A Sebi-constituted panel on social stock exchanges has recommended direct listing of non-profit organisations through the issuance of bonds and a range of funding mechanisms in a report submitted to the market regulator. Funding mechanisms suggested by the panel include some of the existing mechanisms such as Social Venture Funds (SVFs) under the Alternative Investment Funds.
A new minimum reporting standard has also been proposed for organisations which would raise funds under social stock exchanges (SSE), according to the report released by Sebi for public comments.
The panel or working group was set up by Sebi in September 2019 under the Chairmanship of Ishaat Hussain, Director at SBI Foundation and former Finance Director at Tata Sons, to suggest possible structures and regulations for creating SSE to facilitate listing and fund-raising by social enterprises as well as voluntary organisations.
The working group consists of representatives of the stakeholders active in the space of social welfare, social impact investing, representatives from the finance ministry, the stock exchanges and NGOs.
The decision came after Finance Minister Nirmala Sitharaman’s budget announcement in July last year about setting up such exchanges to take the capital markets closer to the masses and meet various social welfare objectives.
The social stock exchange (SSE) can be housed within the existing stock exchange such as the BSE and/or National Stock Exchange (NSE). This will help the SSE leverage the existing infrastructure and client relationships of the exchanges to onboard investors, donors, and social enterprises (for-profit and non-profit).
Further, it has been recommended that profit social enterprises can also list on SSE with enhanced reporting requirement. To encourage, giving culture some tax incentives have also been suggested.
“These recommendations, if implemented as a package, can result in a vibrant and supportive ecosystem, enabling the non-profit sector to realise its full potential for creating social impact,” the panel said in its 72-page report.
The comments from the public on the report has been sought until June 30.
Social Stock Exchange is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them.
The group has recommended that fundraising instruments like equity and SVFs for social profit enterprises and zero coupons zero principal bonds, SVFs, Mutual Funds (MFs), various pay-for-success structures, other securities and for NPOs.
SSE should foster overall sector development by creating a capacity building unit which will be responsible for encouraging the setting up of a Self-Regulatory Organization (SRO) that will bring together existing Information Repositories (IRs), in the immediate term for extending requisite support to such bourses.
The working group had a series of consultation with various stakeholders including voluntary organizations, social enterprises and philanthropic organizations in order to assess the difficulties faced by them in raising funds or donating funds.
It said that recommendations for NPOs are also motivated by a very urgent concern about the economic damage inflicted by coronavirus pandemic, especially upon the poorest Indian households and large swathes of the informal sector.
It, further, said that India will need a significant amount of patient capital to repair and rebuild those livelihoods, which are the bedrock of her economy. Conventional capital that prioritises financial returns will not be able to carry such a burden all by itself.
Social capital, on the other hand, is more suited for this role. It is not only patient but its goal is precisely to support and fortify social structures that are in danger of collapsing because of COVID-19.
The SSE is envisioned as one of the possible solutions to this pressing problem as it will unlock large pools of social capital, and encourage blended finance structures so that conventional capital can partner with social capital to address the urgent challenges of COVID-19.
The report suggested that COVID-19 aid fund can be set up by SSE to activate solutions such as pay-for- success bonds with philanthropic foundations, CSR spenders and impact investors as outcome funders and domestic banks, Non Banking Financial Corporations (NBFCs) and impact investors as lenders. Such a solution would be particularly effective in financing the work of NPOs that are reaching help and relief to migrant workers all over the country.
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