Non-profit organisations on the stock exchange
What would you do if you were feeling charitable today and wanted to give money?
You might, however, check NGOs in a directory or conduct a simple Google search. You might also inquire about a friend’s favourite charity. It all would be helpful.
However, this procedure isn’t always the best. It’s difficult to be confident that these organisations will utilise your money wisely. And it seems to reason that charities would experience the same issues. They need to persuade you that they are deserving of funding. Additionally, giving is never expected. Most of the time, raising money for good causes is difficult.
How then do you resolve this enigma?
The Hon. Nirmala Sitharaman, Minister of Finance, stated that it was time to accomplish numerous social welfare goals connected to inclusive growth and financial inclusion in 2019 and to bring our capital markets closer to the general public.
She was referring to a specific stock exchange for nonprofits (NPOs). NPOs with a social focus can use this exchange to solicit donations from the general public sans having to knock on doors.
In addition, the operations will be audited because it is an exchange. If you will conduct a social audit. Donors and investors will be able to determine whether their money was wisely used in this manner. And all of this might soon come to pass. Finally, BSE (Bombay Stock Exchange) has received approval from SEBI, the market regulator, to establish a social stock exchange. Additionally, social impact businesses that support poor kids, combat climate change, and promote gender equality may all start soliciting money through this stock exchange.
Does this imply that these NPOs will sell stock? that financiers “own” something?
Not exactly. Shares of NGOs or NPOs are probably not traded on the exchange. NPOs may instead issue bonds with a zero coupon and zero principal to raise funds on the exchange. It is a bond, as the name would imply. However, it won’t be interesting. Additionally, investors won’t get their money back. It merely includes a guarantee of “social return.” And the key distinction here is that once the audits are made public, you’ll be able to tell whether your money is being used wisely.
This might also be combined with a mutual fund. Consider the scenario where a mutual fund company announces the creation of a new fund and announces that it would invest in a number of conventional for-profit companies. However, we won’t accept returns. We will instead direct them to NPOs. And the teacher? We’ll give it back to you in three years. The HDFC Charity Fund for Cancer Cure, for example, contributed its profits to the Indian Cancer Society. In fact, such organisations already exist.
And if the concept is adopted, there might be many more structures on the anvil.
The Social Stock Exchange might even welcome for-profit organisations with social objectives. referred to as a for-profit social enterprise (FPSE). Consider crowdfunding businesses like Milaap and Ketto as an example. People use these sites when they want to raise money for a cause. They aren’t NPOs, though. In such cases, these platforms may decide to list their shares on the Social Stock Exchange, go public, and raise equity capital. Additionally, since people who are socially conscious will swarm to the site, these companies don’t need to be overly concerned with their ‘profit’ margins. They are engaged in social activism.
As you can see, India is not the first nation to have thought of this concept. These concepts have been tested in Singapore, Jamaica, Canada, the United Kingdom, Brazil, South Africa, and Portugal. But it is no longer in existence in 4 nations. Simply put, the SSEs couldn’t scale.
What makes India’s situation any different?
In fact, one of the biggest issues raised is the danger of leaving out smaller NPOs from the scope of the SSE. Additionally, it runs the danger of alienating groups whose work or influence might not be conducive to sufficient data capture. NPOs working in areas like environmental justice, digital rights, or others where the current institutions and procedures are biased against them, for instance.
Conclusion
Over 20,000 crores were invested in corporate social responsibility by Indian businesses in FY21. Having a dedicated platform with audited NPOs can assist improve outcomes, even though many of them report a “Lack of Prior Expertise” in allocating their funds to the proper initiatives.
Let’s also hope that SEBI’s approval of an SSE would open up a whole new world of potential for social businesses that merit our support, given that India is home to at least 3.1 million nonprofit organisations.
