In today’s Finshots, we offer a simplified view of how India is trying to democratize access to capital for charities and social impact businesses

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The story

If you are feeling generous today and wanted to give some money, how would you do it?

Well, you can do a quick Google search or you can go to a directory and search for NGOs. Or maybe you could ask a friend what their favorite charity is. All of that would help.

But usually this process is a bit sub-optimal. It’s hard to know for sure if these entities will put your money to good use. And you can imagine that charities also face the same problems. They have to make you believe they are worth funding. And gifts are never granted. More often than not, it’s a struggle to raise funds for noble purposes.

So how do you solve this riddle?

Well, what if there was a central hub that connected everyone in this ecosystem – social impact businesses and donors? Like a purse!

Would that help?

Well, maybe. Because in 2019, the Honorable Minister of Finance Nirmala Sitharaman said, “Now is the time to bring our capital markets closer to the masses and achieve various social welfare goals related to inclusive growth and financial inclusion.”

She was talking about a scholarship dedicated to non-profit organizations (NPOs). As part of this exchange, social NPOs will be able to raise funds from the public without having to knock on anyone’s door.

And since it is an exchange, the activities will be audited. A social audit, if you will. This way, donors and investors will know if their money is being well spent. And all this could soon become reality. SEBI, the market regulator, finally gave its approval to BSE (Bombay Stock Exchange) to create a social stock exchange. And social impact companies – those that feed underprivileged children, fight climate change and work on gender equality could all start raising funds through this scholarship.

All they’ll have to do is clear certain qualifying criteriaregister and voila, they will be ready to register for the social exchange!

Wait now… does that mean these NPOs will be issuing shares? That investors become “owners”?

Not enough. You probably won’t find NGO or NPO shares on the stock market. Instead, NPOs can raise funds on the stock market by issuing bonds – a zero coupon zero principal bond. As the name suggests, it is a link. But it will not bear interest. And investors won’t get their money back either. It is only accompanied by a promise of “social return”. And the big difference here is that you’ll know your money is being put to good use when the audits are made public.

You can also associate it with a mutual fund. For example, suppose a mutual fund company launches a new fund and says, “Hey, we’re going to invest in a bunch of regular, for-profit companies. But, we will not offer any returns. Instead, we will redirect them to NPOs. And the main one? We will return it to you after 3 years. In fact, such structures already exist – such as the HDFC Charity Fund for Cancer Cure which has donated its earnings to the Indian Cancer Society.

And there could be even more structures on the anvil if the idea catches on.

The Social Stock Exchange could even possibly open its doors to for-profit companies with a social agenda. Called Lucrative Social Enterprise (FPSE). For example, consider crowdfunding companies like Milaap and Ketto. These are platforms that people use when trying to raise money for a cause. But they are not NPOs. So, in such cases, these platforms could choose to go public on the Social Stock Exchange – listing their shares and raising equity. And since it’s the socially discerning people who will be flocking to the platform, these types of businesses don’t have to worry too much about the “profits” they make. They work for a social cause.

Either way, it all sounds great on paper. But the big question is: can a social grant change the fate of the nonprofit scene in India?

If we are honest, the overall experience with ESS does not inspire much confidence. You see, India is not the first country to come up with such an idea. Singapore, Jamaica, Canada, the UK, Brazil, South Africa and Portugal have all toyed with these ideas. But he disappeared in 4 countries. ESSs were simply not capable of scaling.

Why would it be any different in India?

We do not know yet.

Also, like Sameer Shisodia, the CEO of Rainmatter Foundation* written last year, there could be other setbacks along the way – increased reporting.

“While this in itself is a good goal, mechanisms that depend on information risk excluding small NPOs from the scope of the SSE. It also risks alienating organizations whose efforts and/or impact may not lend themselves to adequate data capture. For example, NPOs involved in environmental justice, digital rights, or other areas where existing systems and processes are stacked against them.

This indeed seems to be a big problem. Democratizing access to capital for all types of NPOs will be essential if we want this SSE experience to succeed.

But let’s give it a chance, shall we?

After all, in FY21, Indian companies spent over ₹20,000 crore on their corporate social responsibility initiative. And while many of them quote “Lack of prior expertise“By channeling their funds to the right projects, perhaps having a dedicated platform with audited NPOs will help improve results.

And considering that India has at least 3.1 million nonprofitshope that Sebi’s approval for an SSE will open a whole new box of opportunities for social enterprises that deserve our support.

Until there…

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Zerodha, through its Rainmatter fund, is an investor in Finshots


Ditto Insights: Why Millennials Should Buy a Term Plan

According to a survey, only 17% of Indian millennials (25-35) have taken out term insurance. The actual numbers are likely even lower.

And the most disturbing fact is that 55% had not even heard of term insurance!

Why is this happening then?

A common misconception is the dependent riddle. Most millennials we talk to want to buy a term policy because they want to cover their spouse and children. And that makes perfect sense. After all, in your absence, you want your term insurance policy to pay out a large sum of money to cover the future needs of your family. But these same people do not see their parents as dependents, even though they are very supportive. I remember when it hit me. I regularly send money home, but I had never considered my parents as my dependents. And when a colleague told me about his experience, I immediately put two and two together. They depended on my income and my absence would most certainly affect them financially. So a long-term plan was a no-brainer for me.

There’s another reason Millennials should probably consider considering a term plan: debt. Most people we spoke to have home loans, education loans, and other personal loans with a hefty interest charge. In their absence, this burden would be transferred to their dependents. It’s not something most people think about, but it happens all the time.

Finally, you actually get a pretty good deal on term insurance prices when you’re younger. The idea is to pay a nominal sum each year (something that won’t burn your pocket) to protect your dependents in the event of an untimely death. And those fees are lowest when you’re young.

So if you’re a millennial reading this, maybe you should reconsider buying a term plan. And don’t forget to talk to us at Same while you are there.

1. Just go to our website —Link here

2. Click on “Book a FREE call”

3. Select “Term Insurance”

4. Choose the date and time according to your convenience and RELAX!

Our advisors will take care of it from there!