On July 1, the think tank Brookings India released a paper titled “The Promise of Impact Investing in India”, which mentioned that in a survey of Indian social enterprises, 57% identified access to debt or equity as a barrier to growth and sustainability. The
Finance Ministry has chosen a novel way to address this. On Friday, Finance Minister Nirmala Sitharaman announced in the Union Budget that the government proposes to create “a social stock exchange… to list social enterprises and voluntary organisations… so that they can raise capital”.
Details of this radical proposal are yet to be announced but the intent has been welcomed. “It sends a positive signal that the government is bothered about the sector. It will help companies like ours 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,” says K Chandrasekhar, CEO of Forus Health, a social enterprise manufacturing medical devices, with the larger vision of eliminating preventable blindness. Brookings India research director Shamika Ravi, one of the authors of the paper on impact investing, suggests that the exchange should be viewed as a medium or platform where search can happen. “The industry is at a very nascent stage and given the scale of operations, its unlikely to be able to create such an entity (on its own). In a sense, its good for the government to put in some resources in the creation of what should be viewed as a facilitating institution,” says Ravi, who is also a member of the PMs Economic Advisory Council.
A social stock exchange, broadly, is understood as a platform that allows investors to buy shares in a social enterprise that has been vetted by the exchange. There are only a few international examples and they follow different models. In London, it acts more as a directory connecting social enterprises with potential investors, while in Canada the SVX is an online platform where even retail investors can invest in funds or companies with social impact. In India, the finance minister said the exchange will come under the ambit of the Securities and Exchange Board of India. She mentioned that it will be “an electronic fundraising platform”, but the precise nature of its functioning is unclear so far.
While ironing out the details, one of the governments priorities should be to define a social enterprise, says Vineet Rai, CEO of Aavishkaar-Intellecap, the countrys pioneering impact fund. “The first thing the government needs to decide is how to distinguish between a social enterprise and a normal enterprise. The criterion doesnt exist in India.” While setting up an exchange is easy, the challenge lies in making it work and creating liquidity, he adds. “Ultimately, it will boil down to the kind of incentives the government is proposing for those getting listed and those providing liquidity by participating in the stock exchange,” says Rai. It would be innovative if corporate social responsibility funds could be routed to social enterprises through the exchange, says Srinivas Ramanujam, COO of Villgro Innovations, an incubator for social enterprises. “This can help reduce misuse of CSR funds and help companies route funds through a more viable route,” he adds.
Not everyone is convinced that a separate stock exchange might be the best way to improve access to capital for social enterprises. “I think both India and our sector would be much better served if the SME exchange could be up and running properly, considering all these social enterprises are actually SMEs. To me, thats more viable than creating another impractical exchange,” says Vishal Mehta, cofounder of Lok Capital, who feels the impact investment sector in India is not mature enough for such a move.
There is less clarity about how a stock exchange will help raise capital for “voluntary organisations”. Anuj Gupta, founder of the NGO Goonj, says the kind of voluntary organisation it is meant for is also unclear as of now. “If it is applicable to Section 8 companies, this will include the BCCI, one of the richest sports bodies, and every money-making private school. We dont know the framework yet.” With the government distrustful of foreign donations to nonprofits, the exchange might help the sector generate more capital, says Rai.
A unified platform can bring in greater transparency for nonprofits, and help both individuals and the corporate sector evaluRead More – Source