendations together into this note. Along the way, I had spoken with several institutions and industry bodies, both in impact and healthcare, in the country for their views. I thank them for their candid views and observations in framing the guidance to this note.

Once again, thank you all for your time and contributions to giving this nation a strong and robust social investment regulations, guiding path and the way forward. I would appreciate if we can be given a chance to discuss the various points outlined in our note.

Awaiting your response.

Stay Safe

With Warm Regards,

Kapil Khandelwal

Toro Finserve LLP

Managing Partner


The establishing of the Social Stock Exchange in India (SSE) is a positive step in the creation of a vibrant capital markets for the social sector. The Working Group Report published by SEBI for the public consumption and response has been reviewed by us and we offer our feedback which we have taken from our investors (some of them are impact and global multilateral funding agencies). We would like to offer our recommendations and inputs for consideration.

Healthcare in India with focus on the Charities and Impact Organisations      

India lags behind on several parameters on SGD-3. One of the reasons is the lagging investments in healthcare infrastructure and spending. On the issue of donor led spending, the participation by donors and external agencies in healthcare has increased from 0.01% of GDP in 2009 to 0.03% of GDP in 2016. The overall healthcare investments through PE/VCs in India is around USD 5.3 bn till June 2018 making it the third largest sector after ICT and BFSI sectors.

Of the total hospital beds in India, 40% of the hospital beds in India are provided by Government (and allied organisations), approximately 5% of the beds are charitable and or subsidized in medical colleges teaching hospitals. A large proportion of these charitable beds are in urban areas which are provided by for profit sector in lieu of concessional land. A recent press report stated that in Mumbai around 89% of the charitable beds earmarked for not-for-profit remained unoccupied during Covid-19.

An article publish in VC Circle by Toro Finserve LLP estimated the healthcare spend on the BoP in India which could translate through the social ventures servicing this population is estimated to be around $1 trillion by 2025 across all products and services for healthcare. The expected healthcare investments to be around $275-350 billion in infrastructure gap funding. The addressable social ventures that would qualify to be listed on the SSE would potentially deliver an annual turnover to be around $5 billion on a conservative basis.

The above estimates would remain elusive unless an inclusive regulatory framework is adopted for the social stock exchange in India and is an attractive proposition for our impact and ESG investors from abroad which is attractive for them to participate.

Over and above, the impact to SGDs and incremental social healthcare capacity creation in India, an inclusive regulation will also lead to:

  • Direct and indirect employment in the healthcare and allied infrastructure creation sector
  • Provision of long-term, perpetual capital to the healthcare infrastructure development
  • Economies of scale of many operators platforms to take them to IPOs and provide investor liquidity
  • Increased investment in newer innovation and clinical solutions to provide healthcare cheaper, better and faster
  • Adequate investment in technology to provide digital health and create smart hospitals
  • Reduced costs and improved quality of healthcare delivery to the masses without any burden on the healthcare operators to repay bank and NBFC debts
  • Creating of Healthcare REIT/InvIT as a separate investment asset class for channelising domestic and foreign investment which has been lagging for the last 4 years despite positive policy initiatives

Inclusive Regulatory Framework for Social Stock Exchange

Our review and recommendations for the draft regulations are under the following heads:

  1. All encompassing definitions of operators/players in the social sector
  2. Increased definition of scope of impact which are acceptable by ESG and impact investors
  3. Sustainability and limitations of grants and aids for social projects
  4. Wider inclusion of Alternative Investment Funds (AIF) and relaxations of various limitations under SEBI AIF Regulations
  5. GST waivers and set offs for the social sector like healthcare infra
  6. Regulations for social sector ventures for social credit rating
  7. Sale and lease back for infrastructure under the trusts and societies for asset monetization
  8. Listing and trading norms for wider market participation on the SSE including market making
  9. Participation of CSR funds into healthcare infra
  10. Special purpose vehicles (SPVs) listing of healthcare PPPs with community and social impact
  11. Regulations for pivoting from for profit to not for profit and vice versa and exit for failed ventures
  12. Other regulatory issues

All encompassing definitions of operators/players in the social sector

The current definitions as given in the report delineates between not for profit and for profit. There are no shades of grey (hybrid models of business) in the draft regulations.

