The Social Stock Exchange ("SSE") envisions a fundraising platform where social entrepreneurs and volunteer organizations may obtain finance through equity, debt, or mutual fund units. It is governed by the Securities and Exchange Board of India ("SEBI") and strives to bridge the gap between capital markets and social welfare objectives. The SSE structure comprises both non-profit and for-profit groups, providing them with a venue to generate capital through institutional listing.

The exchange emphasizes on openness, ongoing disclosure, and responsibility, giving investors insight into the social effect of their investments. While the concept of SSE is not wholly novel, its implementation in India brings distinct obstacles. Overcoming these problems would need coordination among stakeholders, including the government, financial institutions, social entrepreneurs, and investors.

By overcoming these obstacles, the proposed SSE has the ability to revolutionize the country's philanthropic environment and establish a more dynamic impact investing ecosystem, therefore contributing considerably to inclusive growth and social development. This article explores the structure of the SSE and its viability as opposed to existing models and critically analyzes them in context of the challenges ahead.

Introduction
"It is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. I propose to initiate steps towards creating an electronic funds raising platform � a social stock exchange � under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund."

In the aforementioned segment of the budget speech in 2019-2020, the Hon'ble Finance minister of India proposed for the initiation of an SSE. While the concept in itself is not novel considering the global space, the envisioning of such a framework is surely a bold move. As per the speech, the SSE is designed as a new philanthropic fundraising medium which allows listing of social enterprises like where money can be raised through equity or debt or a combination of both under the watchful eye of SEBI.

As per the suggested framework, the SSE is to operate as a segment of the National Stock Exchange (NSE)[1] and the Bombay Stock Exchange (BSE).[2] The SSE provides a platform for eligible non-profit organizations and for-profit organizations, collectively referred to as social enterprises, to raise funds on a recognized exchange. The working group by SEBI report published in October 2021[3], defines social enterprises as "a class or category of enterprises that are engaging in business to create a social impact."

In terms of eligibility, these social enterprises must fulfill the conditions stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations ("LODR")[4] and SEBI (Issue of Capital and Disclosure Requirements) Regulations ("ICDR")[5]. Presently the SSE is inviting institutional listing only, with a focus on enhanced and continuous disclosures to ensure transparency and accountability.

The proposed instruments by which the NPO's can finance the pay for success bonds like social impact bonds, development impact bonds, zero coupons, zero principal bonds and sovereign wealth funds. In case of For-Profit Enterprises (FPE's), it is recommended by SEBI that the SSE can popularize available funding channels like equity funding and specialized social venture funds.

Need for a social exchange:
The primary objective of having a social exchange is to have an alternate structure of funding for social enterprises in addition to available fundraising options. The SSE provides for a significantly larger network base in terms of outreach to industrial investors. According to the British Council Reports,[6] it was found that about 33% of Indian social enterprises have found the lack of adequate networks to be a barrier in terms of receiving funds and investment. The SSE may prove to be an effort in bridging this very gap.

Apart from this the SSE in general would help increase the transparency and visibility in the area of NPO funding. It would also provide the investor with the requisite information as to how the investment made has been utilized by the social enterprises to achieve the said social objective.

Comparative analysis of SSEs across the globe:
In the last decade, there were around seven SSE models across the world in Canada, Singapore, Brazil, Portugal, South Africa, UK out of which only 3 are actively functioning in Canada, Singapore and Jamaica.

The UK's Social Security Exchange was set up with the aim of providing a platform to small and midcap companies which were unable to raise capital through the stock exchange they were listed in. The UK model adopted a structure of a secondary stock exchange in order to create a screening mechanism, making it easier for the investors to distinguish between impact-oriented organizations and other organizations listed in the stock exchange.

Jamaica employed a similar structure which was centered around helping non-profit organizations to access funding and support through the issue of securities. Canada and Singapore have employed similar models[7]

On critically analyzing the above in light of the structure employed by the Indian SSE, it can be observed that, most countries having SSE are inclusive of both non-profit and for-profit organizations and have a definitive understanding of social organization. However, developed countries which have a relatively mature investing ecosystem, tend to favor for-profit organizations while the developing countries favor the non-profit organizations.

