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Social Stock Exchanges

The Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman, while presenting the Union Budget 2019-20 heralded the proposed crafting of a social stock exchange (“SSE”) as an electronic fundraising platform to bring together social enterprises and impact investors. The SSE, which would function under the regulatory oversight of the Securities and Exchange Board of India (“SEBI”), would facilitate the exclusive listing of ‘social enterprises and voluntary organizationsworking towards realization of social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.

“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.”

The term Social enterprise has not been defined. It should potentially include businesses that are revenue-generating with primary goal to achieve a social objective. These may include green energy, housing funds, healthcare, agriculture and education-related businesses. Revenue generation ensures the enterprise’s sustainability. The concept of a Social enterprise is not a new phenomenon, among the oldest examples of social enterprises in India is that of Amul Dairy Corporation which spurred white revolution and also FabIndia which canvassed local artisans onto a profit-making venture.[1] Social enterprises are evolving fast in India, with approximately 30 [2]firms in the market, a subset of which is registered with the Impact Investors Council of India.

Impact Investment is an investment made to social enterprises with the aim to make a social, economic and environmental impact alongside financial returns. These range across emerging and developed markets as well as across all asset classes. Research by Giin shows that there are over 1,340 active impact investing organizations across the world who collectively manage USD 502 billion in investments intended to bring about positive change. Indian impact investment began in earnest in 2001, with the establishment of Aavishkar, India’s first for-profit impact fund.[3]

Electronic Platform for SSE

The Electronic SSE will bring together social enterprises and impact investors and would function like any other stock exchange. The SSE would facilitate purchase and trade of securities of the listed entities. These listed entities would have to probably undergo impact assessment to determine its social impact.

The Concept of SSE is also not new, UK started its SSE in 2013 which serves the limited purpose of acting as a directory for companies that have passed a social impact test and as a research service. Canadian Social Venture Connexion also acts as a trusted connector for social businesses to interested impact investors. Singaporean Impact Exchange was conceptualized much earlier during the 2008 crisis but fructified in 2013 and has similar goals to that of UK SSE. South African SASIX is among the earliest SSE’s, it began in 2006 and works like a conventional stock exchange, but for social businesses.

Befitting the Indian Scenario

This move has been received with acclamations as a fresh and inexpensive fashion of funding social welfare projects, and a move away from foreign aid. With apposite scale and vision, this move could be revolutionary for India’s social enterprises. At present, these typically grapple with funding, financial sustainability issues and thence reluctance to venture out by taking the risk of failure. The proposed active ecosystem involving active social enterprises in consonance with an engaged investment market would cater to their efficiency and capital contribution.

Efforts made by the Reserve Bank will need to be supplemented with further institutional development using stock exchanges. For this purpose, inter-operability of RBI depositories and SEBI depositories would be necessary to bring about a seamless transfer of treasury bills and government securities between RBI and Depository ledgers. The government will take up necessary measures in this regard in consultation with RBI and SEBI.” Nirmala Sitharaman

The growth of impact investment across the world and also this positive step in its direction by the Government is a signal of a larger shift in the global financial markets as an increasing number of people are recognizing that their money can and should seek to fuel meaningful sustainable social and environmental impact.[4]

This would aid the nation to meet its various welfare objectives related to inclusive growth and financial inclusion and can act as a marketplace for social good to evaluate the social return on investment. Of course, like anything good that is introduced, there would be complexities in its implementations, but if the same is worked through, this would be humbling.


[2] Ibid.

[3] Ibid.

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