We would like to submit that the definition of a social enterprise should ideally, seek to select a class or category of enterprises that are engaging in the business of “creating positive social impact”. It is our belief that the definitions should be all-encompassing requiring all social enterprises, whether they are FPEs or NPOs, to state an intent to create positive social impact, to describe the nature of the impact they wish to create, and to report the impact that they have created; and the differentiation should not be solely on the criteria of muted returns. There can be various hybrid models created by combining characteristics of both an FPE and an NPO. In our view, the current distinction as provided in the report does not afford enough flexibility to encompass all such possible models. The parameters of what constitutes a ‘positive social impact’ should be inclusive in nature and only by taking such a holistic view of the SSE could we hope to address the issue of the funding gap that this mechanism is expected to resolve. Given the ambiguity around the definitions, the SSE regulations must provide standard definitions to determine whether the model will predominantly provide space for non-profits or for-profit organisations or other hybrid structures.

For example, even schedule VII of the Companies Act uses the words “activities which may be included by companies in their Corporate Social Responsibility Policies” to indicate a list of exhaustive items which may be consider within the ambit of CSR activities by companies. In comparison, both the SASIX in South Africa and Singapore’s Impact Investment Exchange – prescribe social impact to be measured by the outcome in the community and not on muted returns.

In our view, the SSE should have a clear definition of what constitutes a ‘social cause’ and a ‘socially responsible’ act. The definition should also be dynamic to accommodate events that may emerge, such as Covid-19, or cyclone, that would require area-specific funds. We would further submit that the SSE should allow the listing of various assets encompassing a wide array of sectors such as healthcare, education, food, healthcare assets, colleges, schools, minimum development goals etc. This would inject a much needed impetus to overall social development by providing additional fund raising options in these sectors. It would also allow existing investors to offload their assets by listing on the SSE and utilise the money for other viable purposes ensuring a wholistic growth in the economy. Therefore, it is our submission that the ambit of social impact should be kept as broad as possible delineating between FPEs and NPOs, in order to truly enable holistic social development.

Increased definition of scope of impact which are acceptable by ESG and impact investors

Investment into healthcare social infrastructure not only creates bed capacity for population health management and impacting SGDs, but creates various axis of social impact for the Indian economy. These include the following when considering the direct and indirect impact of investment in healthcare infrastructure development that have been accepted by many of our ESG and impact investors as benchmarks:

Table deleted from here due to confidentiality reasons

We therefore submit that the scope of primary and secondary impact to the community needs to be defined into the draft report

Sustainability and limitations of grants and aids for social projects

During my work with the health and ICT Ministers’ Panel for Africa, one of the key fundamental drawback felt by the Governments was that 95% of the projects initiated by donors through grants and aid failed to sustain themselves through the self-funding by the communities once the donor’s grants and aids completed their tenure. The issues project completion and impact post grants and continued funding became very critical. Another issue was the measurement of the impact post exit of the donors. Social healthcare infrastructure project need sustainable upfront funding which need to be closed else projects would not complete

Hence, the scope of grants and aids should be tied to the overall project costs and operations till viability is establish. The regulations need to provide tighter norms for projects funded through grants and aid and not be allowed to kick off till funding closure is announced.

Wider inclusion of Alternative Investment Funds (AIF) under SEBI Regulations

The current draft talks about the AIF -1 Social Venture Capital. As India’s first healthcare infrastructure fund, we are registered under AIF- 2 regulations. We propose to exit the investments we make in for profit and not for profit and select hybrid models with impact in hospital infrastructure, we would like to understand the split between and investment criterial for listing of Social Healthcare REITs on SSE and for profit healthcare REITs on the NSE. We have evaluated the Singapore model. It creates flexibility on price discovery and is not so water tight.

