Social welfare enterprises and non-profits could soon get to raise so-called social capital on a transparent electronic platform, aiding the process of rebuilding livelihoods ravaged by the coronavirus pandemic.
According to a Securities and Exchange Board of India (Sebi) panel, conventional capital that prioritizes financial returns will not be sufficient in a post-covid world.
While the idea to create a social stock exchange (SSE) platform that would list non-profit organizations (NPOs) and social welfare organisations as a transparent funding mechanism was first proposed in the 2019-20 budget, the panel had faced hurdles on how will these firms be valued.
“The paper was long overdue and we wanted to release it in February but certain rounds of deliberations delayed it. Now, the paper has come at a time when there is an urgent need to address the capital raising and funding of such social organizations which in turn will help in repairing the lives of the informal sector affected by the covid-19 related slowdown," said a Sebi panel member.
In its report released on Monday, the working group under Ishaat Hussain, former director, Tata Sons, proposed that non-profits could directly list on SSEs by issuing bonds. The panel also suggested a range of funding mechanisms for social welfare organisations including the existing mechanisms of social venture funds under alternative investment funds.
The panel also proposed a new minimum reporting standard for organizations which would raise funds from this platform.
According to the panel, there is severe economic damage inflicted by covid-19, especially upon the poorest Indian households and large swaths of the informal sector.
“India will need a significant amount of patient capital to repair and rebuild those livelihoods, which are the bedrock of her economy. Conventional capital that prioritizes financial returns will not be able to carry such a burden all by itself. Social capital, on the other hand, is more suited for this role," said the panel.