A social stock exchange, broadly, is understood to be a platform that allows investors to buy shares, bonds or units in a social enterprise that has been vetted by the exchange.
These allow firms operating in sectors such as health, environment and transportation to raise risk capital.
Illustration: Uttam Ghosh/Rediff.com
The Securities and Exchange Board of India (Sebi), which is set to regulate social exchanges, is likely to examine various aspects of non-profit organisations and social enterprises pertaining to their objectives and accountability while framing the guidelines.
Sources said the proposed exchange for social enterprises is likely to be a platform under the existing exchanges - National Stock Exchange (NSE) and BSE, said a regulatory source in the know.
It could be a platform such as the existing SME platform on the BSE and NSE where small and medium enterprises are listed or the institutional trading platforms where start-ups are listed without going through the initial public offering process, he added.
“The eligibility of such non-profit enterprises to enter the market will be based on the objectives of their formation, intent behind using the platform, reason to raise capital, tax compliance and whether they are registered, as many of them are running without any accountability,” said the source.
An expert committee would be constituted soon to study the scope and implications in line with global practices, it is learnt.
Sources say the regulator has initiated consultations with the government as well as other stakeholders.
However, considering the technicalities involved, it will take at least six to eight months to think through and develop the concept and framework.
The move is in line with the proposal announced by Finance Minister Nirmala Sitharaman in the Budget speech.
She said, “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.”
The proposed exchanges will allow the listing of social enterprises and voluntary organisations.
The FM had said entities working for the realisation of a social welfare objective will be able to raise capital as equity, debt or as units like a mutual fund through an electronic platform.
Primarily, the platform will be set up with a purpose to raise and mobilise the funds for the welfare of the society in a transparent manner.
For this, the expert committee has to identify the target beneficiaries, database of such firms that are genuine and having certain degree of social impact.
According to estimates, there are about 2 million non-profit organisations operating in the country.
Further, the regulator would also ensure checks and balances of the parties involved in the process.
There are instances where the non-profit firms are solely created to convert black money white.
In that case, there should be proper checks on investors, beneficiaries of the fund raising, donors of these welfare projects or schemes and so on, said another person.
Another factor is tax benefits provided to the non-profit organisation.
Sources say that Sebi and its expert team might see the existing tax structure for these social enterprises and how it would work when they opt for listing.
The regulator will seek intervention of income tax department to understand the reporting requirements and tax compliance for such kind of welfare institutions, it is learnt.
To accommodate tax-related issues, the government may have to bring certain changes in the existing tax structure which give investors tax benefits, if they are investing in social enterprises.
A social stock exchange, broadly, is understood to be a platform that allows investors to buy shares, bonds or units in a social enterprise that has been vetted by the exchange.
Globally, there are a few such exchanges such as Singapore’s Impact Investment Exchange Asia, London’s Social Stock Exchange and Canada’s SVX where retail investors can invest in funds or companies with social impact.
These allow firms operating in sectors such as health, environment and transportation to raise risk capital.
However, the concept is not that successful due to lack of potential investors.
The biggest challenge with opening the capital market for social enterprises is accreditation at multiple levels including investors, intermediaries, third parties and kind of enterprise they are in and whether they are not encouraging the parallel economy, said a market expert.
