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Focus on accountability as India’s social stock exchange takes shape



ImpactAlpha, Dec. 9 – India’s social stock exchange is expected to take the form of an electronic fundraising platform regulated by the Securities and Exchange Board of India that lists both social enterprises and voluntary organizations. The exchange in India promises to diversify capital sources available to more than two million social enterprises across the country.

“A social stock exchange will enable social enterprises to raise capital, provide liquidity to investors, and build a brand that allows the enterprise to attract the best people – those who want to change society,” said Aarin Capital’s Mohandas Pai at last month’s Sankalp Global Summit in one of the first public discussions of the exchange. Pai, former CFO of Infosys, is a member of a working group charged with drafting structural and operational guidelines for the exchange by February.

McKinsey expects the market for impact investments in India to grow to $8 billion by 2025. Still, more than half of social enterprises in one study struggle to raise debt and equity capital, according to Brookings India.

“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,” said India’s finance minister Nirmala Sitharaman when she announced the exchange this summer. 

India’s is the latest exchange around the world to grapple with the challenge of bringing capital to social enterprises at scale while maintaining accountability to impact.

Making it work

Answers to a few basic questions will define the future of the exchange: what counts as a social enterprise? What kind of social activities would an exchange provide funding for? What will be the infrastructure required? What counts as impact? 

A social enterprise is typically understood as one that focuses on improving people’s lives—especially those from the vulnerable sections of society—while also trying to earn a return. India’s finance minister has said that the exchange would list voluntary organizations in addition to social enterprises. This expands the ambit of the exchange to any enterprise that aspires to make an impact, albeit those that are working for the realization of a social welfare objective. 

“In the desire to build a social stock exchange, we want to make sure that we veer towards a desire for impact as opposed to a desire for returns,” said Bain Capital’s Amit Chandra, another member of the exchange working group. “As we frame the guidelines, we will find a way to be more technical about that.”

While setting up an exchange is relatively easy, the real challenge lies in creating liquidity and making it work for the enterprises that are listed. Aavishkaar Group’s Vineet Rai, a third member of the working group, believes that there must be less focus on the financial instruments and more focus on who will buy these instruments. 

The challenge is not about whether enterprises that are listed on the exchange will create impact or not. Rai says it has more to do with how enterprises will hold on to the idea of impact when they are faced with the realities of dealing with quarter-on-quarter results, when the pushes and pulls of capital start challenging the ability or desire to make an impact. 

Global landscape

Social stock exchanges are proliferating. At present, there are social stock exchanges in development in at least Brazil, Canada, Singapore, South Africa, Kenya, Scotland, and the United Kingdom. Last week, the Jamaica Social Stock Exchange got a boost with a capacity building grant from the Inter-America Development Bank.

The exchanges are generally taking three forms: a pure information platform which lists all the eligible social organizations, a marketplace where trading takes place, and a mix of the two models. 

All of them are at a nascent stage and haven’t reached any form of scale. Canada’s Social Venture Connexion, a private investment platform, which is probably the closest to a full-fledged stock exchange, has seen investments to the tune of just over $100 million. 

Impact lens

Given that the India’s social stock exchange will be a ‘public’ marketplace, it is important to define the entry criteria. In other words, how do you decide which enterprises to list and which to leave out.  

U K Sinha, former chairman of the Securities and Exchange Board of India, suggests applying a filter to entry: for example, a panel of experienced market experts who form an admissions committee that determines who is eligible for listing on the exchange. This is similar to the approach taken by the UK’s Social Stock Exchange, which provides investors with access to a database of companies that have passed a rigorous social impact test. 

Another approach to consider is Canada’s Social Venture Connexion. SVC uses B Lab’s Global Impact Investing Rating System, or GIIRS, to assess and rate enterprises. 

“We must refrain from devising an all-encompassing index that accounts for both impact and return, as these are still very early days for this concept,” cautions Sinha.

Usha Thorat, former Deputy Governor of the Reserve Bank of India, echoed some of these sentiments and called out “the need to define the returns, and the measurement of those returns, so that there is a uniform set of transparent measurement criteria by which admission will be available” particularly in the case of for-profit enterprises that are listed. 

Given the tremendous scope and scale that social impact has in India, the overwhelming sentiment is that the proposed exchange presents a huge opportunity – to bring more transparency and accountability to the sector, to diversify the funder base that is available to social enterprises, and bring more stability and credibility to the social impact sector.


Sneha Philip is a senior manager at India Development Review.

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