All existing SSEs usually tend to allow both retail and institutional investor as well as donors. While the Indian SSE is presently restricted to institutional investors. This is primarily because opportunities for retail are limited due to regulatory constraints and unsuitable risk and return ratios. Organizations which are listed tend to be relatively big scale with project listings to be of a sizable amount being measurable in nature.

The trend in the case of the existing SSEs is mostly project based with very few opportunities to raise organizational funding, especially in the case of NPO's The SSE structure for India presently is in a nascent stage. The reports published by the Working Group or any guidelines in this respect as issued by the SEBI has not yet prescribed the blue print of the revenue model for the SSE. The lack of a proper framework casts doubts with respect to the proposed SSE's sustainability and stability.

Considering the global trend in this regard, it is to be noted that within the last decade only three out of seven SSE have managed to remain functional wherein the central concern for most of these structures has been the lack of a structured business model. In a study conducted by the Impact Finance Network in 2018[8], it was observed that 75% of the impact centric platforms including the SSEs across the world were unsuccessful due to insufficient income generation needed to fund the operational costs. Thus, it is essential that the proposed Indian SSE accounts for the same and incorporates an adequate revenue model which can effectively cover the operational costs form its onset itself.

One of the crucial aspects which would be a determinant of the success of the Indian SSE is active and consistent donor and investor engagement. The Working Group has issued recommendations with regards to this to incentivize the same through 100% tax exemptions on donations made to the SSE listed non-profits as well as a 10% cap on income eligible for deduction. [9]

This may be a good step; however, these tax incentives may not be enough to generate the volume of investment and active engagement required for operating the SSE sustainably. Many of these impact- oriented investment models have employed various methods in order to ensure investor and donor engagement.

The UK SSE would hold investor and donor promotion events to enhance their engagement while Canada carries out readiness programmes to build capacity and impact investors and provide a platform of networking opportunities. Similar strategies were employed by SSEs of South Africa and Brazil. Increasing engagement is not only significant from a revenue perspective but also for integrating a culture of systemic philanthropy in the country.

With government backing and the facets of transparency and credibility offered by SEBI, SSE would be an ideal social investment ecosystem, only if these potential concerns are properly remedied by developing a thorough regulatory framework

Challenges faced by the Indian SSE
The conceptualization of the SSE has emerged with an objective of bridging the gap between capitals markets and social welfare in order to reinforce the culture of systemic philanthropy. It essentially provides for a credible platform for investors and donors at an industrial level to effectively channel their funds towards social enterprises working towards societal and environmental causes. The SSE is an opportunity to potentially transform India's philanthropy landscape, however in its pursuance, it does face a considerable share of challenges as well.

Some of the challenges that it may face may are as follows:
Lack of Awareness and Education:
Inadequate Awareness and education among potential investors become a central challenge when it comes to SSEs. While Indians are relatively well acquainted with the mainstream traditional methods of philanthropy, they are unaware about the concept of investing in impact-oriented enterprises through mechanisms like the SSE. Thus, attracting the significant masses of investors towards it to reinforce engagement would be a challenge for the SSEs.

Stringent Regulatory Compliance:
Establishing an SSE creates a need for a significant oversight in order to ensure transparency, credibility and adequate protection and security. SSE in India shall be regulated by the SEBI. Although the strict and complex compliance and oversight by SEBI would ideally ensure transparency and protection of investors' interests, navigating through such complex regulations can be a daunting task for the social enterprises. The cumbersome process for listing on the SSE would be a disincentive which may dissuade smaller organizations from participating due to the cost and effort involved.

Valuation and Financial Reporting:
Determining the valuation of social enterprises can be challenging, as their impact metrics often differ from traditional financial metrics. Measuring and reporting social impact in a standardized manner is an ongoing struggle. Investors demand clear and comparable data to make informed decisions, but the lack of universally accepted evaluation methodologies poses a significant roadblock.

Limited Investor Appetite for Impact Investment:
The Indian investor is still primarily motivated by direct individual monetary returns over indirect societal benefits. The challenge for the SSE is to formulate a strategy or an incentivizing mechanism which would convince the average investor to allocate a portion of their portfolio towards impact investment.

