Social Sector Ecosystem — the ground floor

Why this chapter comes first

You are training to be a Social Impact Assessor. The workbook says this role was earlier known as a Social Auditor. Your job will be to check whether social enterprises that raise money through a Social Stock Exchange (SSE) actually made the difference they claimed.

Before you can judge impact, you need to know two worlds. The first is the social sector — NGOs, trusts, societies and social enterprises. The second is the financial market — exchanges, depositories, investors and regulators. The SSE is where these two worlds meet. This chapter gives you the map of both.

Section I — The social sector in India

Where it came from

India has a long tradition of voluntary work called "shramdaan". Voluntary action grew before Independence, when social reformers campaigned for a fairer social order.

A short timeline worth knowing:

The sector rests on old laws: the Societies Registration Act (1860) and the Trusts Act (1882). Later came the Bombay Public Trusts Act (1950), Section 8 of the Companies Act, 2013 (non-profit companies with charitable objects) and the Foreign Contribution (Regulation) Act, 2010 (FCRA), which governs foreign donations to NGOs.

The workbook credits the sector with real results — polio eradication, disaster relief, and policy reforms such as the Right to Information and Right to Education.

What "social sector" means

The non-profit sector is also called the social sector or the third sector. It includes development organisations, voluntary groups, NGOs, Section 8 companies, social enterprises and collectives.

The term covers activities that build human capital and human development — education, health, medical care, water supply, sanitation and housing.

Its approaches aim at three things:

• Filling gaps in education, health, sanitation, housing, energy and environment, focusing on the disadvantaged
• Research-based advocacy that feeds into better programmes
• Think tanks with a rights-based approach to social issues

A snapshot of Indian NPOs (Box 1)

The workbook quotes the India's Millions Mission Report, based on a 2023 primary survey by the CSO Coalition@75 covering 851 NPOs.

Main regions: Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Delhi. Later in the chapter the same report is quoted again: 62% of NPOs raise less than ₹1 crore, 57% are less than 20 years old, and 88% work to strengthen government programmes, while 50% work locally.

The 17 Sustainable Development Goals

In 2015, UN member states adopted the 2030 Agenda for Sustainable Development. It set 17 Goals for developed and developing countries alike.

1. No Poverty
2. Zero Hunger
3. Good Health and Well-being
4. Quality Education
5. Gender Equality
6. Clean Water and Sanitation
7. Affordable and Clean Energy
8. Decent Work and Economic Growth
9. Industry, Innovation and Infrastructure
10. Reduced Inequalities
11. Sustainable Cities and Communities
12. Responsible Consumption and Production
13. Climate Action
14. Life Below Water
15. Life on Land
16. Peace, Justice and Strong Institutions
17. Partnerships for the Goals

What is a social enterprise?

Social enterprises gained importance in India in the late 1990s. The term was formally introduced in India in 1981, when Ashoka — the global association of leading social entrepreneurs — was set up.

A social enterprise uses entrepreneurship, innovation and market approaches to create social value. It can be non-profit or profit-making. Most share three traits:

1. Social Purpose — created to solve a social issue
2. Enterprise Approach — uses business discipline and market methods
3. Social Ownership — focus on public good and stewardship, even if the legal form does not show it

The core belief: profit and social impact are not enemies — they reinforce each other. Pioneers named in the workbook: SELCO Solar, Basix, Barefoot College, Arvind Eye Hospital, Pratham.

Non-profit vs social enterprise — the source of money

This is the key line. Non-profits rely on donations and grants. Social enterprises earn their own revenue by selling products or services. But all profits are ploughed back into the cause.

Both for-profit and non-profit social enterprises can access grants and donations and social venture capital funds. Funders named: Grassroots Innovations Augmentation Network, Acumen Fund, Intellecap, Villgro. The legal CSR mandate of 2% of a company's net profit also channels money to non-profit social enterprises.

SEBI's definition — who counts as a social enterprise

This is the most exam-heavy part of the chapter. It comes from Chapter X-A of the SEBI ICDR Regulations, 2018.

For Profit Social Enterprise (FPSE) — regulation 292A(c): a company or body corporate operating for profit that is a social enterprise, and does not include a Section 8 company.

