While the Government’s proposal to launch a social stock exchange is ambitious, its success will depend on the framework, of which we know very little. Studying working models from around the world can help us develop a foolproof plan

Union Finance Minister Nirmala Sitharaman announced in the Union Budget, in July this year, that the Government would launch a social stock exchange under the Securities and Exchange Board of India (SEBI) to list social enterprises and voluntary organisations so that they can raise capital. While we await further details from the Government, its intent has been welcomed by social entrepreneurs across the country. Before we look at what a social stock exchange is, let us try and understand how a social enterprise works.

What is a social enterprise?

A social enterprise is basically a revenue generating business with objectives that intend to address social causes such as providing better healthcare, clean energy or sanitation.

Unlike charities, such businesses are profit-generating vehicles that do not depend on donations. Profits

 generated by the business are reinvested into ongoing social programmes. They execute long-term strategies by getting the required technology and professionals on-board.

Social enterprises are a natural outgrowth of three sectors (public, private and social) and they combine a for-profit model with a social purpose. Investors looking to increase their social impact are drawn to these enterprises as they focus on finding sustainable market-driven solutions to social problems. 

What’s a social stock exchange?

As investors seek social investments, there has been an uptick in social stock exchanges across the world. Social stock exchange is a place where people can buy stock in social businesses with goals in alignment with theirs. Several nations across the world have launched their own exchanges.

While there can be numerous definitions to a social enterprise, the common denominator among trading platforms is that the company has been successful in mobilising private money for public good. Not all social enterprises operate in a similar fashion. They differ based on:

• The type of activities they undertake (whether they facilitate trading or just play the role of a match-maker)
• People, who can invest (either the general public or accredited investors, who meet certain income or net worth standards)
• The degree to which they address a social issue (either the primary reason the company exists or it’s just a secondary concern)

How will it help?

The think-tank, Brookings India, released a report on July 1 after thoroughly evaluating the social enterprises in the country. It said that 57 per cent of the companies, who took part in the survey, said that the lack of access to debt or equity was the biggest barrier to their business’ growth and sustainability. Uniting potential investors with enterprises will provide easier access to capital.

Standardising the process of qualification will also make the job of soliciting donations cheaper as companies won’t have to negotiate with individual investors directly. A listing on the SSE would also entail regular auditing on the impact they have managed to create, promoting competition between companies and encouraging market discipline.

Now let us take a look at four social stock exchanges from across the world that are making a lot of noise.

UK’s social stock exchange:  Launched in 2013, this is a platform designed to connect the public with high impact investments. While it is not an exchange in itself, its website provides detailed information on firms that have met the membership requirements. The firms that meet the criteria are listed on the regular stock exchange. With Government backing, it would be interesting to see where it’s headed.

Singapore’s Impact Exchange:  Launched in 2013 as a joint initiative with the Mauritius Stock Exchange, it is the only public stock exchange in the world. It is open to accredited investors, who are looking to invest capital in social enterprises. The exchange also includes nonprofit entities, who are allowed to issue debt securities like bonds. 

Canada’s Social Venture Connexion: The SVX is an online portal that helps connect social enterprises seeking capital with accredited investors. To qualify for the membership, companies have to meet several criteria, including an assessment of their social and environmental impact. If an investor is interested in investing, all the transactions are independently conducted from SVX.

 The US’ Mission Markets:  Lauded in 2010, this is an online private capital marketplace for impact investing in America. Accredited investors can log in to their website to look for approved offerings.

It is a comprehensive portal that connects investors to socially-minded companies, providing review for due diligence, bringing in the capital and closing the transactions with the help of its broker dealer partner.

A unified platform with standardised set of protocols can act as a credible intermediary, help potential investors evaluate companies better and usher transparency in donations.

While the proposal is certainly ambitious, the success depends on the framework, of which we know very little. Studying working models from around the world will help us develop a foolproof plan and execute it successfully.

(The writer is director and creative strategist of an advertising and consulting agency)