This article first appeared in The Edge Malaysia Weekly on February 24, 2025 - March 2, 2025

IN a move to fill the gap in social funding development, a market mechanism called social exchange has been mooted to support projects with positive social outcomes by mobilising private sector funding and philanthropic capital.

There is a growing need for such a mechanism, as government resources are limited, says Securities Commission Malaysia exe­cutive chairman Datuk Mohammad Faiz Azmi as he calls on the private sector to help share the burden, particularly in addressing environmental issues.

“We need to make sure that there is also a safety net for the B40 … [Otherwise,] who is going to look after the poor? The theory has always been that the government can step in and do things, but the reality is that the government has limits. So, how do you actually help the community?” he says.

“The principal thing is through the NSRF (National Sustainable Reporting Framework), it is about making sure companies understand their impact on the environment. But wider than that, we’re having a conversation about country resilience. How quickly can we respond to country resilience?”

Malaysia has not spent enough money on water infrastructure, despite being quite a commodity- and agriculture-based country, he says.

“We have a lot of islands, and most of our big cities are by the coast. Basically, between Banting and the KLIA (Kuala Lumpur International Airport), it will all be underwater [if sea levels rise]. If you look at the map, at least one-third of Kedah will disappear. If you don’t start building the walls to protect [the vulnerable areas], sea water will get into arable land.”

Acknowledging these concerns, SC launched the Social Exchange Pilot Programme earlier this year to spearhead Malaysia’s journey towards its first fundraising platform for socially impactful projects. Five non-governmental organisations — Malaysian Association for the Blind, Malaysian Relief Agency, Mercy Malaysia, Suriana Welfare Society Malaysia and WWF-Malaysia — are participating in this programme.

This pilot phase is critical for the development of a credible, transparent and trusted platform for donors to track the impact of their contributions.

Inspired by the Securities and Exchange Board of India (SEBI), which uses capital market infrastructure to facilitate fundraising for social impact projects, Mohammad Faiz expects Malaysia’s version of social exchange to go live in 2026.

“We are trying to follow the SEBI model. In India, all the charities pitch on a social exchange and, therefore, everyone gets to see what they are trying to do and then they can invest,” he says.

While India mandates that listed companies spend at least 2% of their average net profit over the last three years on social welfare activities, Mohd Faiz says Malaysia has no such intention, at least not now.

“We’re not proposing for it to be mandatory here. Instead, the value proposition is that if you are sitting on the social exchange, SC is playing a formal regulatory role. So, we are keeping an eye on the numbers … The idea is to build trust in that charity, because they are in this regulatory pool. Not all charities or social enterprises will be eligible for the social exchange, but if they do, they have to comply with a number of things.

“Once we get the charities part working, we will include social enterprises. Again, it goes back to that safety net. We need to make sure that it is healthy and can provide the help and, more importantly, that it can provide the help that even the government is not doing right now,” he adds.

SC is talking to Bursa Malaysia about developing a technologically advanced platform for the social exchange.

“We are looking at what platform on Bursa they can use. The idea is that all this should come before the [national] budget, where we will put out a paper to the government to consider. I don’t think they [the government] are going to give any tax incentives, but at least they will recognise it as being important.

“We’ll start by inviting candidates to join the first generation in 2026, so that the social exchange can go live. Again, the intention is not to make money. It is really to make sure that a safety net is safer when people put money there.”

India’s Social Exchange allows investors to apply for the purchase of non-tradeable zero coupon, zero principal instruments that form a unique bridge between social enterprises or charitable organisations and potential donors, according to Financial Times. These instruments do not yield interest nor return any principal upon maturity.

India, a pioneer in social exchanges, faces a significant funding gap, estimated at US$560 billion (RM2.5 triillion) a year, according to estimates by the United Nations Development Programme (UNDP), against a required US$1 trillion annually to meet the United Nations Sustainable Development Goals by 2030.

A June 2024 paper by the Institute for Capital Market Research Malaysia, in collaboration with Universiti Malaya and the International Centre for Education in Islamic Finance, suggests that a Malaysian social exchange could significantly boost the local social economy by leveraging the efficiencies of a market-based infrastructure.

The paper also highlights, however, the importance of a robust market infrastructure, clear regulations and sufficient market participation (both supply and demand participants), with compelling value propositions, for the success of a social exchange.

“Ignoring any of these elements could run the risk of the social exchange not meeting its full potential or, even worse, negatively disrupting the social landscape in Malaysia,” the paper cautions.  

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