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Social Stock Exchange

Social Stock Exchange

Tag: GS -2||Governance and social justice ||Other Aspects of Governance|||Corporate governance

What is the Issue?

  • The Finance Minister proposed a Social Stock Exchange (SSE) in the 2019 Budget speech.
  • SSE will list social enterprises and voluntary organizations, has gathered much attention among social impact enthusiasts across the globe.

How is India going to model its SSE?

  • Social enterprise can be described as non-loss; non-dividend paid enterprise developed and designed to deal with a social issue.
  • Report by McKinsey–’ Impact Investors’ in India poured about $5.2 billion between 2010 and 2016, most of which concentrated on sectors such as financial inclusion and clean energy.
  • Access to debt and equity is described as an obstacle to growth and sustainability by 57% of social enterprises in India.
  • India is home to over two million social enterprises (non-profits, hybrid models and for-profits).
  • Therefore, when preparing the public stock exchange, it needs careful preparation.
  • SEBI still has to set up its SSE working group, but many experts have suggested distilling lessons from other countries.
  • While formulating such a product for India, we need to have an extensive and cautious approach in terms of its accreditation, valuation, and monitoring.

Benefits of listing in SSE

  • Listing of social enterprises on an SSE would improve the visibility of social enterprises to large investors and philanthropic organizations.
  • In addition to equity capital, social enterprises need debt, especially in order to meet the requirements of working capital.
  • Listing debt products in the SSE would encourage banks, NBFCs, and other investors to participate in and deepen their impact on the growth path of these social enterprises.
  • SSE impact assessment would also help support an ecosystem of creative financial products (such as outcome-based financing) that is the next major leap forward for India’s investment community impact.

 What are the valuation metrics?

  • Impact assessment indicators could be developed for social enterprises based on the social and environmental mission; target beneficiaries; service delivery; participation of stakeholders; and impact evaluation.
  • Continuous monitoring of these metrics is critical for such a platform’s performance.
  • Impact assessors and rating agencies can also partner with SEBI on this task and provide investors with a reliable source of impact assessment.
  • We also have a great deal to know from our experience of both BSE and NSE SME exchanges.
  • Most early-stage social enterprises also fall under SMEs, but they need more vigilant support than others.

 Which steps should an SSE take to achieve its intended goals?

  • Educating market participants on valuation indicators that weigh on social and financial returns;
  • Enhancing efforts to build and support social enterprises;
  • Implementing policy and regulatory changes to benefit stakeholders and to promote research and development for small social enterprises.
  • SSE must allow socially conscious investors to engage in order to avoid the wandering task of its listed companies.
  • Investors can add value to their financial returns by issuing certificates to support the social missions of listed companies.
  • India has one of the emerging economies ‘ most advanced social impact ecosystems.

 Way forward

  • This proposal seems to be an encouraging move, as it would help social enterprises/ NGOs to raise funds through equity, debt or as units like an MF (mutual fund) to meet social welfare objectives. This step would clearly stimulate governance in the social sector.
  • If implemented properly it will serve as a platform for fund mobilization for ventures which may have an overriding social purpose, which is sustainable and reflective of the changing social attitudes towards impact investing.

Mains model question

  • What are Social Stock Exchanges? Discuss its needs and potential in India?

References