Indian market is finally ready for some powerful investments by introducing Social Stock Exchange as mentioned in the Budget of 2019. The anticipated exchanges will be controlled by SEBI and will allow the listing of social enterprises and voluntary establishments by creating an electronic fundraising platform to raise capital, debt and mutual funds. The Finance Minister said “it is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion”.
KYC norms will be eased to encourage foreign investors and steps will be taken to bring equity market closer to people, thereby allowing establishments working for health, transportation and environment through this platform. In layman’s term, a social stock exchange is a platform that allows investors to procure shares in social organizations that has been evaluated by the exchange. The Finance Minister added “Rupees 350 crore has been allocated for 2 per cent interest subvention for all GST-registered MSMEs on fresh or incremental loans.”
There are few exchanges globally, like the London Stock Exchange, SASIX in South Africa and Singapore’s Impact Investment Exchange, which allows social enterprises, volunteer groups and welfare organizations working in areas of environment, transportation and health to raise risk capital. The Social Stock Exchange will be an ingenious way to include the public in participating in social cause through the equity route. The Social Stock Exchange will be under the supervisory influence of the Securities and Exchange Board of India (SEBI) and would empower social enterprises to raise capital via equity, debt or in the form of units like a mutual fund.
A Social Enterprise
A social enterprise is a profit generating business and its main objective is to achieve its social and even though its primary goal is not about making profits, it ensures the sustainability of the organization. A social organization can be very successful and most of them operate like traditional businesses however, the profits generated by these enterprises are not used as a payout to the investors but instead it is reinvested in the programs run and managed by the organizations. A successful social organization keeps the profits’ flowing which in turn helps them in executing their long term programs and also include the right technology and professionals to associate with them and their cause. It is profits that differentiate a social organization from charities that are totally dependent on donations.
Investments made with an aim to make quantifiable social, economic and environmental impression and also generating profit and publicity. Currently, impact Investment sector is growing in India which means that investments will also increase.
Social Stock Exchange will act as a platform to bring social organizations and impact investors together where investors will be able to buy shares in the form of bonds from the listed organizations whose mission may align to that of the investor’s interests. The value of these social organizations listed on the exchange will be linked to their social impact.
Social startups often find it difficult to raise funds through angel and venture capital investors, unlike regular technology startups. The scale of its success cannot be measured or assessed for near future since it is more about the nature of impact and not acquiring users through discounts etc. Since investors look for successful business models to validate their investments, investing in social startups becomes a little difficult because of the nature of the market. However, listing on an exchange makes up for a viable option for the social startups looking for funding and capital. Nirmala Sitharaman in her maiden budget speech proposed “an electronic fundraising platform – a social stock exchange” 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.”
The listings on Social Stock Exchange will be monitored regularly to promote competition and encourage discipline. The securities of the top social organization will carry a premium and the ones that lack in efficiency will be penalized. Establishing Social Stock Exchange will not only help the growing investment market but also a more regulated capital market in India which will be managed by the Securities and Exchange Board of India.
Social Stock Exchange will help impact investment to become more accessible which will increase the flow of money into sustainable developments thereby reducing the burden on the Government. This framework can also be an important channel for International development finance.