It is submitted that even Category II AIFs may invest in social sectors and cause overall social impact and therefore even such AIFs should be allowed to be listed on the SSE. Here it is our submission that the regulators should consider either designing a general framework of pooling for this purpose which will apply across all regulations, whether AIFs (Cat1, 2 or REITs), or in the alternative create a special class of AIFs for social impact. from a regulatory point of view, that a new category of AIF structured similar to a ‘social venture fund’ may be introduced – the criteria for determination of which would correlate with its positive spillover effects on the economy. Such new class of AIFs should have the benefits of pooling coupled with the flexibility of investing in an identified asset and should be free from the limitations of diversification norms otherwise applicable to other AIFs.

AIFs have the potential to become the best source of additional capital to undertake the desired projects in the social sector given the overwhelming need for additional capital in such sectors in India. To reiterate, under the SEBI AIF regulations, Category I and II Alternative Investment Funds are prohibited from investing more than twenty five percent of their investible funds in one Investee Company. Which is restrictive in itself in the context of social upheaval as it does not provide the flexibility to invest more capital in a single project as may be required. We would humbly request for this restriction to be relaxed in case of a Cat I or Cat II AIF which is eligible to be listed on SSE or provide an exemption from the aforementioned 25% limit to the new category of AIFs specifically designed for this purpose.  

GST waivers and set offs for the social healthcare infra

The current draft has discussed on tax holidays and waivers for social ventures and their investors under the Income Tax Act. Social healthcare infrastructure also attracts GST across the value chain which is being incurred by the social healthcare ventures. However there is zero GST on healthcare for the final services being delivered to the community and is currently not offsetable. As a result the entire burden falls on the social healthcare venture operator and its donors if the final services to the community is fully subsidized.

From the social healthcare infra creation, in the current Goods and Services Tax (GST) regime of charging non-offsetable tax on rent from social healthcare operators makes the cost of funding prohibitive and reduces the net fund in hands of hospital operators to create incremental bed capacity by almost 20% in the country. GST on rent is virtually not offsetable because healthcare operators are exempt from charging GST to its patients / customers and that therefore, is a major roadblock for hospital operators to raise long-term affordable finance to create additional bed capacity in the country. Adequate policy measures need to be introduced to streamline the GST regime for financing healthcare infrastructure through sale and lease back transactions in India in line with bank and NBFC debt which do not attract any GST tax on financing healthcare infrastructure.

We submit that GST offset on the healthcare and allied services increases the burden to the operator and donors and needs to be removed as part of the tax recommendations in addition to the direct taxes recommendations provided by the draft regulations.

Regulations for social sector ventures for social credit rating

Banks and NBFCs do not consider the social and community impacts while providing debt finance to social sector healthcare operators. Our Healthcare REIT/InvIT model considers and ensures these impacts while investing into social sector healthcare operators through the sale and lease back modus of financing healthcare infrastructure. A change in the rating methodology for social sector infrastructure like healthcare is required to be considered for social healthcare ventures.

We therefore submit that the draft should recommend setting of separate rating guidelines for social ventures in India by the credit rating agencies for various instruments being used by the social ventures

Sale and lease back for infrastructure under the trusts and societies for asset monetization

As per our industry estimates around INR 75,000 crs of healthcare infrastructure is the dry gun powder that needs upgrade and expansion funding is residing on the trusts and charitable societies in India. These healthcare operators are currently financing their growth by using funds raised via:

  • Loan Against Property (Hospitals) from Banks (cheaper, limited amount, short tenure, not for debt averse operators)
  • Land Acquisition / Development finance from a Financial Investor (expensive and limited)

A new model of financing growth for such operators has opened up since SEBI announced the REIT / InvIT regulations (cheaper, cleaner and control neutral). This enables the hospital operators to monetize its “dead” hospital infrastructure assets and raise perpetual capital to fund its future growth opportunities. This is done via sale-lease back model where the operator sells the hospital infrastructure to a professional property investor while also signing a long-term lease to ensure business continuity. This enables the property investor to earn rental income while it provides the Hospital Operator with perpetual and affordable source of capital and becoming asset-lite – a win-win situation for all parties concerned.

