Social Stock Exchange finally knocks at India's door
Published: Oct 24, 2019
Shweta Jain
THE Union Budget 2019-20 presented on July 05, 2019 by finance minister, Mrs. Nirmala Sitharaman introduced for the very first time a concept of "Social Stock Exchange". FM said "I propose to initiate steps towards creating an electronic fund raising platform, a Social Stock Exchange under the regulatory ambit of SEBI for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund". In this article we will try to understand this concept, its essence, importance, potentials, expectations and future prospects.
Meaning of SSE
Markets and socialism have been conceived to be mutually exclusive states of affairs. But from the recent past it is noticed that corporate world is realizing the responsibility towards the Society and Environment, thus Social Stock Exchange (SSE) is welcomed as a revolutionary concept. A SSE is a platform that allows investors to buy shares in social enterprises.SSEs would serve as a mediator between social enterprises and investors. ASSE would provide platform for trading of securities issued by social enterprises. A SSE would inform the public and create awareness on issues made by social enterprises. A SSE would also provide bylaws, rules and regulations for smooth trading and related compliances.
Advantages of SSE
To Social Enterprises: SSEs will provide way to get funds and investments in social enterprises. SSEs will help to increase their reputation in society and will provide boost to speed up their social activities. Listing of social enterprises will also improve their visibility in the eyes of large investors and organizations. Social enterprises need both types of funds, equity as well as debt, particularly to meet working capital requirements. At present only a few private investors provide patient debt to early-stage social enterprises. But after the arrival of SSE, situation will definitely improve.
To Investors: SSEs will make the procedure of making investments in social enterprises simple and reliable. It would help to build trust of investors in social enterprises. Investors would have increased avenues to make investment. Social value of investment would also increase. SSEs would provide immediate liquidity to investors.
To Society: Social activities are carried out for benefit of society at large on continuation basis. So any benefit to enterprises that are carrying out social activities would also in turn benefit the society. SSE will create market platform/infrastructure which will connect social impact businesses with investors who can invest in social or environmental mission of his or her choice and also can get returns on their financial investments.
India's present scenario ready to adopt SSE
In India, the NGO sector is very large. No of registered NGOs are 3 times higher than registered corporates. But the problem is that funding to NGOs is not very transparent. Source of funds and amounts available are not always clear. NGOs who are genuinely working for benefit of country with good mission face shortage of funds. The role of NGOs and social sector enterprises as a whole in uplifting the country's social and environmental situation cannot be ignored. In India, NGOs are under performing due to lack of business expertise and under-utilization of resources. If SSEs start functioning as a route of moving resources from investors to social enterprises then it would provide dual returns (achieving social goals and returns to capital invested). Considering the present scenario of India's social and economical structure, it can be said that India is prepared to have SSE setup.
The SEBI has started working on launch of SSE and has constituted a working group on SSE.
The working group after examining all the legal, social, financial aspects would make recommendations with respect to possible structures and mechanisms of SSE. Since India is home to more than 2 million social enterprises, this concept no doubt needs careful planning while designing.
Worldwide experience with SSE
The concept of SSE is new to India but not to world as many countries like UK, Singapore, Canada, Brazil, South Africa and Kenya already have opened SSEs. SSEs already opened have different working models. The UK SSE acts only as information bank/provider to public at large. It provides standardized comparable social impact data on its site. The Canadian SSE acts as a full-fledged stock exchange and provides registration to social businesses. The South African SSE acts as online matchmaker as interested investor can select social businesses based on location, objects, performance and mission. In Singapore, SSE also acts as information provider similar to UK based SSE. So,it is evident that countries have set up SSE according to their regional requirement and there is no standard pattern or model for setting up SSE.
Hurdles to be crossed:
1. Whenever any new business is setup there always exists a risk of its successful running as smooth running is a bigger challenge than setting up of business. Similarly, setting up and launch of SSE is a tough task but what is even more tough or challenging is its successful running. In India, SSE's success would depend on how much liquidity it would be able to generate and maintain in market.
2. Clear demarcation and definition of social enterprise is required. Since SSE is meant only for benefit of social enterprises, it is very important to distinguish it from normal enterprises. Criteria should be clear so that benefit reaches to deserving enterprises.
3. Certain measures should be taken such as (a)educating all market participants at all levels about the valuation metrics weighing both on social and financial returns, (b) amplifying the efforts of creating and supporting social businesses (c) it is important to bring policy and regulatory reforms to support investors, and (iv) facilitating research and development for social enterprises and NGOs.
4. Impact investments in social sector require huge funds. It also requires a lot of research and development in this area. Corporate Social Responsibility fund created by corporates can be allowed for R&D activities in this area with necessary changes in law.
5. Income Tax Act 1961 under section 11 and 12A provide benefit to only "Charitable Organization" defined in section 2(15) of Act. These provisions should be amended so as to increase their scope by including social enterprises also in it. As projects having social impact and long term growth goals for society should get tax benefit.
Conclusion : Society can grow only when standard of living of people improve. Everyone in society should have access to hygienic food, shelter, clothes, education with healthy environment, good medical and transport facilities. All these can happen if businesses perform well and earn profit. Thus an integrated sustainable growth plan, focusing not only on economics but also on environment and society has always been the need. This inclusive growth can be achieved in many ways one of such ways can be by having SSEs in India.
(The views expressed are strictly personal.)
