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Donations Through A Business Model: Social Stock Exchange

24 July 2019

To help businesses aimed at social welfare of the country, the finance minister has announced the plans to set up a social stock exchange. This will boost the enterprises which commercially practice social work and are essentially for-profit organizations.

This will make social enterprise a more lucrative option for those who want to serve the society but also have a commercial approach towards the same. One way or the other, the society will surely benefit from such a move. The move has been welcomed by the financial community. This will help the impact making companies get in touch with ‘impact investors’ which refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.

However, the sector awaits further clarity on how the scheme will be rolled out by the government. The term ‘social enterprise’, in terms of this scheme, lacks clarity on whether it will be applicable to section 8 companies like private schools or not. Section 8 companies refers to those registered companies under the Company Act which are established for promoting commerce, arts, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.

Currently, there are multiple social organizations which work on ground but do not have properly documented records and books, which will need amendment if they wish to get hold of public money. Additionally, the business model used by the enterprise would have to be a solid one with reliability and liquid assets. If maintained properly, the exchange can provide many opportunities to social enterprises to raise funds for their operations.

Firstly, the companies can get in touch with potential investors who want to invest money in bona fide organizations, without having to cross check on the utilization of funds every time.

Secondly, it can also boost growth and visibility of social enterprises and help funds flow towards social projects.

Thirdly, it can be utilized by companies to invest their CSR funds into companies without the urgent need to trade the money within the exchange.

Among the companies which can benefit from this is also agripreneurs and companies practicing corporate farming. Many states are also planning to design a frame for the same allowing companies to undertake farming in a business model.

However, the market place idea also has many cons to it, among which are the possibility of lack of liquidity in the exchange and the practical feasibility of the same. Some market experts feel that the exchange – being regulated by SEBI would only become a trading place of donation receipts with no real possibility of the money being used by the enterprise for investment purposes owning to frequent withdrawals and deposits.

This set up could also give rise to exchange intermediaries who could form mutual funds of the social stocks and trade them in the traditional manner. While through would peg on the social enterprise, the compliance of payment schedule could adversely impact the process.

If implemented successfully, the social stock exchange of India will be among the five countries of the world which have a similar set up to promote fund raising for social enterprises.

The other countries which have a model for social stock exchange are Canada’s SVX, UK’s Social Stock Exchange in London, Kenya’s Social Investment Exchange, and Singapore’s Investment Impact Exchange. While all these bodies are based on a similar concept, the individual functioning of each of them is different from one another.

The stock exchange in US provides a platform to connect social enterprises to investors through a directory, as does Kenya’s social investment exchange. The system in Singapore and Canada allow accredited investors to invest their money in the platform.

India’s model is likely to follow the system in Singapore and Canada, allowing investors to put in their money onto the exchange for the social welfare.

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As On 30th April, 2020
Beginning of month Received during the month Resolved during the month Pending at the end of the month Reason for pendency
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