Social Stock Exchanges (SSE)

Context: A working group of the Securities and Exchange Board of India has recommended allowing non-profit organizations to directly list on Social Stock Exchanges (SSE).

Major Recommendations:

• Social Venture Funds (SVFs): It recommends a range of funding avenues, such as Social Venture Funds (SVFs) under Alternative Investment Funds (AIFs).
  • Social Venture Funds (SVFs) are funds investing in early-stage social enterprises to expand opportunity for people living in poverty.
• Issuance of Bonds: Allowing non-profit organizations to directly list through the issuance of bonds in the form of zero-coupon or zero principal bonds.
  • A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, drawing a profit at maturity, when the bond is redeemed for its full face value.
  • This would help to access funds from donors, philanthropic foundations, and Corporate Social Responsibility (CSR) spenders as they will be encouraged to buy zero-coupon bonds.
• Enhanced Reporting Standards: Profit social enterprises are allowed to list on the platform with enhanced reporting requirements.
  • The social stock exchange can be housed within the existing national bourses like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Benefits: 

• Infrastructure: This will help the SSE to leverage existing infrastructure and client relationships with onboard investors, donors, and social enterprises.
• Participation nonprofit organizations: It would encourage banks and other investors to participate with nonprofit organizations and thereby making social and economic growth more inclusive.
• Culture of ‘giving’: Certain tax incentives allowed under the recommendation would encourage participation in the culture of ‘giving’ among various stakeholders.

About SEBI: 

• It is a statutory body established on April 12, 1992, in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
• The basic functions of  SEBI are to protect the interests of investors in securities and to promote and regulate the securities market.

Background:

• Before SEBI came into existence, the Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
• In1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
• Initially, SEBI was a non-statutory body without any statutory power later It became autonomous and given statutory powers by the SEBI Act 1992.
• The headquarters of SEBI is in Mumbai and regional offices are located in Ahmedabad, Kolkata, Chennai, and Delhi.

Social Stock Exchange (SSE):

• The idea of the Social Stock Exchange (SSE) as a platform for listing social enterprise, voluntary, and welfare organizations so that they can raise capital was mooted in the Union Budget 2019-20.
  • Social enterprise can be defined as a non-loss; non-dividend paying company created and designed to address a social problem.
• Objective: To help social and voluntary organizations that work for social causes to raise capital as equity or debt or a unit of the mutual fund.
• It provides new and cheaper sources of financing for social welfare projects while showcasing India’s independence from foreign aid.
• It works under the SEBI.
• SSE already exists in countries such as Singapore, UK, Canada. These countries allow firms operating in sectors such as health, environment, and transportation to raise risk capital.

Way Forward:

There are India more than 2 million social enterprises (non-profits, for-profits) in India, hence the recommendations regarding the listing of the Non-Profit Organisations on social stock exchange need careful planning. While formulating these recommendations, it is required to have an extensive and cautious approach in terms of its accreditation, valuation, and monitoring.

In London, SSE acts more like a directory connecting social enterprises with potential investors, while in Canada SSE works as an online platform where even retail investors can invest in funds or companies with social impact.

Source: The Hindu