Amit Chandra, Chairperson, Bain Capital India and co-founder of the ATE Chandra Foundation
Image: Mexy Xavier
Minister of Finance Nirmala Sitharaman announced the creation of a social stock exchange (SSE) in the July 2019 Budget. The electronic platform would use capital markets for social impact by facilitating listings of non-profit organisations and social enterprises on the bourses to attract investors.
In September 2019, the Securities and Exchange Board of India (Sebi) created a working group to advise it on how to go about building an SSE. Among the members of this group was Amit Chandra, chairperson, Bain Capital India. The co-founder of the ATE Chandra Foundation—who, along with his spouse Archana, donated Rs24 crore of his personal wealth to philanthropy in 2022, as per the EdelGive-Hurun India Philanthropy List—has since been using his time and resources to advocate for and help the regulator build a robust SSE in India.
As India’s SSE inches closer to its first listing of non-profits, Chandra speaks to Forbes India over email about how a successful launch is just one part of the story and how, in the long run, the platform will need donors and investors to see value and to come forward to encourage it as a way of channelising money for social good. Edited excerpts:Q. What kind of investors does India's SSE want to attract? Are these investors showing interest?
Every individual who holds a demat account can be a potential investor in the SSE over the long term, which means nearly 11 crore donors could benefit from a platform approach that could help transform giving for social causes in our country. However, as per the ‘How India Gives 2021’ report, an average Indian donates 1 to 2 percent of their total income and since the minimum donation cap being envisaged is Rs2 lakh on the SSE platform, it is likely that only individuals who have an income of more than Rs1 crore are likely to use this platform to start with. This means that initially just a small percentage of the maximum base of about 1.3 lakh people who are in the income category of over Rs1 crore will be the ones attracted to this platform.
This means the SSE will have to start with a small and existing pool of donors who will have to be motivated to use the platform for specific reasons but with a view to pave the way for it to open up over time. We are hoping that some next-gen philanthropists will find this platform more interesting, particularly for projects that align with their passion areas.
In all of this, donors are looking to make sure there are no disincentives for using this platform. For example, parity on 80G exemption, corporate social responsibility (CSR) eligibility where applicable, will be important for scalability of the platform.
Also read: Can India's social stock exchange flourish where others have failed?Q. At present, the SSE allows instruments such as zero coupon zero principal (ZCZP) bonds and social impact funds (SIF). Both these offer no financial accountability or returns to investors and are purely donations that investors can carry out for social impact. Will this deter investors? As 'social impact' could also be a risk, given that it cannot be guaranteed?
While social impact often takes time, NGOs can often measure milestones over short-term (one to three years), and outcomes (three to seven years) and these can be evaluated by external assessors certified by the National Institute of Securities Market (NISM). This will give assurance to donors about the project deliverables and its outcomes. So far, 1,000 professionals have undergone the certification for assessors and that shows the effort towards preparation.
The investors on SSE will be informed about the project and its milestones/outcomes and the timelines it will take to achieve those upfront. There will be a clear proposal submitted and presented to donors before they make any investments. The SSE will therefore be an important initiative to ensure transparency, standardised reporting and impact assessments, giving assurance to the investors before, during and after a project. Q. Do non-profits and social enterprises have the capacity to adhere to governance norms that come with listing on the SSE? How can this be tackled?
According to GuideStar India (a repository of non-profits), there are 450 organisations that have gone through the due diligence required for SSE listing and have shared governance and compliance reports in the public domain. These organisations have the capacity as the current CSR/donor reporting and compliances also require similar rigour. There aren’t any unfamiliar compliances that not-for-profit organisations need to adhere to.
Currently, there are about 20,000 probable organisations with the potential to list on the SSE and we anticipate that the first few hundred might require low-touch capacity building support. The rest will definitely require more comprehensive capacity and knowledge-building support, but there are credible intermediaries who can be leveraged for the smooth transition of NGOs onto the SSE platforms.Q. Similar stock exchanges in the world, like in Brazil, the UK, South Africa and Portugal, have failed due to financial and structural challenges, such as low users resulting in lack of economies of scale, training and awareness challenges etc. How can India tackle this?
The working group and technical committee were aware of this and efforts are being taken towards building awareness, training, capacity-building, registration and listing. There is also a need to build collectives/collaboratives to ensure that the move towards the SSE is collective and that everyone works together on the demand side as well as the supply side.
At the time of its launch, it will be important for the government and regulators to ensure there are no disincentives to use the platform. Over time, once proof of concept is established, there will be the opportunity to consider incentives to build scale. It is better to make a slow and well-informed start of the SSE, which will build more trust and mobilise resources slowly but steadily. Also read: Giving as a percentage of wealth emerging highest among professionals: Amit ChandraQ. What are the biggest benefits of an SSE in India, and what are the biggest challenges?
The mainstreaming of good practices, accountability and standardised reporting are huge benefits to both, not-for-profits as well as donors. Donors will be able to get more visibility into the not-for-profit work and impact, and a larger pool of choices to invest in. Importantly, we will be building a platform where Indians can support social development directly, while historically there has been a lot of foreign donor support for causes.
The challenges would be to ensure that organisations are not pressured into burdensome reporting and measuring outcomes just for compliance’s sake. There is also a lot of work that still needs to be done around capacity-building and sensitisation to ensure there are no missteps. Q. Do you intend to list your non-profit on the SSE?
While ATE Chandra Foundation is set up as a Section 8 company, we are a philanthropic foundation which makes grants and does not raise any external funds. We, however, intend to support evolution of the SSE through donations to causes that align with our strategic focus and we will also encourage other like-minded donors to do so too.