Stock exchange for social enterprise

Stock exchange for social enterprise

A working group at capital markets regulator Sebi has brought out a welcome report on the social stock exchange (SSE), a platform for fundraising for social enterprises, and measuring and reporting social impact. The objective is to fund enterprises that seek to create ‘positive social impact’ via innovative securities, and to have robust standards of social impact assessment and attendant reporting.

While social impact bonds have been floated in India for a while – the first such project implemented by Educate Girls circa 2015 ‘covered’ 7,300 children in rural Rajasthan — the Sebi paper seeks to build an entire ecosystem to gainfully fund social enterprises, complete with information repositories, social auditors and reporting standards for social capital formation. Four key stakeholders come together for social impact bond issuance: investor, service provider, independent evaluator and outcome payer, such as a foundation or the government; the goal is to duly meet an envisaged social development objective. The SSE can be housed within existing stock exchange. Social entities can be either for-profit enterprises (FPEs), or non-profit organisations (NPOs). For FPEs, the SSE is to raise equity and social venture funds. For NPOs, zero-coupon, zero-principal bonds are also proposed, for investors who are interested in social impact and do not wish to have the funds returned to them.

The paper suggests allowing funding to NPOs on SSE to count towards corporate social responsibility commitments, which seems unexceptionable. Also, allowing philanthropic donors to claim 100% tax exemption for donations to NPOs makes perfect sense. At present, donations to private NPOs are allowed 50% tax deduction, whereas government entities get 100%. The anomaly surely needs prompt correction.