An over-engineered social stock exchange?

News: Securities and Exchange Board of India (SEBI) in its recent board meeting approved the creation of a social stock exchange.

SEBI has announced the setting up of Social Stock Exchange, on the basis of proposals from the working group under Ishaat Hussain, and a technical advisory committee under Harsh Kumar Bhanwala.

What are the advantages of setting up a Social Stock Exchange(SSE)?

Firstly, according to SEBI working group, SSEs will facilitate developing a set of procedures, that act as a filter to select only those entities that are creating measurable social impact and reporting such impact.

Secondly, setting up an SSE will bridge the funding gap for the social sector players. For instance, the NGOs operating in diverse sectors. It will enable entities that are listed on the SSE to access donations to help them meet their objectives through predefined instruments.

Will the exchange take off?

International experience shows that only just three of the seven exchanges that were set up, still survive (Canada, Singapore, and Jamaica).

However, Social stock exchanges will take off in India because India’s social sector is very deep. For instance, Rs. 246 billion spent by companies on corporate social responsibility in FY20. Further, there are lakhs of NGO’s operating in very diversified sectors.

Will regulation of social stock exchanges hamper its functioning?

Pushing for registration will bring greater transparency to their operations without the burden of a full listing, while giving them much-needed visibility. Donators can be sure of how efficiently the entity is spending money. Moreover, Registered entities will have to disclose their governance structures and processes, financial parameters and publish their impact studies on an ongoing basis.

What is the way forward?

NGO Darpan, a database maintained by the Niti Aayog, has self-declared data for over 129,000 NGOs.

SEBI should take things forward by collecting the data from NGO Darpan, validating it, and evaluating it with an evaluation framework across well-defined governance and financial parameters.

Source: This post is based on the article “An over-engineered social stock exchange?” published in Business Standard on 21^st Dec 2021.