Social Stock Exchange: Platform for Listing of Social Enterprises Compilation by CS Komal Jain & CS Karuna Jain


Introdcution:

A social stock exchange can be understood as a platform that will allow investors to buy shares in a social enterprise that has been vetted by the exchange. In other words it will provide opportunity for the Section 8 companies which are not for profit making companies and other voluntary organizations to list their securities on exchange which is proposed to be set, monitored and regulated by Securities and Exchange Board of India.

Setting up of social stock exchange will act as crowd-sourcing platforms for fund-raising by non-profit entities aimed attransparency. These exchanges allow companies operating in sectors such as health, environment and transportation to raise risk capital by involving public participation in social causes through the equity route. Investing or donating in these securities may not offer financial returns but surely will help in creating social impact return and ofcourse tax relief availed by donors. There is possibility that Finance Ministry may allow that sum of money as deduction under section 80 while computing total income.

Current Situations of Social Enterprises:

Social startups possibly lack the flexibility in raising capital from angel, venture capital investors or any Private Equity Funds, unlike a regular technology startup. Exiting from a social startup cannot be certain as they look at creating impact for the long haul even as the scalability cannot be assessed for the near future because of the ‘impact’ nature of the business rather than acquiring more users through discounts. Moreover, investors usually look at similar successful businesses to validate their investment decision but that doesn’t exist in most of the social venture markets.

However, listing on an exchange can be a viable alternative for impact startups to raise funding.Social enterprises play a very significant role in solving real problems in following fields:

Education:

There are many ambitious plans being laid down by government for educating every child of India which includes setting of Eklavya Schoolsfor Scheduled Caste (SC) and Schedule Tribe (ST) students on the lines of Navodaya schools. Diksha schemewhereby the government of India will launch the learning portal ‘DIKSHA’ to upgrade the teaching skills and will initiate the integrated B.Edprogramme.New Education policy for girlsthe government is planning to put in place a "modern education policy”. The focus of the new education policy (NEP) will be on girls’ education. It’s planning to eradicate the inequality in education.

Healthcare:

India is becoming a hub for medical tourism but all these facilities are not available to local residents, who are poor. Healthcare is a neglected issue in India, as major attention drawers are agriculture, infrastructure and IT. Lack of resources in rural India is a major concern of the day, leading to most of the problems. 50% of all villagers have no access to healthcare providers; 10% of babies die within a year of their birth; lack of nutrition caused stunned growth in 50% of all the babies; and 33% people in India have no access to toilets

Pollution:

Pollution and environmental issues are the other challenges that India is facing at present. Though India is working hard, there is a long way to go. Degradation of land, depleting natural resources,  and loss of biodiversity are the main issues of concern due to pollution. Untreated sewerage is the major cause of water pollution. The Yamuna river is today one of the most polluted rivers in India. Same is the condition of other rivers that pass through populated cities

Women’s Safety:

Both men and women enjoy equal opportunities, but as far as freedom and safety of women is concerned, India lags behind. Issues like domestic violence, rape cases, portrayal of women in media, etc., must be tackled immediately

Infrastructure:

Infrastructure India needs to work swiftly on its infrastructure towards better roads, and services like water, sanitation, etc

Setting up of SSEs will help fulfilling various schemes and yojna’s laid down by government such as Ayushman Bharat, Rashtriya Krishi Vikas Yojana, Gram Sachivalaya Yojana, KanayaJagriti Jyoti Scheme etc.

There are many startup currently operative in India which include ImpactGuru, a startup involved in raising donationbased on crowdfunding serving NGOs, social enterprises, startups and individuals. Its co-founder Mr. Piyush Jainsaid that The Electronic Fundraising Platform acknowledges the problem of investment fundraising for such organizations. This will have VC funds, impact investing funds and HNIs taking a greater interest in the entire social enterprise ecosystem.

According toNasscomthe social impact startups are growing at 20 per cent annual rate while there are more than 400 such startups, IANS had reported in November last year.

Steps government needs to take for setting up SSE’s:

Firstly whole set of policies are to be laid down as to how to distinguish between a social enterprise and a normal enterprise.

Secondly Institutional Trading Platform need to be set up under Securities and Exchange Board of India.

Thirdly 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.

Opportunity for company Secretaries:

Setting up of SSE’s will create widened opportunity for company secretaries as it will have direct impact on more and more formation/ establishment of section 8 companies which will in turn create more compliance based regulatory checks in which we company secretary expertise.

Secondly listing of Social entities,their Initial Public offers & Further Public Issues (“IPO’s/ FPO”) for fund raising hereby creating opportunities as more companies would come in net.

Advisory roles in explaining provisions, rules & regulations for investments and trading. Registration of brokers, agents, investment advisors with SEBI will also see spurt.

Global Models:

The concept of Social Stock Exchange though is first time to be implemented in India, but it has its presence in various countries which include:

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. 

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. 

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 in social enterprises.

Conclusion:

Though SSEs exists in several countries in various forms but in India more clarity is required as to how trading will be done, tax benefit transferability and accountability of third parties availing of funds raised from this platform. Ultimately the whole idea is to have a transparent fund raising based on impact investment is being hailed by activists. While setting up an exchange is easy, the challenge lies in making it work and creating liquidity.

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