REITs also have certain listing limitations under the current regulatory regime – which should be relaxed in the event they become eligible to be listed on the SSE. The SSE should also enable debt, equity or perpetual debt instruments to be listed through SPV structures.

Listing and trading norms for wider market participation on the SSE including market making

Under the current AIF regime, units of close ended AIFs are allowed to be listed on stock exchanges subject to a minimum tradable lot of one crore rupees. In light of our recommendation for a separate category of AIFs, the listing for such category of AIFs should be allowed with the minimum tradeable lot for such AIFs being made smaller, in region of 10 – 15 lakhs instead of the more cumbersome 1 crore requirement. The AIF may also hold assets directly, i.e. hospital assets through a single AIF and units of such AIF will get listed. It is humbly submitted that an SPV created for such purposes is listed then in additional to equity listing, perpetual bond listing should also be allowed at the SPV level.

Participation of CSR funds into healthcare infra

Please note that the same asset that engages in ‘for profit’ ventures to initiate social impact may also consider raising CSR money at a ‘for profit’ bond / equity interest.  It is submitted that clear guidelines should be introduced on how CSR funds can be deployed via SSE.

Under the current CSR regime (as per the Companies Act) there is no provision for one company’s CSR monies to be combined with and added to monies of other companies CSR, i.e. there is no concept of pooling and/ or co-participation under the current regime. For example, if the resources of various companies could be pooled together in partnership with the government and other creditable NGOs, the impact could be manifold. Where NGOs and corporates can bring in quality, but scaling is possible only with the involvement of the government. This co-participation may be in the form of cash or in the form of valuable knowledge sharing / experience or personnel that one company may benefit from others. Smaller companies may benefit greatly from such overall changes to the regime given the 5 percent limit on overheads stipulated by the government. Smaller CSR spenders can only deploy a limited amount in the form of administration expenses and hence the sample size of projects they can invest in are much lesser in number and quantity. This often leads to sub-optimal allocation of funds, with a disconnect between capital deployment and on-ground realities.

Therefore, while the CSR regime currently encourages collaboration between companies to help avoid duplication of managerial efforts, infrastructure, personnel amongst other factors, it does not explicitly mention / allow ‘pooling of funds’. We humbly submit that a minor modification in the act could address this aspect. We believe that pooling CSR spends of companies can unlock a myriad number of opportunities in addressing India’s most pressing challenges in the social sector.

SPVs listing of healthcare PPPs with community and social impact

As member of the Planning Commissions’s PPP Committee for Healthcare Infra under UPA -1 chaired by Dr. Hamied and Haldea, several recommendations were given to fast track PPP in Healthcare. However, the issue of concessioning and operating costs of providing community healthcare to the masses has been the bone of contention. The recent Orissa PPP bids front ended by IFC has failed to elicit bidders due to the same reasons.

There is an approximately $45 billion of healthcare infra assets which are sitting on the books of Central and State Governments and Private and Social Sectors. Many of these require funding for upgrading and expanding their infra. Various archaic regulations and other operations bottlenecks are preventing investments flows into these existing healthcare infra from Indian and foreign LP investors as the PPP policies have failed to garner interest.

The current National Infrastructure Pipleline published in Dec 2019, shows a committed pipeline of $2.5 billion which is only through Center and State Governments. A gap of 99% of what needs to be invested for India to meet global norms for healthcare infra supply. Unlike roads which is hogging over 80% of NIP’s committed investments, healthcare infra is gestational. Therefore, there is a weak and lagging healthcare infra investment in India leading to demand gaps. Many of our multilateral funding agencies who are also LPs in our fund would like to participate in the social healthcare.

Innovative SPV structures need to be created where the concessions can be funded by the multi lateral agencies and ESGs for the impact to the communities while the Central and State Governments exit their assets to private operators. These SPVs can be listed on the SSE and actively traded or subscribed to by these LPs.

