India’s Social Stock Exchange is up and running
Dhruv Khandelwaal
| Lawyer | Company Secretary | [email protected] | | Secretary & Treasurer ICSI Noida [2019-23]
In recent years, there has been growing interest in the concept of social stock exchanges (SSEs) as a means of channelling investment towards social enterprises and other organizations that prioritize social and environmental impact alongside financial returns. The idea of a social stock exchange was first mooted in the?Union Budget?2019-20 to enable entities involved in social activities such as charitable trusts?and non-profit organisations (NPO) to access the capital market for funds. In this article, we will explore what social stock exchanges are, why they matter, and what the future of SSEs in India may look like.?
First, let's define what we mean by a social stock exchange. Essentially, an SSE is a platform that facilitates the trading of securities issued by organizations that have a clear social or environmental mission. These may include social enterprises, impact funds, non-profits, and other entities that prioritize social impact alongside financial returns. By providing a marketplace for these securities, SSEs can help to attract investment from socially-minded investors who are looking for opportunities to make a positive impact with their money.
Why do social stock exchanges matter? One reason is that they can help to address a key challenge facing the impact investing space: the lack of liquidity in impact investments. Because impact investments often involve longer time horizons and more complex investment structures than traditional investments, they can be difficult to buy and sell on traditional stock exchanges. SSEs can help to solve this problem by providing a dedicated marketplace for impact investments, making it easier for investors to buy and sell these securities.
Another reason why SSEs matter is that they can help to raise the profile of social enterprises and other impact-focused organizations. By providing a platform for these organizations to list their securities, SSEs can help to increase awareness of the important work they are doing, and help to attract investment from a wider range of investors.
India has a long history of social entrepreneurship and a thriving social enterprise sector, but until recently, there have been few dedicated channels for impact investment. The SSE represents an important step towards building a more robust impact investing ecosystem in India, and has the potential to unlock significant amounts of capital for social enterprises and other impact-focused organizations.
Looking ahead, the future of SSEs in India looks bright. In addition to the BSE's SSE, other exchanges in the country are exploring the possibility of launching their own SSEs. Two months after getting in-principle nod, National Stock Exchange (NSE) has got the final approval from the Securities and Exchange Board of India (SEBI) to launch a Social Stock Exchange.
The SSE’s will list only securities that raise money for ‘non-profit’ or ‘for-profit’ ‘social enterprises.’ a ‘For-Profit Social Enterprise’ means a company or a body corporate operating for profit, which is a Social Enterprise for the purposes of SEBI’s regulations on the SSE and does not include a company incorporated under section 8 of the Companies Act, 2013.
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‘Not-for-profit Social Enterprise’ shall include charitable trusts, charitable societies, companies licensed under section 8 of the Indian Companies Act 2013 and any other entity as may be specified by the Board. A ‘for-profit’ or ‘not-for-profit’ entity must first be identified as a ‘Social Enterprise’ by establishing primacy of its social intent. Corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing, shall not be eligible to be identified as a Social Enterprise.
A Not-for-Profit Organization may raise funds on SSE through:
A For-Profit Social Enterprise may raise funds through:
Overall, social stock exchanges represent an exciting new frontier in the world of impact investing. By providing a dedicated marketplace for impact investments, SSEs can help to attract investment from socially-minded investors, while also raising the profile of social enterprises and other impact-focused organizations. India's first SSE represents an important step forward in the development of impact investing in the country, and we can expect to see more growth and innovation in this space in the years to come.