India needs enormous investments in the coming years to be able to meet the human
development goals identified by global intergovernmental organisations like the UN.
Governments and philanthropists on their own cannot meet these volumes of funding.
Substantial inputs from private enterprises engaging in the social sector are thus critically
needed.
Social sector organisations (both for-profit and non-profit) play an indispensable role in
delivering vital services to vulnerable and marginalised communities. However, the efficacy
of the sector is dependent on adequate funding and more often than not, there is a
collective risk aversion given that social businesses are often judged poorly based on their
relatively lower financial returns.
At present, the social sector in India receives funding through multiple sources, such as
corporate social responsibility (CSR), impact investing, philanthropy, and everyday giving.
Integrating these diverse channels by enabling them to come together on a common
platform and introducing uniform frameworks in reporting, measurement, and standards
could be an essential step in developing the sector.
It is pretty evident that markets and socialism have been an odd match since the start of the
industrial revolution, however, this may no longer be the case as a third dimension is slowly
finding its place in this traditional market contradiction—a dimension that includes social
business, impact linked financing, and now social stock exchanges (SSEs).
An SSE is a novel concept in our country and such a bourse is meant to serve private and
non-profit sector providers by channelling greater capital to them through alternative fund-
raising structures. With over 31 lakh NPOs – more than double the number of schools and
250 times the number of government hospitals, the SSE has a large target market size to
cater to.
A SEBI working committee recently released a report charting out the contours for a social
stock exchange, an idea projected by the Finance Minister about a year ago. The report
takes a holistic look at the social financing panorama. The key objective, as stated by our
Finance Minister in her maiden speech in 2019, was to take capital markets to the masses;
specifically, organisations working towards social welfare, in order to make it easier for
them to raise funds.
The fund-raising is proposed through several instruments such as zero-coupon-zero-
principal bonds, social venture funds (an alternative investment fund allowed by SEBI to
issue securities of social ventures to investors who may agree to receive restricted or muted
returns), mutual funds and pay for success contracts. The SSEs will aim at unlocking large
pools of social capital, and encourage blended finance structures, so that conventional
capital can collaborate with social capital to address urgent challenges.
At the onset, there are several attractive propositions of the SSE. It would give the much-
needed visibility and Government support to the sector. Perhaps the potential social impact
investors could gain a thorough understanding of the social sector. The SSE could also help
direct more and more investments to growth stage NGOs. It would also enable a strong
presence for the ecosystem enablers who facilitate growth through connections,
mentorships, investment and market access.
Countries like Canada, UK, Singapore, South Africa, Brazil, and Kenya have already opened
their doors to their very own social stock exchanges. The UK Social Stock Exchange, for
example, serves as a directory of companies that have passed a “social impact test” giving
them the much-needed visibility and it also acts as a research service for would-be social
impact investors.
The Canada Social Venture Connexion, on the other hand, holds itself up as a “trusted
connector” whereby it provides social businesses with access to interested impact investors,
service providers, high visibility, and a means to value their triple bottom line at affordable
prices. It comes closest to a full-fledged stock exchange but is open only to institutional
investors.
More interestingly, the South Africa SASIX works like a conventional social stock exchange
and offers ethical investors a platform to buy shares in social projects according to two
classifications: sector and province.
There is a need to learn from these other countries. The Canadian valuation seems the most
progressive and insightful, as it uses a widely understood metric—the B Corporation
standard—to evaluate social and environmental impact of these organisations. This could be
a guiding light for the other SSEs to follow suit.
While the concept and the purpose behind introducing an SSE in India does appear
trailblazing, there are several things that would have to be taken care of and worked upon,
in the initial years.
To begin with, there is an urgent need for standardisation of procedures in this sector and
the SSE could be used to achieve the same. There is also a need to develop suitable metrics
to value social investments as the conventional metrics may not work in this regard.
Measurement of social impact under the SSE must go beyond simply monitoring the
behaviour of corporates. SEBI should work out a mechanism to assess the credibility of the
impact self-declared by a social business and verify its preference for social returns over
financial returns. This is to ensure only those social businesses that are genuinely creating
social impact to be associated with the SSE. Engagement of social auditors could also be
encouraged to promote independent verification of impact reporting.
Certain tax incentives and risk protection through policy and regulatory reforms could be
further worked on for the investors which would encourage participation in the culture of
‘giving’ among various stakeholders. Encouraging foreign investments, CSR funding and
trading and developing new sector level infrastructure such as Information Repositories
could also prove vital in the success of the SSE.
In the current setting with the ongoing COVID-19 pandemic, there is a substantial need for
social capital to rebuild the livelihoods of thousands in the country. The SSE is envisioned as
one of the conceivable solutions to this pressing problem by enabling commercial capital to
partner with social capital. To allow this parallel economy to grow and to reap the benefits
of this powerful synergy, it falls upon each one of us to encourage and provide a conducive
atmosphere to enable the SSEs to flourish and not let the idea fade away like most other
political gimmicks.