Editorial

A stock exchange for social enterprises is a good idea

| Updated on July 26, 2020 Published on July 26, 2020

But it is best restricted to non-profit organisations for now

SEBI’s working group on the concept of a Social Stock Exchange has submitted a comprehensive report on establishing a structure within the existing stock market ecosystem to enable social enterprises and voluntary organisations to raise funds. The report goes beyond mere fund raising to suggest the possible regulatory framework, disclosures, performance audits, tax sops, and so on. With India ranking 129 among 189 countries on the Human Development Index, that tracks the progress made in education, health and income, there is indeed a pressing need to do more for the social sector. But with successive governments under-investing in the social sectors, the onus has mostly fallen on private entities, that are constantly starved for funds. While funds from individual philanthropists have been quite strong in India, amounting to ₹70,000 crore in 2018, according to Bain and Company, there is an opportunity to help these entities tap other sources of funding such as international philanthropy, domestic CSR, official development assistance and so on. The social stock exchange can play a role here as a platform that brings these funds and causes together.

That said, the report is, perhaps, complicating matters by allowing both non-profit organisations and for-profit entities on the social stock exchange. Many of the global social exchanges cater only to NPOs, acting as an intermediary that screens and certifies them and helps them find eligible donors. SEBI too can follow this model as of now, in order to keep things simple. According to government estimates, there were 31 lakh NPOs in India and these entities are in more urgent need for funds. Moreover, the report suggests a self-declaration by FPEs about being a social enterprise. This is likely to be misused, in the absence of agencies that can do independent verification of the declarations made by these FPEs. The regulator should first establish the mechanism for verifying these claims. The suggestion to help build the eco-system, including establishing a self-regulatory organisation, bringing together the information repositories on NPOs and standardising the reporting standards for social impact, governance, financial reporting, etc., is, however, welcome.

With regard to fund-raising, the report recommends that NPOs can raise zero coupon zero capital bonds on the social stock exchange that will be akin to donation. It also suggests listing of equity and debt of NPOs, raising social and development impact bonds and using social venture funds and mutual funds to channel money into charitable causes. These instruments can help worthy causes, but liquidity in these instruments is likely to be scant, even if market makers are established in every counter. The investors participating on this platform have be mature enough to understand that they are not playing for returns. It would therefore be best to allow foreign philanthropic funds to put money in this platform and also allow Indian companies to invest their CSR money in entities listed on a social stock exchange.

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Published on July 26, 2020
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