The Norms of Social Stock Exchange

The Expert panel which was setup by the Securities and Exchange Board of India (SEBI) has prepared certain draft norms for Social Stock Exchanges (SSE).

SSE is an electronic fundraising platform that allows investors to buy shares in a social enterprise that has been assessed by the exchange.

Such social enterprises include revenue-generating businesses whose primary goal is to achieve a social objective, for example, providing clean energy or healthcare.

Other recent steps which were taken in coal sector include the coal linkages that have been further rationalized in order to reduce the distance in transportation of the coal from the coal mines to the consumer. Under the coal linkage policy, power producers have been linked to the coal producers. The commitments under the linkages are binding and thus, coal cannot be transferred to other consumers.

Environment Protection Act, on the other hand, was amended to drop mandatorily washing coal for supply to thermal power plant. The reason cited was that it prompts industries to import coal. Instead of this, thermal power plants were directed to install the technology for handling ash content.

There were amendments made in the guidelines of preparation, processing and approval of Mining Plan. It was framed into more simplified guidelines. The same was done based on the similar measures which are being taken to formulate an online single window clearance system.

Amendments were also made to Mineral Concession Rule 1960 with the objective to provide more flexibility in the plan and operation.

Mineral Laws (Amendment) Act, 2020 which includes provisions like removal of restriction on end-use of coal, Composite license for prospecting and mining etc. is basically framed with the objective to promote ease of doing business in coal mining.

Alongwith it, announcements made under Atmanirbhar Bharat Abhiyan, mentioning of the spending ₹50,000 crore was done specifying the creation of infrastructure for coal extraction and transport, reimbursement of revenue share payable to government in cases of early production, producing excess of the scheduled target and also for the coal used in gasification etc.

The idea of a SSE for listing of social enterprise is for the voluntary organisations to raise capitals as debt, equity or like a mutual fund which was also as such specified in the Union Budget 2019-20. Later, SEBI constituted a panel to suggest norms for SSEs.

The most prominent SSEs in the world hail from the UK, USA, Canada, Singapore, South Africa and Mauritius.

Numbering the benefits of Social Stock Exchange can be a task as this is bound to certainly unlock funds from donors, philanthropic foundations and Corporate Social Responsibility (CSR) spenders. It might functionally impact investors for social development. As per Brookings India, only 57% of the total social enterprises at the moment have access to debt and equity. This fact stands as a barrier to growth and sustainability. That is certainly expected to change through this.

The Listing of social enterprises in the SSEs would also improve visibility of social enterprises in the eyes of large investors and humanitarian organisations. Also, SSEs will provide a better understanding of social sector to the investors which are routing their investment.

The Banks, NBFCs and other investors can also raise capital from SSE to participate in the growth journey of the social enterprises and thereby deepen their impact in the development.

Further, SSE will help to improve essential social services and important social sectors like health, education, clean energy and agriculture by channelling greater capital to them.

SSE is also expected to unlock large pools of social capital. Furthermore, it is also expected to encourage blended finance structures so that conventional capital can partner with social capital. This will in turn specifically address the urgent challenges of COVID-19.

But there are certain challenges in setting up SSE. Like there is no consensus about what is and isn’t a social enterprise. Prof Muhammad Yunus, a renowned expert in the field defined social business as what can be adopted as “a non-loss, non-dividend paying company which is created and designed to address a social problem.”

The valuing social initiatives, welfare and non-profits organisations is also difficult, because there is no set benchmark, no uniform structures to set minimum thresholds to enable their listing.

Apart from equity capital, social enterprises need debt particularly to meet working capital requirements, but only handful of private impact investors provide debt to early-stage social enterprises.

India at the moment has more than about 2 million social enterprises which includes the non-profits, for-profits and hybrid model and they certainly need careful planning with the designing of the social stock exchange.