“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. I propose to initiate steps towards creating an electronic fund-raising platform - a social stock exchange - under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund”
- Hon’ble Finance Minister, Smt. Nirmala Sitharaman
(2019-20 Budget Speech)
Source:- https://outlookmoney.com/magazine/story/next-in-social-stock-exchange-546
India's society is diversified, flexible, and vibrant. Social economy realities are shielded by various terms ranging from "non-governmental sector" to "third sector" and, more recently, "social economy entities" and "social enterprises," involving various types of organisations ranging from non governmental organisations and mutual assistance associations to cooperatives .
The social sector has been a driving factor in India's expanding economy, with numerous groups aiming to empower local people and build resilience to poverty, environmental issues, and other socioeconomic issues. Social groups have been vital partners in alleviating some of the country's developmental issues, with a primary focus on lowering the perils confronting the disadvantaged segments of society in healthcare, education, gender, livelihood, sanitation, and numerous humanitarian causes (KPMG 2020).
The Indian government has expressed a great desire to pursue the notion of a Social Stock Exchange (SSE). Many nations have Social Stock Exchange (SSE) models already or are considering developing their own. Brazil, Canada, Mexico, Kenya, Portugal, Mauritius, Singapore, South Africa, and the United Kingdom have already established SSE models, while Colombia, Germany, India, New Zealand, Thailand, and the United States are all in the planning stages.
A social stock exchange is a platform that allows businesses and organisations to raise funds by selling securities to investors such as stocks and bonds. SSE is formed with the intent to give social enterprises an additional avenue to raise money. It is a platform through which enterprises and organisations devoted to making a beneficial influence on society and the environment can raise funds by selling securities to the general public. A social stock exchange's purpose is to allow investors to match their financial interests with their social and environmental ideals, while also allowing enterprises and organisations to attract funding to support their social and environmental initiatives.
Source:- https://www.terraconindia.com/2020/09/04/social-stock-exchange-electronic-fundraising-platform-for-social-enterprises/
These securities are typically sold to the general public, but unlike traditional stock exchanges, a social stock exchange focuses on companies and organizations that have a positive impact on society and the environment.
One of the key benefits of a social stock exchange is that it allows investors to align their financial interests with their social and environmental values. This can be particularly appealing to investors who are looking for ways to make a positive impact in the world through their investments. Additionally, a social stock exchange can help to attract capital to companies and organizations that are working to address important social and environmental issues. Another potential benefit of a social stock exchange is that it can help to promote transparency and accountability among the companies and organizations that list on the exchange.
By listing on a social stock exchange, a company or organization must meet certain social and environmental standards and disclose information about their impact to investors. This can help to ensure that companies and organizations are held accountable for their actions and that investors can make informed decisions about where to invest their money. Some other potential benefits of a social stock exchange include:
· Increased access to funding for socially responsible projects and organizations that may not be able to secure funding through traditional channels.
· A way to align the interests of investors with those of society by directing investment capital towards projects that have a positive social and environmental impact.
· A way to increase public awareness and engagement on issues related to social and environmental responsibility.
· A way to encourage companies and organizations to adopt sustainable and socially responsible practices.
However, there are also some potential drawbacks to a social stock exchange. One is that it may be difficult for companies and organizations to meet the social and environmental standards required to list on the exchange. It can even lead to lack of standardization in terms of what constitutes a "socially responsible" or "impactful”. It can lead to confusion and inconsistency in the types of projects that are listed on the exchange. Limited liquidity and higher transaction costs compared to traditional stock exchanges, as social stock exchanges typically have a smaller number of listings and less trading activity.
There might me difficulty in measuring and verifying the social and environmental impact of projects, which can make it difficult for investors to accurately assess the impact of their investments. Lack of regulatory oversight and oversight may lead to fraud or mismanagement. Lack of investor awareness and understanding of the social stock exchange can limit its potential impact. Along with that it may also be harder to attract institutional investors who are used to more traditional investments.
Overall, a social stock exchange is a platform that allows companies and organizations to raise capital while promoting social and environmental values. It can be a powerful tool for driving positive change in the world and aligning investors' financial interests with their values. However, it also has some limitations and potential drawbacks, and it's important to be aware of them before making any investments.
Article by:- Natasha
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