The challenges confronting our society are enormous. The trinity of government, market and civil society now need to work together, rationally through a structure which has the heart of a social organisation and head of a business entity to hold-hand with the government for addressing the massive societal problems with much-needed scale, speed and sustainability.
By Jyotsna Sitling and Bibhu Mishra
Social Enterprises (SE) are the answer to this. Sensing the pulse right across, government has already announced a Social Stock Exchange (SSE) in the budget speech in July 2019 at an opportune time. This also comes with a huge responsibility to build the right ecosystem for SE in India. It is pertinent that Social Enterprises and the Government are aware of their respective roles and market functions for creating value that will attract and impact investments in various sub-segments of the market.
Our societal challenges are enormous. The trinity of the government, market and civil society now need to work together rationally through a structure which has the heart of a social organisation and head of a business entity to hold hand with the government to address our massive societal problems with much needed scale, speed and sustainability. Social Enterprises (SE) are the answer to this. Sensing the pulse, the government has already announced a Social Stock Exchange (SSE) in the budget speech in July 2019 at an opportune time. This also comes with a huge responsibility to build right ecosystem for SE in India. It also necessary to make the stakeholders aware of the market functions of a Social Enterprise, and the roles critical to the government in bringing distinct value in different market sub-segments of social impact investment.
The world faces several challenges today. Businesses in pursuit of maximising profit and shareholders’ value have already done a lot of damage to the environment and society. The ‘rising inequality’ among various segments of the society creates further complications. If we talk about India, in 2018 the top 10 percent of the population cornered 55 percent of all income, while the bottom 50 percent shared only 15 percent, according to the World Inequality Report, 2018.
The figure above suggests that inequality is rising in India at a much faster rate as compared to the USA, China, Europe and even the Russia. More importantly, although it is true that millions came out of poverty and the share of middle-class in total population has grown consistently in India from 2006 and 2016 according to a UN study, the major concern is that our ranking in Human Development Index (HDI) is still 129 out of 189 countries in 2019.
Similarly our performance on the state of environment is even more appalling. We were ranked 177 out of 180 countries on the Environment Performance Index in 2018. The rising inequality will sharpen further especially in the post-COVID world. This clearly shows that businesses have to find ways which are more inclusive and try to balance people, planet and profit. This alternate business model that is gaining momentum across the globe is called a Social Enterprise.
What is Social Enterprise?
In simple terms, Social Enterprises are businesses, which have a revenue-generating model therefore they are not charity or philanthropy. They reinvest most of their profit into the cause for which the enterprise is exists and does not focus on multiplying shareholder’s money value. In that respect, they are different from traditional businesses. The third criterion is that their primary focus is social and environmental good. However, there are no universally accepted definitions of the SE.
In India, the concept of SEs is not new, but the scale is not there. A number of mutual-profit and non-profit registered as co-operatives, trusts, societies and Sec 8 companies are into social business, addressing the challenges of access, affordability and assurance of societal products and services to the needy public.
Inequality is rising in India at a much faster rate as compared to the USA, China, Europe and even Russia… It will sharpen further in the post COVID world. This clearly shows that businesses have to find ways which are more inclusive and tries to balance people, planet and profit. This alternate business model gaining momentum across the globe is that of Social Enterprises
What is Social Stock Exchange?
It is worth mentioning that a Social Stock Exchange (SSE) is different from traditional stock exchanges in multiple ways. Most prominently, they do not facilitate in trading of shares. The most important function of an SSE is to act as a platform for SEs and Impact Investors. Impact Investors are the investors who are not only interested in financial return, but also focus on social and environmental returns. They invest mostly in SEs, having direct societal impact or in socially and/or environmentally responsible businesses and projects that prevent negative impact on people and environment.
Globally, impact measurement has been characterised by prominence of metrics, certifications and ratings built on robust assessment systems and measurement systems. This has largely benefited the market by allowing investors to compare and plan investments in social businesses by assessing their potential impact. A 2019 Brookings India report cautions that although it will be prudent to look into methods and instruments from global best-practices for channelizing resources, it would be equally critical to examine several aspects and externalities of the Indian market on impact focused take-up from a policy standpoint.
Social Stock Exchange and nature of services
Globally, SSEs have been set up in more than 10 countries. The prominent SSEs are in UK, Canada, USA, South Africa, Singapore and Mauritius. The ambit of functions of SSE differ widely with respect to: 1. types of organizations listed – ‘for profit’ vs nonprofit; 2. services offered – directory only, matching funders and organisations and providing for direct online fund raising; 3. ability to trade securities; 4. methodology for accreditation of organisations and investors; 5. ability of retail investors to participate. (Roopa Kudwa and Raahil Rai, 2019).