This would require robust and rather compelling evidence reflecting the financial viability as well as sustainability of these impact investments. Creating awareness in a consistent manner with potential long-term benefits of impact investing is extremely crucial for cultivating a more socially conscious investor community.

Scalability and Viability of Social Enterprises:
The social enterprises, especially in India are relatively small scale and face challenges in scaling up their operations and attracting increased funds through investment. For the SSEs to succeed , a scalable model which is capable of attracting the required capital to deliver tangible impact and cover the operational costs effectively is vital.

Perceived Risk:
Investing in social enterprises is often perceived as more risky than traditional investment options. Investors may worry about the sustainability of the business model or the potential volatility of social enterprises. This perceived risk can deter risk-averse investors from participating in the SSE. The perception generated is purely due to the lack of awareness with regards to the SSE model which is relatively novel in the Indian market. Changing this preconceived nation should be the primary aim of the SSE in order to ensure investor engagement.

Scope for further research
Corporate Social Responsibility ("CSR") in essentially the philanthropic segment of the companies and other corporates. Although such activities are under the regulatory framework of the Companies Act, having its integration within the SSE framework would provide a more transparent and accessible system to the public as to how the funding has been utilized thereby incentivizing the retail investors to invest money for the social cause with substantial tangible impact with respect to social welfare. Further this would also allow corporate affiliated Non-profit organizations to raise more money from the public domain on a share basis.

Having a systemic integration of these two social centric initiatives under the regulatory oversight of SEBI will make the process more seamless, credible and transparent which would help change the narrative and preconceived notions towards social impact investments and help reinforce this market space exponentially and has scope for further research.

The possibility and viability for the entry of retail investors and donors in the Indian SSE and their scope thereof is an area of further research in this regard as well.

Conclusion
The SSE is built on the same solid technical infrastructure, frictionless trading platforms, and efficient mechanisms for transparent reporting as India's current stock exchanges. The Social Security Exchange in India is a ambitious proposal that aims to redirect capital markets for social and environmental good.

However, it confronts a number of crucial obstacles that must be solved in order for it to be successful in the long run. Overcoming obstacles such as awareness, regulatory compliance, value, and scalability are critical elements in creating a more dynamic impact investment ecosystem in the nation. Collaboration among governments, financial institutions, social entrepreneurs, and investors could prove to be critical in overcoming these obstacles and realizing the full potential of India's Social Stock Exchange.

End-Notes:

1. NSE SSE brochure. (n.d.). NSE SSE brochure. Retrieved October 20, 2021.
   URL: https://static.nseindia.com//s3fs-public/inline-files/NSE%20SSE%20Brochure%20-%20English_0.pdfkk
2. BSE SSE brochure. (n.d.). BSE SSE brochure. BSE. Retrieved October 20, 2021.
   URL: https://www.bsesocialstockexchange.com/
3. Framework for Social Stock Exchange. SEBI meeting files, October 2021.
   URL: https://www.sebi.gov.in/sebi_data/meetingfiles/oct-2021/1633606607609_1.pdf
4. SEBI Listing Obligation and Disclosure Requirement Regulations, 2015.
5. SEBI Issue of Capital and Disclosure Requirements Regulations, 2022.
6. British council Reports, 2021.
   URL: https://www.britishcouncil.in/sites/default/files/india-report2021-25jan2022.pdf
7. Forbes, Can India's social stock exchange flourish where others have failed?
   URL: https://www.forbesindia.com/article/take-one-big-story-of-the-day/can-indias-social-stock-exchange-flourish-where-others-have-failed/86659/1
8. Impact Finance Report. (2018). In Https://Impactfinance.Network/Wp-content/Uploads/2018/10/Impact-Platforms-Report_Final.pdf. Impact Finance Network.
9. Framework for Social Stock Exchange. SEBI meeting files, October 2021.
   URL: https://www.sebi.gov.in/sebi_data/meetingfiles/oct-2021/1633606607609_1.pdf

Written By: Ms. Gauravi Talwar, is a third-year student at Gujarat National Law University pursuingher undergraduate B.B.A. LL.B. (Hons.)