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Social Stock Exchange

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July 30, 2020

Why in news?

Social Stock Exchange (SSE) would be established by the SEBI as a structure within the existing stock market ecosystem.

What would be the purpose?

  • SSE would enable the social enterprises and voluntary organisations to raise funds.
  • India’s rank is 129 among the 189 countries on the Human Development Index (HDI).
  • [HDI tracks the progress made in education, health and income]
  • So, there is indeed a pressing need to do more for the social sector.

What is the problem?

  • Successive governments are under-investing in the social sectors.
  • So, the onus has mostly fallen on private entities, that are constantly starved for funds.

How would SSE help to overcome this problem?

  • Funds from individual philanthropists have been quite strong in India, amounting to ₹70,000 crore in 2018.
  • There is an opportunity to help these entities tap other sources of funding such as international philanthropy, domestic CSR, and so on.
  • The SSE can play a role here as a platform that brings these funds and causes together.

How do global social exchanges operate?

  • The SEBI is complicating matters by allowing both the non-profit organisations and for-profit entities on the SSE.
  • Many of the global social exchanges cater only to NPOs.
  • They act as an intermediary that screens and certifies them and helps them find eligible donors.
  • SEBI can follow this model for SSE, in order to keep things simple.
  • According to government estimates, there were 31 lakh NPOs in India and these entities are in more urgent need for funds.

What is a provision that would be misused?

  • A self-declaration by FPEs is needed about being a social enterprise.
  • This is likely to be misused, in the absence of agencies that can do independent verification of the declarations made by these FPEs.
  • The regulator should first establish the mechanism for verifying these claims.

What are the other provisions?

  • Eco-system - A welcomed suggestion is to build an eco-system, which includes,
    1. Establishing a self-regulatory organisation,
    2. Bringing together the information repositories on NPOs,
    3. Standardising the reporting standards for social impact, governance, etc.,
  • With regard to fund-raising, the SEBI recommends that NPOs can raise zero coupon zero capital bonds on the SSE that will be akin to donation.
  • Instruments - The SEBI suggests listing of equity and debt of NPOs.
  • It suggests raising social and development impact bonds.
  • It also suggests using social venture funds and mutual funds to channel money into charitable causes.
  • These instruments can help worthy causes.
  • But liquidity in these instruments is likely to be scant, even if market makers are established in every counter.
  • The investors participating on this platform have to be mature enough to understand that they are not playing for returns.

What could be done?

  • It would be best to allow foreign philanthropic funds to put money in this platform.
  • Indian companies should be allowed to invest their CSR money in entities listed on a social stock exchange.

 

Source: Business Line

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