The Ministry of Corporate Affairs has amended Corporate Social Responsibility (CSR) rules to allow companies to undertake part of their CSR spending through “zero coupon zero principal instruments” issued by non-profit organisations listed on the Social Stock Exchange.
According to an official MCA notification on Friday, companies can now ZCZP instruments as part of their CSR implementation mechanism on the condition that their spending through such instruments cannot exceed 10% of its total CSR expenditure for a financial year.
"A company may carry out Corporate Social Responsibility activities through a zero coupon zero principal instrument provided that the expenditure incurred for such instrument shall not exceed ten percent of the total Corporate Social Responsibility expenditure of such company for that financial year," the notification outlined.
A zero coupon zero principal instrument is a fundraising instrument unique to the Social Stock Exchange ecosystem and unlike traditional bonds, they do not offer interest or return the principal amount.
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Under the new amendments, companies subscribing to these instruments will not be required to undertake impact assessment for projects funded through them. The move is expected to boost fundraising activity and participation on the Social Stock Exchange.
Earlier, companies could fulfil their CSR obligations only through more traditional routes including, directly by the company itself, through a registered trust, via government-established entities among other ways.
As far as NPOs issuing the zero coupon zero principal instruments are concerned, they are expected to undertake a project with a duration not more than three succeeding financial years from the issue of such zero coupon zero principal instrument, as per MCA.
If any amount remains unspent after the termination of listing of the instrument, the balance must be transferred to funds specified under Schedule VII of the Companies Act, in addition to that, the NPO will also need to submit a compliance report to the Securities and Exchange Board of India.
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