Predominance test
The FPSE-only eligibility test: at least 67% of activities must serve the target population, shown by revenue, expenditure or customer base averaged over the preceding 3 years.
In plain language
A company can do some social good and still be an ordinary company. The predominance test decides when social work is the main thing a for-profit company does, rather than one thing among many.
The answer SEBI chose is two-thirds. A For Profit Social Enterprise must have at least 67% of its activities qualifying as eligible activities to the target population.
Chapter 3 labels the rule "Predominance (applicable to For-Profit Enterprises only)". NPOs never face it. Their legal form already bars them from distributing profits, so the risk it guards against — a commercial business borrowing the social label — does not arise in the same way.
How it works
Three ways to pass. Chapter 3 says predominance "can be ascertained by any one or more of the following":
| Test | What must be at least 67% |
|---|---|
| (i) Revenue | Share of the immediately preceding 3-year average revenue that came from providing eligible activities to the target population |
| (ii) Expenditure | Share of the preceding 3-year average expenditure incurred on providing eligible activities to the target population |
| (iii) Customer base / beneficiaries | Target-population members served, as a share of the preceding 3-year average customer base or beneficiaries |
Three mechanics that decide questions:
- It is "one or more", not "all". A company passing on customer base but failing on revenue still passes.
- It is a 3-year average. One weak year does not disqualify, and one strong year does not qualify. Compare the average of the target-population figure with the average of the total, not an average of annual percentages.
- The threshold is "at least" 67%. Exactly 67% passes.
Where it sits. Predominance is limb (c) of the Regulation 292E primacy-of-social-intent criteria. Limbs (a) eligible activity and (b) target population must also be met, and the exclusions in limb (d) still apply.
A worked example
Illustrative company and figures.
SwasthMaa Diagnostics Pvt Ltd runs low-cost pathology labs in Uttar Pradesh. It has three years of data:
| FY1 | FY2 | FY3 | 3-yr average | |
|---|---|---|---|---|
| Total revenue (₹ crore) | 6.0 | 7.5 | 9.0 | 7.50 |
| Revenue from BPL / Ayushman card patients (₹ crore) | 3.3 | 4.8 | 6.6 | 4.90 |
| Total patients (lakh) | 2.0 | 2.4 | 2.8 | 2.40 |
| BPL / Ayushman card patients (lakh) | 1.5 | 1.7 | 1.9 | 1.70 |
Revenue test: 4.90 ÷ 7.50 = 65.3% — fails (below 67%).
Customer-base test: 1.70 ÷ 2.40 = 70.8% — passes.
SwasthMaa satisfies predominance because one test is enough. It earns less per poor patient than per paying patient, so revenue understates how much of its work serves the target population. The customer-base measure captures it.
The averaging trap in the same numbers. On revenue, FY3 alone is 6.6 ÷ 9.0 = 73.3%. A candidate who looks only at the latest year wrongly passes the revenue test. And the simple average of the three annual revenue percentages (55.0%, 64.0%, 73.3%) is 64.1%, not 65.3%. The workbook's wording, "67% of the … 3-year average of revenues", means averaging the rupees first.
Why NISM asks about it
Chapter 1 (Regulation 292E criteria) and Chapter 3 (3.1.1(c), headed "Predominance") both set out the test, with the three measures and the 3-year average. It is one of the few genuinely numerical rules in the registration chapters. Expect a numerical — revenue or beneficiary figures over three years — and a conceptual question asking whether the test applies to NPOs (it does not).
Common exam traps
- FPSE only. "An NPO must derive 67% of its revenue from the target population" is false.
- 67%, not 51%, 60% or 75%.
- Preceding 3-year average, not the latest year.
- Any one of the three measures is sufficient.
- Customer base can be "customer base and/or total number of beneficiaries". The Chapter 1 wording covers both.
- Passing predominance does not make a company a social enterprise on its own. It must also do an eligible activity for an underserved population, and must not be in an excluded category.
- Do not confuse it with the Annual Impact Report's 67%. That rule says the AIR must cover at least 67% of programme expenditure in the previous financial year — same number, different rule, Chapter 9.
Where this is taught
Free preparation for NISM Series XXIIIRelated terms
- Annual Impact ReportThe yearly report of social impact every social enterprise registered on or raising funds through an SSE must file under LODR Regulation 91E, covering at least 67% of the previous year's programme expenditure.
- For Profit Social EnterpriseA company or body corporate operating for profit (not a Section 8 company) that qualifies as a social enterprise, including the 67% test, and lists securities with an identifier marking it as such.
- Primacy of social intentThe ICDR condition every social enterprise must establish before using an SSE: an eligible social activity, an underserved target population and, for an FPSE, at least 67% of activities qualifying.
- Social enterpriseAn organisation, non-profit or for-profit, that exists primarily to create social impact; under SEBI ICDR it is either an NPO or a For Profit Social Enterprise that has established primacy of social intent.