Welcome changes to SEBI (Alternative Investment Funds) Regulations, 2012 but bottlenecks remain

While the Securities and Exchange Board of India's (SEBI) attempt to institutionalize and reform its regulation of social venture funds over the last decade has been appreciable, there is still vast scope for improvement in the existing regime to fully tap the potential of social impact investment as instruments of social change, writes PRATIK PATNAIK.

———-

THE American blues musician, Arley "Buster" Benton's famed number Money Is the Name of the Game has been the venerated adage of business pundits from the time of the Greco-Roman slave economy, through the tyrannical age of the 'Industrial Revolution' to the current age of neoliberal capitalism.

As recently as in the 1970s, 'star' economists such as Milton Friedman argued that the sole responsibility of any business enterprise is to serve its shareholders and maximize returns for them without owing any obligations to society.

The chequered history of the 20th century has forced investors to rethink the philosophy of business, as they could no more divorce the impact of their wealth/investments and the last mile impact creation (or the lack thereof) of the investee business enterprise. While models such as philanthropic donations and corporate social responsibility have been around for a while, these dispensations have some inherent flaws. The capital in 'donations' or 'grants' is difficult to track as most donations are 'no-strings attached' and the impact may not always be sustainable as the granted monies are spent without reinvestment and 'creation' of capital.

Social impact investments which aim at generating measurable social impact alongside a financial return have become the new instruments of change. They involve investing funds into enterprises, which have a positive social spillover effect, by the usual investment routes of equity/debt.

The Indian (in)experience

The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) institutionalized and began the regulation of all kinds of residual investment funds (apart from mutual funds et cetera which were already regulated), including "social venture funds".