NGOs eye social stock exchanges, but compliance barriers remain

Earlier this month, Swades Foundation raised ₹10 crore from the SSE of the National Stock Exchange (NSE), with Screwvala calling the process of reaching out to donors the “equivalent of a book-building exercise". In an interaction with Mint, Screwvala said that while the listing process was not simple, the disclosures were necessary to maintain credibility.

Wary of the complexity, only about a dozen NGOs have listed and raised money from SSEs so far. That's a small share of the 64 non-profits that have registered on the SSE of NSE, and 57 on the BSE's SSE since the concept took shape in India in early 2023. Several of these organizations have registered with both exchanges.

India’s first SSE listing was in December 2023, when Bengaluru-based SGBS Unnati Foundation raised about ₹1.8 crore.

“Listing on the SSE can become expensive if you aim to raise smaller amounts, and not all NGOs have the expertise to manage it in-house," Vijaylakshmi Saxena, CFO of Mumbai-based Educate Girls foundation said.

The foundation raised about ₹1.2 crore this April on the NSE's SSE. It enlisted a consulting firm to navigate the listing process and prepare its offer document, which is akin to a public float's red herring prospectus.

On his part, Screwvala expects an ecosystem to develop around SSEs over time, where professional organizations can help non-profits through the listing process.

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Social stock exchanges, as the name indicates, are places where NGOs can seek donations from the public to fund their projects. The regulatory disclosures on the SSEs are designed to standardize the scrutiny of those seeking funds, making philanthropy easier.

SSE is a nascent concept in India that was first mooted by finance minister Nirmala Sitharaman in her budget speech in July 2019. Both BSE and NSE have an SSE segment.

A matter of credibility

The Swades Foundation issue roped in 150 individual donors, the largest for any such listing in the world, as per information shared by the organization. These included names like Deepak Parekh (HDFC), Zia Mody (AZB & Partners), Nandan Nilekani (Infosys), Anand Mahindra (M&M), Nithin Kamath (Zerodha), and actors Abhishek Bachchan and Vidya Balan, among others.

Screwvala said that getting many individual donors onboard, as compared to a few deep-pocket corporates or charitable organizations, was crucial to proving the efficacy of SSEs.

“We didn't do it really for the funding," he said. "We did it because we wanted to establish credibility and show that we can go wide on retail participation."

Saxena concurred that getting more retail participation will be crucial to the success of SSEs. Most non-profits do not have the expertise or deep pockets to market themselves and reach out to many donors, she said. That’s where SSEs can step in. “SSEs can democratize fundraising for smaller NGOs," she said.

Long way to go, but there's hope

Amit Chandra, the chairman of Bain Capital and co-founder of the ATE Chandra Foundation, said that the flurry of SSE listings in recent months was akin to proof of concept. After the first listing in December 2023, about a dozen more listings have happened.

“It reminds me of the early stages of the National Stock Exchange," Chandra said. "I remember seeing the same skepticism that time on whether an electronic exchange would work."

Also read: Why are social stock exchanges needed?

Chandra is part of a 18-member Social Stock Exchange Advisory Committee that includes representatives from the United Nations, the industry, stock market regulator Securities and Exchange Board of India (Sebi), the Institute of Cost Accountants of India, and the Institute of Company Secretaries of India. The committee is chaired by R. Balasubramaniam, the founder of Grassroots Research and Advocacy Movement (GRAAM).

“There was a lot of skepticism because this has failed in every country in the world. It took us a long time to study why it doesn't work and then come up with a framework where we thought it could work," Chandra added, even while admitting that non-profits are not used to a high degree of compliance. The advisory committee is exploring if there was a need for simplification of the process and how it could be done, he said.

Introduction of more technology to SSEs to simplify giving is also being explored, he said. Can an individual sitting in Mumbai donate to a charitable cause in the northeast using their stock broking app? The regulators and the advisory committee are mulling over this question.

“In terms of a journey of unlocking the power of this platform, we are at one or two on 10. This whole story will unfold over a period of three to five years," Chandra said. “I don't see a reason why you can't have 200 to 300 listings a year with each listing being anywhere between a few crores and larger organizations raising 10-15 crores."

Also read: Impact-focused NGOs must keep up with India's rapid economic growth

Is it really useful?

Not everyone believes in the potential of SSEs. In the past, other countries like the UK, Canada and Singapore have also experimented with the concept, but it is yet to meaningfully take off in any geography, experts said.

When it comes to retail participation, critics say SSEs do not have an edge over conventional philanthropic channels, including crowdfunding platforms that have become popular in recent years.

“The platform does not offer any major incremental benefits to existing channels. Hence, achieving significant scale might prove challenging," said Samir Bahl, CEO for investment banking at Anand Rathi Advisors.

Bahl instead believes that large family offices and other institutions should set up social impact funds to unlock the potential of social benefit. “Such funds have thrived in the West, making several impact investments in India as well," he said.