Not for Profit Organisation (NPO) — regulation 292A(e): any of these:

• a charitable trust under the Indian Trusts Act, 1882
• a charitable trust under a State public trust law
• a trust registered under the Indian Registration Act, 1908, in States with no public trust law
• a charitable society under the Societies Registration Act, 1860, or a State Societies Act
• a Section 8 company under the Companies Act, 2013, including a Section 25 company under the repealed Companies Act, 1956
• any other entity SEBI specifies

Primacy of social intent — regulation 292E

Every social enterprise, NPO or FPSE, must establish primacy of social intent. To do that:

(a) At least one eligible activity from a list of 18. Some examples: eradicating hunger and poverty; health care including mental health; education and livelihoods; gender equality and LGBTQIA+ communities; environment and climate; heritage; sports training; supporting SE incubators; slum development and affordable housing; disaster management; financial inclusion; land access for the disadvantaged; the digital divide; welfare of migrants; Schedule VII of the Companies Act, 2013; any area SEBI or the Government identifies.

(b) A target population — underserved or less privileged segments, or regions lagging on Central or State development priorities.

(c) The 67% test — for For Profit Social Enterprises. At least 67% of activities must be eligible activities for the target population, shown by one or more of:

(d) Never eligible: corporate foundations, political or religious organisations or activities, professional or trade associations, and infrastructure and housing companies — except affordable housing.

Legal forms of non-profit social enterprises

There is no single regulator for trusts, societies and Section 8 companies. Each is governed by the law it is registered under, so accounting and reporting rules also differ.

For-profit social enterprises sell goods or services that advance a social, economic or environmental cause. They have clear business models, customers and revenue. The workbook lists their forms as Sole Proprietorship, Limited Liability Partnership, Partnership, Private Limited or Public Limited company.

Taxonomy — the words that define intent

Primacy of social intent / impact. Social intent and impact are the primary goals. An entity has social intent when it serves a social good, has a social mission, creates social value, builds social capital and has a social bottom line. Distributing profit among board or staff is not its intention.

The workbook's definition: "Social impact can be defined as the effect on people and communities that happens as a result of an action or inaction, an activity, project, programme or policy." Examples: rising graduation rates in an underserved community, lower child malnutrition, more biodiversity from wasteland conservation.

Social objective. An enterprise whose objective is a financial bottom line (profit as its mandate) cannot pose a social objective. Annexure 1 gives an illustrative list of areas and sub-areas for classifying social objectives.

Social interventions and the results chain

Social interventions are programmes that deliver social benefits and develop human capital of specific target groups. They can be social welfare, safety net or social protection.

Now the vocabulary you will use in every assessment. Learn the order — it runs from what goes in to what finally changes:

Other key concepts:

• Poverty — multidimensional. Amartya Sen: "Poverty is not just absence of income. Poverty is presence of Helplessness, Powerlessness and Voicelessness."
• Social development — a process of achieving desired social change.
• Social capital — the OECD: "networks together with shared norms, values and understandings that facilitate cooperation within or among groups". The World Bank version stresses institutions, relationships and norms.
• Stakeholders — "any group or individual who can affect or is affected by the achievement of the organization's objectives" (Freeman, 1984).
• Sustainability — the Brundtland Commission (1987): "meeting the needs of the present without compromising the ability of future generations to meet their own needs." Three dimensions — environmental, social, economic. In the nested model, the economy depends on society, and both depend on the environment.

Five social intervention methods

Six risks social organisations face

• Strategic — interventions are often funder driven and lack long-term vision
• Financial — no funding, no continuation; weak budgeting in small organisations
• Operational — cannot pay for highly qualified staff; policy changes, disasters, beneficiary non-acceptance
• Technology — cannot afford or use digital tools; remote areas lack power and networks
• Regulatory — changes in CSR policy, Schedule VII, FCRA
• Environmental — solar, watershed and farm projects depend on climate

International standards and comparability

Companies report sustainability efforts through OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights, UN Global Compact, the Universal Declaration of Human Rights and the Global Reporting Initiative. The workbook calls these voluntary guidelines.

