If you operate a social enterprise, you may have had nightmares about raising capital for growth. The thought of investors not understanding that your entity’s existence is to create positive social impact, rather than maximize profit, is frustrating. If you are starting a social enterprise, the thought of not having the access and capacity to scale is unfortunate, especially for those who will live better from your initiatives. Perhaps these are reasons why we are seeing work towards creating social stock exchanges. 2012 may be just the year that marks the start of such trading environments for social enterprises.
While at Morgan Stanley, Durreen Shahnaz learned how access to capital markets can enable companies to grow. When she joined microlender Grameen Bank and worked in the rural parts of Bangladesh, she realized that loans were defaulted by Grameen borrowers due to the lack of market access to sell their products. This led her to build oneNest, an online wholesale marketplace for handmade goods from around the world. She recognized a trend in the market where there was a lack of investors who can help companies with social and environmental missions grow.
Shahnaz settled in Singapore and while teaching social innovation and social finance at the National University of Singapore, she began exploring the notion of creating a stock exchange for social enterprises that would eliminate barriers to market opportunity and help them scale. Her idea was still early in conception when the Rockefeller Foundation came across her writings and promptly became a supporter of what would become the Impact Investment Exchange Asia (IIX).
One barrier for social enterprises lies evidently in accessing investor capital. On the other hand, investors seeking to make impact investments, or ones that benefit society, may not know where and how to look for social enterprises. In other words, the cost to do the research and due diligence is high. IIX has developed two platforms that aim to remove these barriers and act as a bridge between social enterprises and impact investors.
The first platform is called Impact Partners. Launched on March 31, 2011, Impact Partners is a network that gives investors access to business plans and are introduced to social enterprises seeking private investment capital. Social enterprises on the network are assessed on their social impact and financial capacity through a market readiness assessment framework.
The second is the Impact Exchange, which is a form of stock market for social enterprises. Impact Exchange will allow investors to purchase and trade shares issued by for-profit social enterprises and bonds issued by both for-profit and not-for-profit social enterprises. Through shares, investors can expect to receive economic returns through dividends. For-profit enterprises will pay interest and principal on issued bonds using profits generated in their businesses, while not-for-profit enterprises will repay bonds from income streams.
Impact Exchange will establish listing criteria for social enterprises, and will focus on social enterprises in fields such as healthcare, education, affordable housing, clean technology, and microfinance. The listed enterprises will provide third-party audited financial and social/environmental reports to investors.
Based in Singapore, the Impact Exchange is said to launch in early 2012 and will be Asia’s first social stock exchange.
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