Capital markets regulator SEBI (Securities and Exchange Board of India) now seems closer to setting up a social stock exchange, a move experts say will bring in more transparency to social organisations’ fundraising, and will promote impact investing. The proposed Social Stock Exchange will enable social organisations to tap additional sources of fundraising. According to the SEBI’s latest bulletin, the market watchdog has approved the broad framework for introducing Social Stock Exchange as a separate segment under the existing stock exchanges. Here is all that we know so far about the proposed Social Stock Exchange.
Greater transparency in fundraising
“As far as India is concerned, we are still at a nascent stage as far as listing non-profit companies is concerned. Loads of donations are flowing into the system, but there is no transparency as far their usage is concerned,” Kembai Srinivasa Rao, Adjunct Professor at the Institute of Insurance and Risk Management, told FinancialExpress.com. He added that a social stock exchange is coming up where there will be a lot of transparency as organisations listed will have to disclose their operations.
The proposed SSE could also entertain some for-profit organisations, according to Makarand Joshi, founding partner, MMJC and Associates – a corporate compliance firm. He, however, pointed out that entities listing on the bourse would need to get a social audit and impact audit done for their activities.
The impact of a Social Stock Exchange
The idea of a Social stock exchange (SSE) was proposed by Finance Minister Nirmala Sitharaman as part of the Budget Speech for the financial year 2019-20. The finance minister proposed creating an electronic fund-raising platform for listing social enterprises and voluntary organisations working for the realisation of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.
SEBI said in a circular earlier in February this year that entities that shall demonstrate that social intent and impact are their primary goals should list on the SSE. Such intent will need to be demonstrated through a focus on eligible social objectives for the underserved or less privileged populations or regions. This clearly shows that SEBI intends SSE to act as a medium for raising funds for organisations that go on and work towards eradicating hunger, gender upliftment, promoting national heritage, bridging digital divide, and much more. SEBI has already stated that corporate foundations, political or religious organisations/ activities, professional or trade associations, infrastructure and housing companies (except affordable housing) shall not be permitted to list on SSE.
Instruments to raise funds
Organisations listed on the bourses have been given various options they can use to raise funds. SEBI circular said that Non-profit entities can raise funds through Zero Coupon Zero Principal Instruments, Development Impact Bonds, and donations from Mutual Funds. Meanwhile, SEBI said that the existing fundraising structures as available for corporates would also be available to for-profit entities such as equity, debt, AIFs, etc.
