In this article we shall take a look at the recently introduced concept of Social Stock exchange and how it works.
Social Stock Exchanges: In the budget session of 2019, the Finance Minister, Mrs. Nirmala Sitharaman, proposed the creation of a social stock exchange, under the regulatory purview of the Securities and Exchange Board of India (SEBI) to help support social initiatives in raising money. The currency market interaction between investors and businesses only favoured economically viable and profitable ventures. Return on Investment is the criteria for all transactions here. Non-profit organisations have largely remained underfunded and are left looking for charity, donations or free resources to make ends meet. This post casts light on an innovative proposed framework for generating investing money by social enterprises. While also highlighting its benefits and challenges in implementation. Let’s now take a closer look at this concept.
What Is a Social Stock Exchange?
Very often we see these postings and requests that ask for contributions regarding social causes. We see them on television, we hear it on the radio and more commonly we see them on social media. These are largely based on appeals for voluntary donations generated at crowd-sourcing websites (for e.g., Milaap being one such notable website) especially in cases of expensive treatments. Akin to a crowd-sourcing platform for fundraising, a social stock exchange is an electronic platform that allows investors to buy shares in a social enterprise that has been thoroughly checked by the exchange platform.
A social enterprise for this purpose would be a revenue-generating business whose primary objective is societal in nature. For example, clean energy, sanitation, healthcare etc. These platforms can get themselves to list on a social stock exchange in order to raise capital.
Impact Investments In India
Mahatma Gandhi in 1925 laid out a thoughtful list of what he called “social sins” – politics without principles, pleasure without conscience, wealth without work, commerce without morality. For decades, companies in India have continued to exploit natural resources without regard to social manifestations on environment, livelihoods, food availability and poverty.
Governmental interventions such as Environmental Impact Assessments, legislative interventions in the form of laws on environment and property have met with limited success.
Several businesses have also emerged in recent years, aimed at solar energy, manufacturing of alternatives to plastics, clean air etc. An innovative policy tool rooted in returns for investors while also securing positive social impact is the concept of the social stock exchange.
Given the size of our economy, our population, there is a mounting pressure on the government to provide better social services. However, given the gap between public investment by the government and the need for resources, there exists a lot of scope for private entrepreneurship in the social space. Through impact investing, private sector money can be channeled into social enterprises’ capital, aimed at priority sectors such as education, health, housing, water etc.
The Necessity For A Social Stock Exchange
Currently, there exists no market phenomenon for interaction between social, non-profit enterprises and investors willing to contribute to such projects. The resource base for most non-governmental, non-profit organisations is limited to a few investors. Or the funds received from compulsory corporate social responsibility expenditure of large companies.
While capital markets traditionally served the economic needs, the social security exchange would help bridge the gap between capitalist objectives of a business and the need to preserve environmental and societal equity
A platform such as a social stock exchange would not just aid the government in securing access to social resources like health and education but also improve the quality and quantum of such welfare initiatives.
While most of us feel strongly about environmental issues, cleanliness, access to education etc, we often find ourselves incapable of contributing enough. Through a social security exchange, investors can align with projects that resonate with their beliefs and values.
The challenges in creating a social security exchange are:
- Accountability and transparency – While SEBI would be given the responsibility of overseeing such projects, till the government notified proper rules, there would be no clarity in establishing accountability of third parties availing funds from such a platform.
- Tax repercussions – While the Income Tax Act in India provides for deductions from income of a person donating to specified charities and government funds, it is unclear whether such contributions to projects enlisted on a social security exchange would be eligible for tax benefits.
- Returns in the form of social impact – Unlike a regular market investment with specific returns, the return on investment in a social security exchange would be the social welfare outcome from the project. When outcomes such as social impact, are not quantifiable, there exists ambiguity. The SEBI would have to formalise specific rules and methodology for calculating returns in this context.
- New tools and training – Making a special asset class of “social projects” would require many changes in the current market exchange terminology and trading processes.
Conclusion
Despite the challenges, social security exchanges afford a possibility for ordinary citizens to invest in projects that have the potential to solve social challenges and invest in causes they believe in, without doing “charity”. This globally recognised exchange platform has been set up in many countries including Singapore, UK, Canada and South Africa. By disseminating authentic information on social enterprises and creating a supporting infrastructure, we can foresee a future of impactful roles being assumed by social businesses in the Indian economy. If you have any other queries with regards to social stock exchange or any other government initiative, feel free to get in touch with our team of experts and they will assist you with your requirements.
Read more,
