Context

• The Securities and Exchange Board’s (SEBI) working group has submitted its report with recommendations regarding the structure, mechanisms, and regulatory framework for the proposed Social Stock Exchange (SSE).

What are Social Stock Exchanges (SSEs)?

• An SSE 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 SSE in India.
• The SSE 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.
• Under the regulatory ambit of SEBI, a listing of social enterprises and voluntary organizations will be undertaken so that they can raise capital as equity, debt or as units like a mutual fund.

Issues with the idea of Social Stock Exchange

• SSE exists in one form or another in UK, Singapore, South Africa, Canada and Brazil, but it is yet to take off in any country.
• It has been an instrument focussed on social enterprises with rather poor results.
• The proposed SSE in our country could have been an interesting innovation if it was first.
• Replicating an experiment from elsewhere in an extremely complex environment of endemic poverty, high inequality and regional variation does not seem a reasoned decision.
• It is therefore important to analyse why it has been pushed as a key policy.

Why civil society is sceptical

• The 2020-21 Union Budget says that not-for-profit organisations will need to apply every five years for income tax registration to ascertain their charitable status.
• They will also need to renew their 80(G) certificate that provides tax relief to their donors.
• The not-for-profit sector would not be able to survive without the tax-exempt charitable status.
• These restrictions will open the gates to corruption and bullying by the tax and government bureaucracy.
• The SEBI working group was constituted of business leaders, government and SEBI officials with a token representative from civil society.
• Composition of the committee reflects the real intent of the SSE, which is to create instruments for market to enter the social sector.
• However, the way the exchange is envisioned makes it clear that the interests of the private sector are guiding the idea of SSE.

Will the entry of private sector benefit social sector

• The proponents of the SSE argue that it would help set standards and a performance matrix for the social sector.
• SSE is also expected to help bench-marking of sector actors (credibility checks), organise information and data, help in impact assessments, and do capacity building for the sector.

Solving complex social problems

• Poverty or injustice are essentially systemic and political questions that need multi-pronged dynamic engagement.
• Developing set standards of impact assessment and performance matrix has the risk of privileging only one approach to the developmental challenges at hand.
• The SSE would create more intermediaries and benefit larger organisations.
• More than 99 per cent of the three million NGOs in the country are in the small category and will be untouched by the SSE.

Conclusion

The core business of the SSE is to strengthen the social sector and bring new resources to it, SEBI for sure itself would admit that it is not the appropriate anchor.

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