M-Cril plans equity exchange for 'social investments'

An equity exchange for social investments? The country may soon have such a platform for equity placements catering to social enterprises and microfinance institutions (MFIs) that will be open to institutional investors.

The exchange has been conceptualised and is being set up by credit rating agency M-Cril, which rates MFIs.

As a precursor, M-Cril is launching a company called Capital Connect in May that will be a platform for MFIs and enterprises to register themselves to access financiers who buy shares in them.

An index would update investors on equity prices on a daily basis, said founder Sanjay Sinha, an economics post graduate from Oxford who started M-Cril International ten years ago.

The platform would require an initial capital of Rs 100 crore before it can evolve into a full-fledged stock exchange. That may take another three years, Sinha said.

Sinha said he was inspired by the enthusiasm of people who wanted to invest in social enterprises and MFIs in India but did not know how to find them.

"So I decided to play the role of Shaadi.com for MFIs and investors," he said.

The added advantage of the exchange is that it offers investors an exit route. The moment the investor wants to withdraw from the enterprise, the stocks can be sold once buyers are found through the portal.

Sinha said the exchange would, however, not come under the purview of the stock market regulator the Securities and Exchange Board of India (Sebi) because it will cater only to institutions and not retail investors.

"Once it is a stock exchange we would require Sebi clearance. At the moment it is a platform for equity placements only," he explained.

Sinha, however, is emphatic that the exchange is not meant for charities. "Institutions listed on the exchange have to be companies that are social enterprises and should have a for-profit model," he said.

This rules out the smaller MFIs that have tiny capital bases, and NGOs.

"We assume that small organisations with a net worth of less than Rs 5 crore would not be interested," Sinha said.

Companies opting to list on this exchange could be making renewal energy or solar energy devices or involved in low-cost housing, low-cost healthcare and other models of development.

"Broadly speaking, it is meant to help social development that is economically viable," Sinha said.

The social investment scene has been attracting new players especially from venture funds and SRIs (socially responsible investments). Recently, a fund like Unitus bought equity in an MFI called Bandhan, which is rapidly expanding.

In this context the platform sees a ready base of customers.

Sinha said he wants his enterprise to be the NASDAQ of the future as far as social enterprises in India are concerned.

"If it is successful there will be more such platforms. But I will still have a first mover advantage," Sinha said.

Vijay Mahajan of the MFI Basix, which has equity investment of Rs 10.9 crore from IFC, Shorebank, ICICI and HDFC, said a social exchange is certainly a good idea and would help enterprises find investors.