Social Stock Exchange: What is it? Will it benefit social enterprises in India?

Social Stock Exchange is a platform which allows investors to buy shares in social enterprises vetted by an official exchange. The Union Budget 2019 proposed setting up of first of its kind Social Stock Exchange in India. During her maiden Budget speech, Finance Minister Nirmala Sitharaman had said, "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 fundraising 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."

It is clear from Sitharaman's statement that the Social Stock Exchange will function as a common platform where social enterprises can raise funds from the public. It will function on the lines of major stock exchanges like BSE and NSE. However, the purpose of the Social Stock Exchange will be different - not profit, but social welfare. 
 
Why Social Stock Exchange?

India needs massive investments in the coming years to be able to meet the human development goals identified by global bodies like the United Nations. This can't be done through government expenditure alone. Private enterprises working in the social sector also need to step up their activities. Currently, social enterprises are very active in India. However, they face challenges in raising funds. One of the biggest hurdles they face is, apparently, the lack of trust from common investors. 

A Brookings India report in July this year had noted, "India has a thriving social enterprise ecosystem; many organisations, however, struggle to access the capital they need. In a survey of Indian social enterprises, 57% identified access to debt or equity as a barrier to growth and sustainability."

"And despite the developing ecosystem and potential of the impact investment space, the literature on impact investing in India is limited," it added. 

Social Stock Exchange would try to provide a platform where investors would invest in social enterprises authorised by the exchange. Such enterprises would have to share with the public the details of their activities and investments in a transparent manner. 

Will Social Stock Exchange benefit social enterprises?

The transactions on the Social Stock Exchange would likely be online, on the lines of other stock exchanges. However, no details have been declared by the government, apart from the announcement of the proposal. It remains to be seen how investors respond to the exchange when it is set up by the government.