The Union finance ministry has sought views of the Securities and Exchange Board of India (Sebi) for creating ‘social stock exchanges’, people with direct knowledge of the matter said. These exchanges will provide a platform to help non-profit entities such as non-governmental organisations, trusts, cooperative societies and even political parities raise capital in a transparent manner.
Sources said the idea behind the exchange was aimed at providing a transparent, technology-based platform for investments in social welfare projects in India.
The UK, South Africa and Brazil have experimented with public trading platforms for social entities. On these platforms, capital is raised by dividing the cost of a project into smaller denominations that are made available for purchase. Investors can choose from a number of projects for investments and keep a tab on the status of the projects by following the disclosures and announcements made by the company.
“It is a wonderful concept. There are many people who want to invest in a social cause, but are not sure about where to invest,” said J N Gupta, former executive director of Sebi and founder of proxy advisory and corporate governance firm SES. “If social enterprises become as transparent as listed companies, it will give them more credibility.”
According to people in the know, the ministry has sought Sebi’s suggestions on various aspects such as trading, disclosure requirements and monitoring.
Some experts said the initiative might involve a number of challenges such as selection of companies, pricing, and market-making. “Scrutinising social enterprises, to keep away the bad ones from listing, will be a difficult task. Such an exchange will have hardly any liquidity and might end up being just an electronic capital-raising platform,” said an official at a stock exchange, on condition of anonymity.