A guide to the proposed social stock Exchange for NGOs

Context: Recently, a committee constituted by the Securities and Exchange Board of India (SEBI) submitted its recommendations on the creation of a social stock exchange (SSE).

Committee recommendation:  

• Additional instruments for raising fund: It provides additional instrument for fund-raising 

• Mutual Funds (MF): Investors get their money back from the MF and the interest is donated to the NGO.

• Social Venture Funds (SVF): Under this, a fund manager will pool grants from several donors and on-grant them to NGOs working in the SVF’s area of interest.

• Zero-Coupon Zero Principle (ZCZP) bond: “Investors” will fund the NGO based on its overall objectives or plan for a specific project and the social impact it will create.

• Creation of supportive environment: 

• SSE acts as a matchmaking platform for donor and non-profit and non-government organisations (NGOs).

• SSE will encourage institutions like information repositories on NGOs (like GuideStar, BSE Samman, etc.) and social auditors for impact measurement.  

• Tax incentives and other supportive regulatory clarifications.

• Capacity building unit:  

• An initial allocation of ?100 crore will help NGOs create capacity needed to report their social impact and even partly fund the cost of this exercise. 

• The unit will also raise awareness and promote fundraising instruments available on the SSE.

Advantages Social Stock Exchange (SSE): 

• Enhances donor’s base: Fund-raising on an SSE enables NGOs to get more publicity for their work, enabling them to attract a wider pool of donors. 
• Enhances Credibility - It becomes an instrument that can be listed on the exchange, providing the NGO high visibility.
• Builds Trust: 

• An analysis of social impact will help donors make decisions, boost transparency, and build public confidence in the sector;
• It will reduce information asymmetry between funders and recipients.

•  Paves way for ‘social auditors’: NGOs should also consider getting external organisations to help them measure social impact in order gradually become third party social auditors by themselves.

Conclusion: If all these proposals can be implemented, would help the country lay an inclusive foundation for social finance and boost the funding of this sector over the years to come.