Social Stock Exchange

Introduction

• A Social Stock Exchange (SSE) is a regulated entity which allows voluntary organizations with a social purpose and social enterprise to raise funds.
• The objective of the Social Stock Exchange is to help improve access to capital for enterprises that seek to deliver a positive change in society. 
• The idea of Social Stock Exchange is not new. Globally, social investment platforms have been set up in a number of countries such as the UK, US, Brazil, South Africa and Canada, having different motives.

Social Stock Exchange In India

• The proposal of setting up a Social Stock Exchange in India was made in the Union Budget 2019-20.
• It was proposed to help enterprises and voluntary organizations working for social welfare raise capital through debt, equity or mutual funds.
• The thought behind this proposal is to take the capital market closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. 
• The social stock exchange was proposed to be set up under the ambit of Securities Exchange Board of India (SEBI). 
• The Securities and Exchange Board of India (SEBI) had set up an expert panel in September 2019 under the chairmanship of Mr. Ishaat Hussain and the objective was to suggest a feasible architecture and outline recommendations for setting up an SSE mechanism in India. 
• The panel released its comprehensive report and set out a structure for an SSE in India, recommending that it be housed under existing national exchanges such as the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). 

Proposed Avenues and Mechanisms for Fund-Raising 

• The SSE aims to effectively deploy fundraising instruments and structures available under regulatory guidelines towards social enterprises. 
• These instruments differ by the nature of social enterprise seeking funding i.e. the working group recognizes a distinction between for-profit enterprises (FPEs) and non-profit organizations (NPOs). 

For non-profit social enterprises (NPOs)

• Zero coupon zero principal bonds: Allowing NPOs to directly list on the SEE through issuance of bonds in the form of zero coupon or zero principal bonds. These bonds would carry a tenure equal to the duration of the project that is being funded, and at tenure, they would be written off the investor’s books.
• Social Venture Funds (SVF): An SVF is a category 1 Alternative Investment Fund (AIF) that is already allowed by SEBI to issue securities or units of social ventures to investors. 
• Mutual funds: An asset management company could offer closed-end mutual fund units to investors. The units could be redeemable in principal terms, but all of the returns could be channelled towards suitably chosen NPOs by the fund which acts as the intermediary. 
• Pay-for-success models: Pay-for-success models through lending partners or through grants are highlighted as effective mechanisms to ensure a more efficient and accountable deployment of capital. 

For for-profit social enterprises (FPEs):  

• Equity listing: FPEs would list equity on the SSE subject to a set of listing requirements, including operating practices (financial reporting and governance) and social impact reporting. 
• Social Venture Funds (SVFs): AIFs and SVFs already exist for FPEs but do not require social impact reporting. The set-up of SSE would bring under the fold of the minimum reporting standard all FPEs that receive funding through the AIF/SVF channel. (Social impact reporting is highlighted in detail later in the article)