Finance Minister in the Budget speech 2019 made announcement of a Social Stock Exchange (SSE).
SSE, will list social enterprises and voluntary organisations, has gathered much attention among social impact enthusiasts across the globe.
How should India design its SSE?
Social enterprise can be defined as a non-loss; non-dividend paying company created and designed to address a social problem.
McKinsey’s study - ‘Impact investors’ in India poured about $5.2 billion between 2010 and 2016, most of which was concentrated in sectors like financial inclusion and clean energy.
Brookings India’s survey - 57% of the social enterprises identify access to debt and equity as a barrier to growth and sustainability.
India is a home to more than two million social enterprises (non-profits, for-profits and hybrid models).
So, it needs a careful planning while designing its social stock exchange.
SEBI is yet to set up its working committee on SSEs, but many experts have proposed distilling learnings from those of other countries.
While formulating such a product for India, we need to have an extensive and cautious approach in terms of its accreditation, valuation and monitoring.
What are the benefits of listing in SSE?
Listingof social enterprises on an SSE would improve visibility of social enterprises to large investors and philanthropic organisations.
Apart from equity capital, social enterprises need debt, particularly to meet working capital requirements.
Listing of debt products on the SSE would encourage banks, NBFCs and other investors to participate in the growth journey of these social enterprises and thereby deepen their impact.
SSE impact valuation would also help in supporting an ecosystem of innovative financial products (like results based financing) which is a next big leap for the impact investing community in India.
What are the valuation metrics?
The impact valuation metrics for social enterprises could be designed based on social and environmental mission; target beneficiaries; service delivery; stakeholder involvement; and impact measurement.
Continuous monitoring of these metrics is crucial to the success of such a platform.
Impact evaluators and impact rating agencies may also partner with SEBI on this task and provide a reliable source of impact evaluation for the investors.
We also have a lot to learn from our experience with SME exchanges operated by both BSE and NSE.
Most of the early-stage social enterprises also fall under the SME category, but these require more careful support than others.
What measures are to be taken for a SSE to meet its intended objectives?
Educating market participants about the valuation metrics weighing both on social and financial returns;
Amplifying the efforts of creating and supporting social businesses;
Bringing policy and regulatory reforms to support investors, and facilitating research and development for small social enterprises.
SSE should encourage participation of socially inclined investors to avoid mission drift of its listed enterprises.
Rewarding investors by issuing certificates for supporting social missions of listed enterprises can add more value to their financial returns.
India has one of the most developed social impact ecosystems amongst emerging economies.
With India spearheading the modern technological movement, social enterprises here have enormous growth potential.
In such a scenario, it is important to support these enterprises with the ‘right’ capital.
A social stock exchange may prove to be path-breaking here.
