The Securities and Exchange Board of India (SEBI) is looking at ways to increase investments from social venture funds (SVF) in the country. So far, only 14 SVFs have come up with a cumulative investment of just ₹578 crore.
“ SEBI is examining to increase the investment avenue of SVFs in context of the work carried out for introducing the framework for Social Stock Exchanges,” SEBI told the Parliamentary Standing Committee on Finance.
A Social Venture Fund (SVF) is an alternate investment fund that invests 75 per cent or more of its corpus in unlisted securities or partnership interests of social ventures that satisfy social performance norms defined by the fund. The fund may accept from and give grants to social ventures and may accept restricted or muted returns. Until March 31, 2022, SVFs have managed to raise just over ₹2,000 crore of which ₹578 crore have been actually invested. In comparison, other AIFs such as infrastructure fund have received about ₹7,900 crore of committed fund of which ₹6,821 crore have been invested.
Defining social venture
The biggest hurdle for investing in SVFs is that SEBI rules allow only ‘not-for-profit’ entities to receive such funds. Investors, on the other hand, do not consider ‘not for profit’ enities as investible. “This definition of social venture is limiting as social ventures are commonly associated with not-for-profit entities. However, the majority of impact investments have been made in for-profit enterprises that address social problems. The suggested legal structure for social ventures is predominantly applicable to not-for-profit entities such as charitable trusts, societies, Section 25 companies etc. and a few for-profit structures such as venture capital undertakings. It is, therefore, important that the current scope of definition of the term ‘Social Venture’ be broadened,” said an industry expert.
SEBI recently approved a separate framework for social stock exchange for the listing of non-profit organisations and for-profit social enterprises that are engaged in 15 broad eligible social activities approved by the market regulator. Existing social venture funds will be rechristened as social impact funds and can have a reduced corpus of ₹5 crore against ₹20 crore prescribed earlier.
May 21, 2022