The foundational role of the Government
Since SEBI is on the task to develop the regulatory framework for SSE operations in India, there is a need now for the government to be involved in the multiple layers of intervention that can address supply development, directing capital and demand development through policies and regulations and through direct participation in the market (Brookings India, 2019). This is important especially in these challenging times unleashed by the COVID-19 pandemic to instil faith in Impact Investors for making effective investments and build the morale of Social Entrepreneurs and Civil Society Organizations (CSOs) to address refractive social problems with immediate support from the government. There are several key components for achieving the goals.
Educate market participants
The purpose is to broaden the ecosystem and deepen the knowledge of the sector through education, training and awareness in all market players. This can be done through massive targeted campaigns using fiscal-neutral resources of the banking sector.
Foster social business
The purpose is to design and implement government policies and programs to improve the social impact investment ecosystem. This can be done by introducing innovative financing (both debt and equity) instruments and products to trigger partnerships and convergence and promoting robust and diverse intermediaries for developing optimum traction for social investment.
Strengthen demand side through public commissioning
Public commissioning of services to SEs would require sensitisation and awareness building of the government and the public sector towards SE policies and ecosystem players and putting administrative practices in place that will allow SEs to better work. The government should also revisit procurement guidelines for SEs by laying social conditions for public procurement. For example, by amending the Public Procurement Policy for MSEs Order, 2018 under section 11 of MSMED Act, 2006.
Co-build impact audit system
Apart from becoming a repository of SEs and Impact Investors, the SSE platform can become more investment friendly by integrating MIS on recent developments and best practices using AI and machine learning. This needs close collaboration of SEBI with relevant social, business, people, academic institutions and research organisations. The complexity and cost of handling impact audit can be reduced if government’s social data (MoSPI), environmental data (MoEFCC & MNRE), business data and CSR data (MCA& MSME) and NGO data and Aspirational District Program data (NITI Aayog) can be reviewed and made usable for seamless and authentic confirmation of impact.
More importantly, this would help build co-ownership of private, government and CSO to tackle emergent societal problems with much-needed scale and speed.
Given the need to catalyse the market for the social business at a massive scale, especially at this hour, the need has been felt to have a central networked body under public, private and civil society partnership to be developed as Growth Centre for Social Enterprise and Social Impact Bonds. The role of this Centre would be to provide strategic guidance to leverage State, Market and CSOs’ resources and expertise for impact and recommend supportive policies, institutions and instruments in promoting social businesses.
Address current barriers and opportunities
There is a need for identifying and targeting specific current barriers and opportunities in the social impact investment market. Small social organisations in transition need more types of blended capital. It is also seen that retail investors are seeking social value but more mainstream social pension opportunities ( e.g. National Pension Scheme) need to adapt and capture this interest.
Given the need to catalyse the market for the social business at a massive scale, especially at this hour, the need is felt for developing a central networked body under public, private and civil society partnership as a growth centre for Social Enterprises and Social Impact Bonds. The role of this centre should be to provide strategic guidance to leverage state, market and CSOs’ resources and expertise for impact and recommend supportive policies, institutions and instruments for promoting the social businesses for impact. Monitoring of results and addressing capacity needs will be a cross-cutting role of this organisation for achieving the desired social impact goals.
Taking into consideration the challenges of encompassing convergence function to build the market for social business, it will be vital to integrate relevant SEs, businesses, people, academic institutions and research organisations as partners for developing the growth centre. Equally important would be identifying the collaborative role of these organisations and the expected outcome of such collaborations in terms of catalysing the social-impact market on the ground. The needful collaboration with the state governments would be required for necessary policy and program convergence to achieve meaningful results.
Given the multi-stakeholder nature of the proposed growth centre and its potential in catalysing cross-sector partnerships to foster inclusive growth, a task force (think tank) could be formed at the highest level in the government to come up with recommendations on the functions and the institutional architecture of the proposed growth centre.
The views of the authors are personal and not those of the government
Jyotsna Sitling is an Indian Forest Service officer, presently posted as Principal Chief Conservator of Forests, Van Panchayat in Uttarakhand Forest Department.
Bibhu Mishra currently works with The Global Education & Leadership Foundation and previously was a German Chancellor Fellow with Alexander von Humboldt Foundation based at Humboldt University, Berlin.