When finance minister Nirmala Sitharaman proposed the creation of a social stock exchange while announcing the Union budget, it was greeted with a mix of cheery responses, some frowns, and a few blank stares. “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,” she said in her speech.
Social Stock Exchanges (SSEs), though not quite common, are on the rise around the world. It’s a UNESCO endorsed model that’s been around since 2003. Just like investors with the aim of profit buy shares in traditional stock market platforms, SSEs offer ethically-minded capitalists the opportunity to buy shares in properly vetted non-profit organizations working to create a positive impact in society.
When the SSE is created, India will join a club populated by the likes of Canada, the UK, Singapore, Kenya, South Africa, and Brazil. Each of these countries operates a distinctly different model of the SSE. Right now, questions are abounding about what values India will imbibe when creating its own SSE. How will it define a social enterprise? What are the proposed incentives for the participants? How will financial returns be prioritized alongside social good?
Many activists endorse the financial transparency and impact investing boost that a platform like this will enable. Nobel Laureate Kailash Satyarthi tweeted, “I welcome the proposal for setting up Social Stock Exchange under SEBI. This will be a shot in the arm for social organizations to mobilize funds for the larger good of the society. It is an innovative and concrete step towards inclusive growth.”
Foreign aid is problematic. It promotes a white savior complex and a neo-colonial agenda. Jaqueline Novogratz, founder of the private non-profit impact investing firm Acumen once said, “In my twenties, I went to Africa to try and save the continent, only to learn that Africans neither wanted nor needed saving. Indeed, when I was there, I saw some of the worst that good intentions, traditional charity, and aid can produce.”
The Indian government of late has been a bit reluctant towards seeking foreign aid and had refused it during the Kerala flood relief efforts. In this light, it’s important to have a well-regulated platform like SSE which can fill the gap that external aid usually plugs. As a by-product, it gives us the pride of being able to finance our own development.
According to a report titled, ‘The promise of impact investing in India,’ released by Brookings India, the thriving social enterprise ecosystem of India is marred by the lack of access such organizations have to the capital they need. Impact investment differs from corporate social responsibility or philanthropy in that it only deals with investments which have a clearly defined metrics of impact and financial returns.
A well-regulated SSE will not only boost India’s nascent impact investing industry. It will also enforce non-profits to enforce achievable goals and measure their impact. A win-win for all, surely.
The SSE would also allow the government to cherry-pick organizations which work in fields of development it finds acceptable while ignoring others it doesn’t deem important. Social Stock Exchanges can help democratize capital investing for impact. But it also poses potential risks for misuse when accountability factors are not reinforced.
First world nations did not focus on sustainability when developing. A nation like India is devoted to accomplishing development in tandem with sustainability. We have already made impressive strides in renewable energy and have the potential to be a superpower while preserving life values and the environment. The SSE can be a real friend to the government’s impressive commitment to its sustainable development goals (SDGs).
The question remains that would the potential of the SSE be marred by myopic, short-term-focused gains of whichever government happens to be in power or will it be allowed to flourish on its own terms.
The SSE can be a real friend to the government’s impressive commitment to its sustainable development goals (SDGs). India has already made impressive strides with its SDGs. Now with the creation of an SSE, it has the potential to be a global frontrunner while preserving life values and the environment.