Explained: What Are Social Stock Exchanges, How Will It Help?

The concept of social stock exchanges has recently been approved by SEBI but has been around for a while globally

Social enterprises and impact investing got a renewed impetus from the Securities and Exchange Board of India (SEBI) on September 28, when it gave the green signal for the framework of social stock exchanges in the country

In her first Union Budget speech (July 2019), Finance Minister Nirmala Sitharaman had announced the plan to build a social stock exchange, under the ambit of SEBI.

"It is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. I propose to initiate steps towards creating an electronic fund raising platform – a social stock exchange - under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund"

Nirmala Sitharaman's Union Budget speech

Impact investing and social enterprises use capital to invest towards attaining observable or measurable social or environmental benefits; making a profit in the process (for a for-profit enterprises).

The SEBI board's approval is largely based on the recommendations of its own working and technical group, which will allow groups with social impact and intent as its primary goal to raise development finance through a variety of sources that are commonly floated on stock exchanges or are market-linked. The approval of the framework of social stock exchanges moves to pave a pathway for funds for social enterprises via these channels.

Also Read: Explained: What Is A Bad Bank, How It Has Been Used Around The World

The Indian Social Stock Exchange Model

SEBI has outlined a number of regulations that will govern social stock exchanges in India.

First, these exchanges will be separate segments in existing stock exchanges in India.

The social enterprises, who will be eligible to participate can be non-profit organisations (NPOs) or for-profit social enterprises (FPE). However, they will have to primarily work in a social activity among a list of 15 such broad eligible activities.

Though SEBI's announcement does not list these activities, its technical group report released in May this year does highlight 15 areas that would make a social enterprise eligible for participation.

Also Read: Explained: Stock Market Price Bands And Circuit Breakers

NPOs may raise funds through:

  1. Equity
  2. Zero Coupon Zero Principle bonds
  3. Development Impact Bonds
  4. Mutual funds
  5. Social Impact Funds

Social Impact Funds are re-christened versions of social venture funds, which are AIFs (Alternate Investment Funds) already under the ambit of SEBI. Quarterly data from SEBI shows that social venture funds had cumulatively raised ₹3,671 crore in commitments, ₹2,463 crores in funds and had made investments worth ₹1,105 crores as of March 31 this year. This can be viewed here. The Board also approved reducing the corpus requirements for these funds from ₹20 crores to ₹5 crores.

Also Read: Explained: Why IRCTC's Share Price Plunged, Govt Reverses Decision

While the technical report did outline that several of these avenues such as mutual funds could be a conduit to retail participation and retail philanthropic involvements alongside institutional involvements in social stock exchanges, SEBI's release does not differentiate among potential players who can invest in these instruments.

SEBI further outlined how compliance for them would take place. Initially, only firms or institutions having expertise in social audit would be able to do so. Further, a directorate for social audit would also function under the Institute for Chartered Accountants of India.

Find SEBI's release outlining its Board's approval here.

Social Stock Exchanges Around The World

Social stock exchanges have been opened around the world, but not all of them provide platforms to trade in stocks or any and all financial instruments in the traditional sense. These exchanges come in different formats. These formats can be seen below:

Such exchanges also exist in Brazil and Kenya.

Find SEBI's technical report here.

Also Read: Sensex Touches 60,000: How It Has Travelled Since 1979

Updated On: 2021-10-29T16:11:16+05:30
If you value our work, we have an ask:

Our journalists work with TruthSeekers like you to publish fact-checks, explainers, ground reports and media literacy content. Much of this work involves using investigative methods and forensic tools. Our work is resource-intensive, and we rely on our readers to fund our work. Support us so we can continue our work of decluttering the information landscape.

📧 Subscribe to our newsletter here.

📣You can also follow us on Twitter, Facebook, Instagram, Youtube, Linkedin and Google News
Show Full Article
Next Story
Our website is made possible by displaying online advertisements to our visitors.
Please consider supporting us by disabling your ad blocker. Please reload after ad blocker is disabled.