Future of Financing | Social Stock Exchange for Impact Enterprises

Contributors: Aparna Dua, Sanchi Khurana (Asha Impact)

Building upon our past work to support SEBI’s Working Group on the Social Stock Exchange, Asha Impact along with UNDP, KPMG, and IIC hosted a virtual consultation on the 10th of July 2020 to discuss the proposed recommendations that enable social enterprises to benefit from the announced Social Stock Exchange. The consultation invited views from leading impact and commercial investors, foundations, social enterprises, and representatives of SEBI, NSE, and BSE.

Key Insights that emerged from the discussion:

1. Late-stage enterprises with considerable scale should be the first to list on the SSE to create robust proof points and traction. The initial focus would be on MFIs and Impact NBFCs, to have them listed here rather than the main board. Capacity-building support would be required for smaller for-profit social enterprises.
2. Lowering of listing threshold: While entrepreneurs wanted a recalibration of the listing threshold, they do realize that too much dilution will lessen the credibility of listing entities and drive the investors away. A few suggestions were to use EBITDA vs. PBT, defining topline (Revenue vs. GMV), and thresholds like the RBI’s systemically relevant NBFCs (>500Cr AUM).
3. Social enterprises want added incentives to list on the Social Stock Exchange (SSE). The entrepreneurs cited that standardization in reporting was critical but choosing to list on SSE over NSE/BSE would be attractive if there is higher liquidity and large institutional investors (global impact funds, ESG focused funds) transact through this platform driven by investor incentives such as LTCG and STT exemption.
4. Minimum Reporting Standards need to be rigorous. Investors also suggested external validation of the reported data (social audit vs. self-reporting) as a must to ensure the credibility of listed entities on the platform which can draw in large investor pools. The biggest draw for investors is that the SSE is backed by the government and regulated by SEBI (unlike SSEs in other countries).
5. Alternative instruments beyond equity could also be considered for for-profit impact enterprises. Equity is often expensive and not easily accessible for most enterprises, hence the SSE can also list low-cost debt and pay-for-success instruments for such enterprises. Pooled structures via Social Venture Funds could be explored to enable funding for smaller enterprises.
6. Market-making and well-regulated stock exchange, more awareness creation especially for for-profit social enterprises are critical factors for liquidity, and the success of the SSE.

You can watch the plenary session of the consultation here to listen to views from Vineet Rai (Chairman, Aavishkaar Group), Roopa Kudva (Managing Director of Omidyar Network India), and a detailed presentation from Dvara Research team on the recommendations for for-profit enterprises.

The breakout sessions for investors and social entrepreneurs can be accessed here.

We are currently accepting insights on reporting requirements, listing thresholds, and market-making with a focus on for-profit enterprises for the proposed social stock exchange. If you are interested in collaborating, please write us to at aparna@ashaimpact.org and sanchi@ashaimpact.org