A New Paradigm for Social Finance

Context: The recent SEBI Working Group (WG) report on the Social Stock Exchange (SSE) presents a road map for sustainable funding to reach socially impactful organizations in India.

Holistic Disclosure based approach of the WG:

• Bottom-up, self-declaration model: instead of a top-down, eligibility-based approach in defining social enterprise.

• • • • The enterprise seeking social capital must commit to additional disclosures that define the social impact it is creating.

• Overcoming challenges in measuring social impact: 

• Challenges: 

• Social returns can’t be quantified easily into a money value, unlike financial returns,
• For E.g. the development of life-skills or the empowerment of women cannot be accorded a common currency value.
• Excessive focus on metrics can also ignore attribution errors and unintended externalities and disregard the quality of work done by many social enterprises.

• Solution through standardized measurement:

• • • • Clear articulation of its strategic interest – the “what”, “how” and “why” aspects of its work.
      • A scorecard for assessing the impact along the broad dimensions of “reach”, “depth” and “inclusion”.
      • Disclosures related to its financial transparency and governance.

• Paradigm shift in reporting: From the current emphasis on budget utilization type of reporting towards a system in which enterprises can differentiate themselves publicly through a richer impact narrative.
• Capacity Building: Most social enterprises in India are small and have limited resources and expertise to devote to this task.

• • • An Rs100 crore capacity building fund has been recommended in the report.

• Shift towards outcomes-oriented measurement: Gradual enhancements to be made to the disclosure norms in the future which will lead to a strong ecosystem of social auditors and information repositories.
• Balancing Standardization and Diversity: The framework tries to provide avenues for comparison through certain standards but also gives space to diversity to include nuances of organizations impact.

Conclusion: 

• Covid-19 has brought renewed interest to direct capital to the highest impact opportunities. 

• Having a platform to channel such capital to the worthiest causes, through a trustworthy disclosures-based approach, could be a giant leap for India’s social sector.