India's first Social Capital Exchange to be launched (I'm serious!)

According to story today on Business Standard, M-Cril, the credit rating agency is launching a platform called ‘Capital Connect’ which will enable MFIs and social enterprises to access capital from investors looking to make investments in this space. This is seen as early precursor to a equity exchange for ‘social investments’ – in other words a social capital market (a few years back, it would be utterly murderous to put words like capital, business and investment next to the word social, increasingly these words are used together – a sign of times to come). Quoting from the piece:

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.

M-Cril, by the way is most ideally suited to pull this off and the timing is just brilliant. The Micro-Finance industry in India is at the tipping point, poised to unleash a wave of tremendous growth. The investor interest has also been growing (we have covered multiple deals in this space before). M-Cril is the premier credit rating agency for MFIs, and I believe first of its kind in the world, having done 480 assessments in 27 countries. Thus, in addition to building the platform, the organization can use its rating expertise to help investors make the right choices.

The platform also intends to list other social businesses in sectors like green energy, low-cost housing and health-care. This, I assume would be a tougher goal, given the lack of scalable models in these sectors (unlike the MFIs, which stand on years of operational experience and scale). Also, the need for a ‘social investment exchange’ makes ample sense in the short run, over the long run, social businesses might just well be able to merge into traditional capital markets (under the grand and idealistic premise that ‘traditional’ investors would begin attaching some value to social returns). Clearly, I would be in the idealistic fantasy-land to expect such a change in the near future, given the recent controversy surrounding the Compartmentos IPO in Mexico.

Overall, Capital Connect is a pioneer, and given the track-record of the sector to rapidly scale innovative ideas (Kiva, Microplace), it should probably take-off. Of course, we will keep our eyes and ears open.