Why is it hard to compare social organisations? Registration, objectives, funding and activities all vary. Changes in behaviour, attitude and values often cannot be measured with quantitative indicators. Benchmarks are usually customised to one intervention. So change is measured as before vs after the intervention — not against a group from a completely different culture.

The NPO ecosystem and its regulators

Stakeholders

Stakeholders of an intervention may include beneficiaries, board members, employees, volunteers, local community, funders and government. Two ways to split them:

• Internal vs external (also called primary and secondary). Internal: employees, board, contract staff. External: funders, government, consultants, volunteers, beneficiaries.
• Direct vs indirect. Indirect stakeholders are not involved but are affected — indirect beneficiaries, local community, local political leaders.

The Ministry of Corporate Affairs allows companies to do CSR through a Zero Coupon Zero Principal (ZCZP) instrument. Spending through it shall not exceed 10% of total CSR expenditure for that financial year.

Social sector inequities — three thrusts

Sectoral thrust. India's performance is lowest on No Poverty, Zero Hunger and Gender Equality (SDGs 1, 2 and 5). NITI Aayog strategised 41 policy priorities. In FY 2022-23, the most CSR money went to Education (₹10,085.38 crore) and Health Care (₹6,830.41 crore). Areas needing more funds: Gender equality, Women empowerment, Old age homes, Reducing inequalities (GWOR), and slum development.

Geographical thrust. In 2018, NITI Aayog identified 112 aspirational districts. The Aspirational Districts Programme focuses on health, education, agriculture, financial inclusion and infrastructure, and ranks districts monthly.

Technological thrust. The digital gap favours male over female, urban over rural, rich over poor. The workbook calls it the new face of inequality. Government tools include JAM (Jan Dhan, Aadhaar, Mobile), health ID, e-Kranti and the e-Shram portal. The challenge is "reverse embrace" — getting beneficiaries to actually adopt the technology.

Section II — Indian financial markets

Financial markets move surplus funds to productive use. Intermediaries — banks, mutual funds, insurers — channel money from savers to users. NPOs and for-profit enterprises can list on a Social Stock Exchange and raise funds for specific projects.

Money market — short-term funds, overnight to one year: repos / reverse repos, certificates of deposit, treasury bills, commercial paper.

Securities (capital) market — two inseparable segments. Primary market (new issue market): issuers raise capital. Secondary market (stock exchange): trading in already-issued securities.

The intermediaries

Investors

Under the ICDR Regulations, an SSE must be accessible to institutional, non-institutional and retail investors.

• Retail Individual Investor — bids for not more than ₹2 lakh
• Qualified Institutional Buyers — DFIs, banks, insurers, mutual funds, FPIs, others SEBI specifies
• Non-Institutional Investor — anyone who is neither retail nor QIB
• Accredited Investors — understand products and risks; also called qualified or professional investors

Regulators

• Ministry of Finance — Department of Financial Services (banks, insurance, pensions); Department of Economic Affairs (capital markets)
• Ministry of Corporate Affairs — Companies Act; supervises ICAI, ICSI and ICMAI
• RBI — bank notes, monetary stability, credit system
• SEBI — set up under the SEBI Act, 1992; Social Stock Exchanges fall under SEBI's regulatory ambit
• IRDAI — insurance
• PFRDA — pensions, under the PFRDA Act, 2013; regulates the NPS

Under the MCA's professional bodies, the workbook notes three social auditor organisations: ISAI (under ICAI), ICMAI SAO and ICSI ISA.

Types of securities

• Equity — ownership; rewards by dividend and capital appreciation
• Derivatives — value derived from an underlying; exchange-traded ones in India are futures and options
• Fixed income — a promise to pay a stream of cash flows; can be transferable or not
• Commodities — real assets like gold, silver, copper, farm produce
• Real estate — the largest asset class in the world; commercial or residential; REITs lower the ticket size
• Mutual funds — pool money under a mandate; best suited for retail investors

Beyond the book

The workbook credits NGOs with a role in polio eradication. The Pulse Polio campaign it lists in Annexure 2 is a well-known example: WHO certified India's South-East Asia region polio-free in March 2014. That is the kind of long-term impact — not just vaccination counts, which are outputs — that an impact assessor is trained to distinguish.