Zero Coupon Zero Principal (ZCZP) Instruments

Why in News?

The National Skill Development Corporation (NSDC) made its debut on the Social Stock Exchange (SSE) platform of the National Stock Exchange (NSE) in Mumbai through its maiden issuance of Zero Coupon Zero Principal (ZCZP) instruments. The National Bank for Agriculture and Rural Development (NABARD) subscribed ₹4 crore to support a skilling and global employment initiative for young people from economically weaker Other Backward Classes (OBC) households in Madhya Pradesh.

Key Features of the Initiative

• Funding institution: National Skill Development Corporation (NSDC).
• Subscriber: NABARD, which contributed ₹4 crore.
• Beneficiaries: 600 young people from economically weaker OBC households in Madhya Pradesh.
• Objective: To provide skill training and prepare beneficiaries for international employment opportunities.
• Funding mechanism: Zero Coupon Zero Principal instruments issued through the Social Stock Exchange.

What Are Zero Coupon Zero Principal (ZCZP) Instruments?

• ZCZP instruments are securities issued by eligible not-for-profit organisations (NPOs) registered on the Social Stock Exchange segment of a recognised stock exchange.
• Zero coupon: They do not provide interest payments.
• Zero principal: The principal amount is not repaid to the subscriber.
• They enable organisations to raise funds for social-development projects through a regulated market framework.
• They function as a philanthropic funding mechanism rather than conventional borrowing or investment for financial returns.
• ZCZP instruments have been recognised as securities under the Securities Contracts (Regulation) Act, 1956.

What Is the Social Stock Exchange (SSE)?

• The SSE is a specialised platform within a recognised stock exchange that enables eligible social enterprises to raise funds for social objectives.
• It seeks to improve transparency, accountability and access to funding for organisations working in areas such as education, healthcare, poverty alleviation and skill development.
• ZCZP instruments provide one route for eligible not-for-profit organisations to mobilise donations through this platform.

Corporate Social Responsibility (CSR): Legal Framework

Under Section 135 of the Companies Act, 2013, companies meeting any one of the following criteria during the immediately preceding financial year are covered by the CSR provisions:

• Net worth of ₹500 crore or more.
• Turnover of ₹1,000 crore or more.
• Net profit of ₹5 crore or more.

Covered companies are required to spend at least 2% of their average net profits during the three immediately preceding financial years on CSR activities, subject to the Act and applicable rules.

Companies have been permitted to channel up to 10% of their annual CSR expenditure through ZCZP instruments. Non-compliance with CSR obligations may attract statutory penalties.

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