Social Stock Exchange

A platform on which social enterprises, volunteer groups and welfare organisations will be listed so that they can raise capital. It will bring together social enterprises and impact investors on a common platform.

Need:

• Solving real problems in education, healthcare and financial inclusion.
• The Electronic Fundraising Platform acknowledges the problem of investment fundraising for such organizations.
• It will help companies to have greater visibility and raise capital. For instance, if an entrepreneur can go to a single platform which he knows will be touched by a hundred investors, it becomes easier for him.
• Viable alternative for impact startups to raise funding.
• In India, the social impact startups : Growth Rate – 20 % annual rate while there are more than 400 such startups.

Potential:

• The exchange would help social and voluntary organisations which work for social causes to raise capital as equity, debt or a unit of mutual fund.
• It’s good for the government to put in some resources in the creation of what should be viewed as a facilitating institution.
• With the government distrustful of foreign donations to nonprofits, the exchange might help the sector generate more capital.
• The proposal would be a radical experiment in a country characterised by stark inequality and rapid economic growth.
• If created, the exchange could provide new and cheaper sources of financing for social welfare projects, while showcasing India’s independence from foreign aid as it seeks to enhance its position on the world stage.
• SSEs exist in several countries in various forms but there is no clarity about the Indian version yet on trading, tax benefit transferability and accountability of third parties.

Social enterprises:

• A social enterprise is a revenue-generating business.
• Its primary objective is to achieve a social objective, for example, providing healthcare or clean energy.
• This in no way means that a social enterprise can’t be highly profitable. In fact, most social enterprises look and operate like traditional businesses.
• The only catch is that the profit these entities generate is not necessarily used for payouts to stakeholders, but reinvested into their social programmes.

• Forus Health, a social enterprise manufacturing medical devices, with the larger vision of eliminating preventable blindness.
• Impact Guru is a donation-based crowd funding startup serving NGOs, social enterprises, startups and individuals.

Global examples:

• UK: The Social Stock Exchange in London functions more as a directory connecting social enterprises and potential investors. Launched in 2013, it only accepts companies that pass its independent assessment on social impact.
• Kenya: The Kenya Social Investment Exchange, launched in 2011, connects vetted social enterprises with impact investors, both foreign and domestic. A listed social enterprise has to demonstrate social impact as well as financial sustainability beyond the funding period.
• Canada: Backed by the Ontario government, the SVX is an online platform that allows investments in Canadian companies and funds that have “a positive social or environmental impact”. Retail investors are also allowed to participate.
• Singapore: The Impact Investment Exchange runs a social stock exchange in partnership with the Stock Exchange of Mauritius, which is open to limited accredited investors who want to invest.

Challenges:

• In a survey of Indian social enterprises by Brookings India, 57% identified access to debt or equity as a barrier to growth and sustainability.
• Lack of clarity of Social Enterprise in India.
  • There is less clarity about how a stock exchange will help raise capital for “voluntary organisations”.
• Social startups possibly lack the flexibility in raising capital from angel or venture capital investors, unlike a regular technology startup.

Way forward:

• Distinguish between a social enterprise and a normal enterprise.
• It would be innovative if corporate social responsibility funds could be routed to social enterprises through the exchange. This can help reduce misuse of CSR funds and help companies route funds through a more viable route.

Conclusion:

The Social stock exchange is a step in the right direction to help the cash starved social startups. This will further the cause of socio-economic development with much transparency and accountability.