The Central government has planned to set up a Social Stock Exchange for not-for-profits (NPOs) and for-profit organizations engaged in social development. Odisha Dialogues held a webinar with leading experts on the subject to assess the pros and cons of the idea that may soon become policy. Excerpts from the dialogue:
- Mr Biraj Patnaik, Executive Director, National Foundation for India
- Prof Ankur Sarin, Indian Institute of Management, Ahmedabad
- Dr Ananya Samajdar, Senior Research Fellow, GRAAM
- Sanjay Agarwal, Founder-Director, DevelopAid Foundation
- Amitabh Behar, CEO, Oxfam India
- The proposed Social Stock Exchange may open doors for for-profit enterprises to enter social sector
- The scheme has a vague but fancy-sounding zero-coupon-zero-principal-bond for non-govt bodies. What it implies is not yet clear
- The proposed scheme will fundamentally reset the ways of working of civil society
- NGOs are already stretched dealing with regulations and this will bring more complexity to the sector
The Social Stock Exchange as an idea emerged in September 2019 when the Securities and Exchange Board of India (SEBI) appointed a working committee to design a stock exchange, which will be similar in character and nature to the National Stock Exchange or the Bombay Stock Exchange. There is, however, one crucial difference that the Social Stock Exchange would raise capital for the social sector enterprises. There is no distinction between not-for-profits and for-profits but for organizations that work on the social sector, who can be listed in this stock exchange and then a number of instruments through which they can raise capital.
The idea behind the Social Stock Exchange is it should allow people to raise money for what they do best — improving the society or benefiting the society. Historically, it was mainly the community or kinship networks, or local landlords who would take care of the social problems. Then the responsibility moved to the state and the idea was that of equal citizenship. The discourse has now moved very heavily towards markets. The market has expanded significantly over the past 30 years. Now, in the Social Stock Exchange, an organization, a society, a trust, or company Under Section 8 can issue share capital and those shares can be tradable on the stock exchange. They will be able to reach a very large number of people through the extraction where those shares can continue exchanging hands or they can raise money.
It’s time to bring in the emerging framework of for-benefit economy, which is an intersection of for-profit and non-profit sectors. There is a discourse going on the importance of the for-benefit economy or the fourth sector, recognizing that a huge number of financial resources will be required to meet the most urgent development needs, including sustainable development goals by 2030. Keeping in mind that these goals have to be met in such a short span of time, there is a need for this kind of private investment to come in.
“The idea behind the Social Stock Exchange is that an organisation, a society, a trust or maybe a section 8 company issues share capital and those shares will be tradable on the Stock Exchange and they will be able to reach a very large number of people through the extra exchange where those shares can continue exchanging hands or they can raise money.”Sanjay AgarwalFounder-Director, DevelopAid Foundation
Many Questions Remain Unanswered:
The SEBI panel report came out in March 2020, and the deadline for submitting suggestions was August 14. Those who have submitted their comments on this report have raised a number of questions.
The Social Stock Exchange has the potential of a value being created bringing aggregation and standardization that might occur. It is supposed to be a listing of social enterprises to help them avail of certain instruments, tax benefits, and relaxations in terms of Foreign Contribution (Regulation) Act, but nothing is very clearly specified yet.
The scheme at present blurs many things such as NGO and for-profit sector. One struggles to find what additional value the Exchange will provide. It has a vague but fancy-sounding zero-coupon-zero-principal-bond for non-govt bodies. What it implies is not yet clear.
The Social Stock Exchange is not something that can be launched overnight. It will only be possible after a long-drawn process of building the ecosystem on both the sides — demand and supply. There are concerns on both the sides.
The working report also points out the smaller organisations will benefit but how and who will select the smaller organisations remains a question.
“If the whole idea (of Social Stock Exchange) is that we'll bring new resources, why could we not facilitate grant making in a better way, because that's what civil society needs.”Amitabh BeharCEO, Oxfam India
Will it Really Help Civil Society?
The only thing this Exchange can be called a charitable, well-intended initiative for civil society is it would do some bench-marking for philanthropists who want to invest in social sectors but do not have mechanisms.
The non-profit organisations have different kinds of instruments like not being allowed to distribute any residual earnings from the money made from the work done, but for-profit organisations can. This may be the idea behind such a scheme because it would open doors for for-profit enterprises to enter the social sector. Are these organisations being put under adequate regulations that are essential for them to be working in the sector?
This speaks of the double standard of the government. In the Budget speech when the scheme was announced, the Finance Minister also talked about how every five years the not-for-profit organizations need to renew charitable status. When the government is talking of ease of business, it is actually creating difficulties for the non-profit sector.
If the intent is to actually bring in more resources, why couldn’t we with the conventional ways? There’re grants happening. That’s what civil society needs but that’s not really happening.
The introduction to the report talks about clothing, food, and shelter as the idea that the stock exchange should invest and doesn’t look at what civil society does, which is looking at systematic change.
The Exchange would fundamentally reset the ways of working of civil society. The other problem would be that the government would set standards of interventions in the social sector, which will get assessed by the impact it would make. Gradually, there will be a shift in the norms of the sector, which are essentially built on the idea of solidarity and on the principle of working together with the communities.
On the other hand, a system will now be created where the civil society organizations are competing vis-a-vis each other to get those resources. And to get those resources, they have to start showcasing themselves and talk of the impact they have made.
There are complications in terms of regulations. Non-government organisations in general are not very good at dealing with regulations because they do not have a battery of lawyers or chartered accountants. This is in addition to the regulatory changes that are already challenging the sector. Hence, they are already stretched and this will bring more complexity to the sector.
The biggest worry of the civil society is this scheme comes at a political juncture when anybody who’s trying to hold the power to account — a fundamental role of these organizations — is facing government regulations and the resources that are coming in for them are monitored.
Could it be that the idea of a Social Stock Exchange might end up becoming yet another instrument in the hands of the powers that be to stifle the voice of civil society groups, who try to raise the voice of the marginalized?
Status of Similar Schemes in Other Countries:
A similar exchange in Singapore is basically a privately promoted one. The basic information about the exchange is not publicly available. Only the investors can get the information. What a social exchange at least does is make its information public.
The one in Brazil is the closest to what India is trying to do in terms of a state-sponsored exchange but it has failed. They admit it was basically an effort to build the reputation of the main stock exchange. It was like the Corporate social responsibility and is and it’s essentially folded up now. So, there is really no exchange of social trading happening in any of them.
A survey of the British Council in 2016 showed that these social enterprises may perceive themselves to be capital staffed and face a lack of access to networks of investors. They feel investors are also not aware of what their financial needs are. They also feel that investors sometimes don’t understand that they attach privacy to the social mission and that profits of commerce are only a way of achieving that. So lending becomes constrained and banks also don’t understand.
Countries like Thailand and Great Britain have well-developed architecture for supporting social enterprises but that’s lacking in India. Small and medium enterprises are receiving support but not the social enterprises. There is a policy lacuna as far as this particular entity is concerned. As far as non-profits are concerned, it is going to be difficult for them to benefit from the Social Stock Exchange.
How good or bad, the Social Stock Exchange is not something that the civil society in India has engaged with. They are not on the committee, nor many organizations have sent their comments to the SEBI on this or have had a structured dialogue to send their comments. There are apprehensions on the efficacy of the scheme given the indicators of economic slowdown and tepid investment sentiments because of Covid-19. One will have to wait and watch how the scheme unfolds on ground when the government finally gets down to implementing. Until then, it remains an idea that stokes more anxiety and suspicion than hope and optimism for the real stakeholders.