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Social stock exchanges

Topics Covered: Investment models.

Social stock exchanges

What to study?

For Prelims and Mains: SSE- meaning, features and significance.

Context: A working group constituted by the Securities and Exchange Board of India (SEBI) on social stock exchanges has submitted its recommendations.

Terms of reference of the panel:

The panel was set up by Sebi in September 2019 under the Chairmanship of Ishaat Hussain, Director at SBI Foundation and former Finance Director at Tata Sons, to suggest possible structures and regulations for creating SSE to facilitate listing and fund-raising by social enterprises as well as voluntary organisations.

Background:

The idea of a social stock exchange (SSE) for listing of social enterprise and voluntary organisations was mooted by Finance Minister Nirmala Sitharaman while presenting the Union Budget 2019-20.

Key recommendations:

  1. Allow direct listing of non-profit organisations through the issuance of bonds and a range of funding mechanisms.
  2. Funding mechanisms suggested include some of the existing mechanisms such as Social Venture Funds (SVFs) under the Alternative Investment Funds.
  3. A new minimum reporting standard has also been proposed for organisations which would raise funds under social stock exchanges (SSE).
  4. Profit social enterprises can also list on SSE with enhanced reporting requirement. To encourage, giving culture some tax incentives have also been suggested.

What is social stock exchange (SSE)?

It a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them.

As per the proposal, SSE can be housed within the existing stock exchange such as the BSE and/or National Stock Exchange (NSE).

This will help the SSE leverage the existing infrastructure and client relationships of the exchanges to onboard investors, donors, and social enterprises (for-profit and non-profit).

Significance:

With this, Social welfare enterprises and non-profits could soon get to raise so-called social capital on a transparent electronic platform, aiding the process of rebuilding livelihoods ravaged by the coronavirus pandemic.

These recommendations, if implemented as a package, can result in a vibrant and supportive ecosystem, enabling the non-profit sector to realise its full potential for creating social impact.

Need for social capital:

India will need a significant amount of patient capital to repair and rebuild those livelihoods, which are the bedrock of her economy. Conventional capital that prioritises financial returns will not be able to carry such a burden all by itself.

Social capital, on the other hand, is more suited for this role. It is not only patient but its goal is precisely to support and fortify social structures that are in danger of collapsing because of COVID-19.

What is a social enterprise?

A social enterprise is a revenue-generating business. Its primary objective is to achieve a social objective, for example, providing healthcare or clean energy.

This in no way means that a social enterprise can’t be highly profitable. In fact, most social enterprises look and operate like traditional businesses. The only catch is that the profit these entities generate is not necessarily used for payouts to stakeholders, but reinvested into their social programmes.

Global examples:

UK: The Social Stock Exchange in London functions more as a directory connecting social enterprises and potential investors.

Kenya: The Kenya Social Investment Exchange, connects vetted social enterprises with impact investors, both foreign and domestic.

Canada: Backed by the Ontario government, the SVX is an online platform that allows investments in Canadian companies and funds that have “a positive social or environmental impact”.

Singapore: The Impact Investment Exchange runs a social stock exchange in partnership with the Stock Exchange of Mauritius, which is open to limited accredited investors who want to invest.

InstaLinks:

Prelims Link:

  1. What is a social enterprise?
  2. What is SSE?
  3. What is social capital?
  4. SEBI- key functions.

Mains Link:

India will need a significant amount of social capital to repair and rebuild those livelihoods, which are the bedrock of her economy. Discuss.

Sources: the Hindu.