SEBI to Take Action to Boost Investment in Social Venture Capital Funds

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The Securities and Exchange Board of India (SEBI) is looking at ways to increase investments from social venture capital funds (SVF) in the country. So far, only 14 SVFs have offered a cumulative investment of just ₹578 crore.

“SEBI is looking into the possibility of increasing the possibility of SVF investment as part of the work being done to introduce the social stock market framework,” SEBI told the House of Commons Finance Standing Committee.

A social venture capital fund (SVF) is an alternative investment fund that invests 75% or more of its corpus in unlisted securities or stakes in social enterprise partnerships that meet the social performance standards defined by the bottom. The fund can accept and make grants to social enterprises and can accept limited or moderate returns. As of March 31, 2022, SVF has managed to raise just over ₹2,000 crore, of which ₹578 crore has actually been invested. In comparison, other AIFs such as infrastructure funds received around ₹7,900 crore of committed funds, of which ₹6,821 crore was invested.

Defining social enterprise

The biggest impediment to investing in SVFs is that SEBI rules only allow “not-for-profit” entities to receive such funds. Investors, on the other hand, do not view “not-for-profit” entities as investable. “This definition of social enterprise is limiting, as social enterprises are usually associated with not-for-profit entities. However, the majority of impact investments have been made in for-profit companies that tackle social issues. The suggested legal structure for social enterprises applies primarily to not-for-profit entities such as charitable trusts, corporations, Section 25 corporations, etc. and some for-profit structures such as venture capital firms. It is therefore important that the current scope of the definition of the term ‘social enterprise’ is broadened,” said an industry expert.

SEBI recently approved a separate framework for the Social Exchange for the listing of nonprofit organizations and for-profit social enterprises that are engaged in 15 major qualifying social activities approved by the market regulator. Existing venture capital funds will be rebranded as social impact funds and may have a reduced corpus of ₹5 crore from the previously prescribed ₹20 crore.

Published on

May 21, 2022

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