Social stock exchanges in India: Can they help lift the underserved

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On 28 September 2021 SEBI or Securities and Exchange Board of India created headlines when it allowed for the creation of Social Stock Exchanges. These entities will encompass non-profit organizations and for-profit companies that work as social enterprises.

Social enterprises are organizations that use commercial strategies to maximize profit/social capital to support social and environmental causes.

In simple words, profits of such organizations are used to fund environmental and social programs and these profits mostly come from charity and their proceedings. But this source is not consistent. Because of their nature, they cannot expand their revenue-generating means beyond a limit. In this condition of shortage, the only way of consistent money flow is through Social Stock Exchanges (SSE). An idea that was floating since 2019, which gained prominence during the Covid-19 pandemic.

Functioning in a regulated funding platform, only those that have socially intended objectives can participate in SSE. It will be determined by a public benefit test, which will check if the organization follows three filters and 15 broad categories of social welfare activities, as mentioned in the SEBI technical committee report.

If the company at least reserves 67% for such activities, then it can be considered as a social enterprise fit to list in SSE. They then raise capital through equity, mutual funds, zero-coupon bonds, etc.

This will work as a consistent supply of revenue for them and also acts as an umbrella organization providing them with a unified funding channel and also as a regulator in a sector known for many malpractices. They will be audited, regulated, and monitored but will have tax concessions.

Social Enterprises take various forms in various countries. In India it is in the form of religious trusts, in the form of private charity funds, NGOs, NPOs, microfinance institutions, social business promotes, self-help groups, for example, International Development Enterprises.

These organizations set out with social upliftment ideas, but not everyone fulfils those ideas. These companies are a crossover of making profits and social welfare. But there was trust on its social benefit side, especially in the microfinance institutions, as it was the only form of banking means in most parts of rural India.

Then the Andhra Microfinance Crisis struck. In this case, social help was overrun by profiteering, which led to debt traps, which led the government to issue regulations kicking off the crisis.

Tax concessions can be exploited by corporations for tax evasion. Then there is the problem of money laundering. Even other countries have also admitted loopholes and drawbacks in the system. The SSE is expected to overcome the income disparity and unregulated nature of this sector, as it provides both steady income and strong monitoring, which will help lots of underserved masses.

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