The government should consider creation of such hybrid impact models involving private-sector partnerships to provide critically-needed health infrastructure.  For profit models may be considered even in this sector which is lagging behind for want of funding from interested LPs. The bid evaluation process in PPP / concession agreements may be relooked at in order to require more concrete bids showing higher levels of commitment from lenders and to eliminate bids that are not in line with commercial projections. An alternative may be for governmental bodies to exit foible projects and letting the operator / agencies pool / fund the concessions through SPV structures. Such SPV structures with underlying PPP projects may be listed on the SSE platform for turnaround and subscribed to by willing investors thereby achieving a turnaround of otherwise stagnant developmental projects.

Regulations for pivoting from for profit to not for profit and vice versa and exit for failed ventures

There have been many instances in the past where social healthcare ventures in trusts which could not be sustained by the promoters and settlers of the trust/societies (see case study) to for profit business models due to various business models, strategic and sustainability issues. The current regulations are fairly prohibitive and do not consider pivoting from not for profit to for profit business models as a going concern. The current draft does not consider these scenarios nor make any recommendations on these exits.

We request that the draft regulations look into provisions for pivoting the business models from for profit to not for profit and vice versa and frictionless exit regulations need to be drafted for a going concern scenarios.

We would like to further submit that LPs should be allowed to exit in the event social ventures are not sustainable for their businesses. Otherwise such models become less lucrative and newer LPs may not participate in such models given the inflexibility around it. Therefore, there is a need to provide a flexible mechanism to allow LPs to exit, be it from a ‘non-profit’ to a ‘for profit’ model or vice versa.

Other regulatory issues

Thin capitalization rules

SPVs / acquisition companies are set up in India to raise money (through debt or equity) for the purposes of financing the said acquisition. While restrictions on debt financing of acquisitions still exist, India has seen a steady increase in the use of innovative financial instruments to fund such acquisitions. Thin capitalisation refers to the situation in which a company is financed / leveraged through a relatively high level of debt compared to equity.

Current IT Act provisions restrict the payment of interest by an entity to its ‘Associated Enterprise’ to the extent of 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated enterprise, whichever is less.

In view of the non-deductibility of the interest expense beyond the de minimis threshold as stated above, investors investing through perpetuity debt instruments, do not have access to such an exemption. It is our humble submission that this exemption be allowed for SPVs with a higher debt component, which are eligible to be listed on the SSE satisfying all relevant criteria.

Flexibility in order to get CSR funding

In the event an FPE is converted into a NPO, such organization should be allowed access to CSR funding and this should be expressly mentioned under the SSE regulations.

Relaxation on listing requirements of REITs

We request that the current considerations which are otherwise applicable around listing of REITs be relaxed to an extent in the event of such REIT being eligible to be listed on the SSE. Such considerations include restrictions on minimum subscription amounts (INR 50,000), minimum tradable lots (200), minimum value of such REIT assets (i.e INR 500 cr) etc. The restrictions for example, may disallow listing of REITs focussed on the hospital sector on the SSE in the event such minimum criteria are not met. Relaxation of these norms would allow for a more holistic growth of the sector by allowing much wider participation and garnering more interest from investors. Similar to our recommendation in relation to AIFs, the regulator may also consider carving out a separate type of REIT for this purpose.

Case Studies for Consideration

Deleted from here for confidentiality reasons



Fostering widespread engagement among investors will be vital to raise adequate capital to fund projects in social sectors. Some of the suggested incentives will be important for both market participants willing to invest and social purpose organisations which are willing to get listed. The wide-reaching economic impact of COVID-19 has resulted in a surge of areas where investments can be made. As envisaged, in order for SSE to be a platform to facilitate raising of capital in such sectors for them to recover and turn-around from the crisis, these measures would only assist in driving more engagement from the relevant market players and ensure that the objectives behind formulation of SSE is met. We therefore request your kind consideration around the suggested recommendations outlined in this note.