Credit Suisse to launch their own social index

Hot off the news that M-Cril will be launching their own social capital exchange, as reported by Santhosh, and also the plans by Xigi.net to create a social capital index that I spoke about some time back, Credit Suisse plans to launch its own Social Responsibility Index. As reported by Microcapital.org:

Credit Suisse will launch in the coming weeks an index that encompasses social responsibility criteria in addition to strong valuation and performance characteristics. The index will be composed of stocks that rank highly on both social responsibility criteria and financial ratios, the latter being defined by HOLT, Credit Suisse’s proprietary financial analysis tool. The index will offer investors exposure to a portfolio of stocks that are screened for strong characteristics in terms of corporate performance, valuation and momentum using HOLT’s proprietary framework. Coupled with a well established method of identifying socially responsible companies, including assessing political, environmental, labor, and human rights issues, the approach used in the systematic screening process has shown in simulations to consistently identify stocks that collectively outperform the market.

This project is part of the bank’s larger push to focus on the social investing and BoP markets as evidenced by other initiatives taken by the company. The full story can be read here.

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.