In a few earlier posts I sought to build a case in favor of creating a centralized pool/ platform (Should Zakat be Centralized in India?) for managing zakat and sadaqa (including sadaqa jariya or waqf) funds in India. I argued and pleaded for a few volunteer-IT professionals to come together and build the platform as a pilot project and demonstrate to the community (especially our ulema and intellectuals) the great potential that lies ahead for community empowerment through efficient zakat management. (Towards Better Zakat Management in India: Where and How to Begin). I was sure the cynics and those resisting any change in status quo would certainly come forward to embrace the concept once they were aware of the possibilities. My expectations however, remained unrealized.
Two years later, I have the privilege of listening to a talk given by Br Umar Munshi at the IDB Headquarters in Jeddah on the several crowd-funding platforms his organization has built successfully with very similar objectives. And I see very strong reasons to be optimistic about realization of that dream.
Umar is the founder CEO of Ethis Ventures and Ethis Crowd, that won the latest Global Islamic Economy Award in Dubai. His start-up is in the business of providing tech support for developing Person-to-Person (P2P) crowdfunding platforms for raising funds. P2P crowdfunding is an online marketplace that aggregate deals and funds and provides a platform for decentralized fund-raising. Funding is faster, cheaper & more accessible. Umar highlights the following merits with this mechanism, that make it an invaluable tool for raising all types of funds – debt, equity, donations – in both conventional and Islamic space, and in for-profit, not-for-profit as well as philanthropy domains.
- It is more equitable, in the nature of investment financing, not debt.
- There is sharing of risks and returns and no financial intermediation (perhaps in true spirit of Islamic finance)
- Financing involves lower costs, since financial institutions deploy expensive infrastructure & employ highly-paid human resources.
- It ensures greater empowerment of investors who choose the projects they like based on their values & interests.
- It involves better engagement and better understanding of investees (with real -time and video updates of projects).
- It scores higher in terms of fairness with transparent information and disclosures
- It ensures market discipline as market pressure ensures that the best get funded based on appeal. It, thus, creates healthy competition and improves allocational efficiency of the economy.
Globally, the growth of this sector has been spectacular, with the funding volume doubling almost every year on average, standing at 34.4 billion USD in 2015. Out of this, Umar estimates, the Muslim world accounts for less that 30 million USD clearly indicating a near-total lack of awareness of the concept in this part of the globe. At the same time, while 2 billion people remain unbanked across the globe, the same is as high as 682 million in the Muslim world. Thus, crowdfunding has immense potential as a tool of financial inclusion, especially in the Muslim world.
A good beginning has however, been made with the first ever Shariah P2P business licence being granted to Ethis Kapital in Malaysia. Ethis Ventures has successfully floated several other crowd-funding platforms, e.g. Ethis Crowd (to fund real estate projects to build 5,000 subsidised houses in Indonesia), Kapital Boost (to purchase assets for small businesses), Yemen Aid (to undertake humanitarian finance by Arab Association in Singapore in association with UNDP), Skola Fund (to mobilize donations for tuition fees for students in Malaysia). A recent venture Waqf World was launched at the World Islamic Economy Forum under the patronage of Tun Abdullah Badawi, former PM of Malaysia as a global platform to mobilize cash waqf.
In what way a crowd funding platform for zakat management in India be useful? First of all, creating such a platform will not be difficult and can be easily financed through a contribution in the form of zakat/ sadaqa or waqf. The maintenance costs are not expected to be very high either.
As discussed in an earlier blog (Towards Better Zakat Management in India: Where and How to Begin), there is merit in creating a “central platform” as well as a “central organization” without having to create a “central pool of funds”. The central platform would bring in huge economies of scale in collection (by cutting down costs in the form of remuneration claimed by collectors that is as high as 40 percent of inflows) and in distribution (by cutting down the transportation costs of carrying goods for distribution etc.). The central organization would bring in economies of scope and better tackle issues that are collective in nature (devising and implementing self-regulation mechanisms, standardized and transparent accounting and operating procedures, resolution of fiqhi issues and standardization of rules (even while retaining and respecting the divergence of views among different schools of thought and madhabs), education, training and certification of the zakat professionals, awareness building among the public, advocacy with government and society etc.) At the same time, it will be possible to take decentralization in distribution to its ultimate level, where every zakat payer identifies with and pays to the zakat receiver (individual or organization) that he/she wants to. This would be good governance at its best and Shariah compliance at its best.
May I therefore, propose a project for P2P Zakat for India. Since the term Sadaqa is broader and includes zakat and waqf as well, I prefer the term P2P Sadaqa. The project in a basic form will have the following structure (variations are certainly a possibility). The key stakeholders will include (i) Sadaqa Foundation, (ii) Sadaqa Academy and (iii) Sadaqa Professionals or Amil Zakat that may perhaps include both individuals and institutions, (as is the current practice in India):
The role and function of SADAQA FOUNDATION will be:
- To provide a central platform or meeting place of sadaqa donors and beneficiaries
- To serve as a information base on potential beneficiaries
- To provide consultancy to potential donors regarding their zakat liability through Sadaqa Academy link-up
- To act as an Escrow Agent for flow of funds between sadaqa donors and beneficiaries through the intermediation of Amil-Zakat
- To undertake due diligence of Amil Zakat
- To coordinate with Sadaqa Academy for training and certification of Amil-Zakat
- To coordinate with Sadaqa Academy for public awareness building about zakat and sadaqa
- To generate its own resources for provision of above services
The role and function of SADAQA ACADEMY will be:
- To design and offer a certification program for Amil-Zakat online
- To design and offer short-term training programs in various cities for prospective Amils
- To offer consultancy to potential donors regarding their zakat liability through the Foundation
- To undertake public awareness campaigns about zakat and sadaqa
- To generate its own resources for provision of above services
The role and function of AMIL ZAKAT will be:
- To get certified by Sadaqa Academy as Amil Zakat
- To act as collection and distribution agents for zakat and sadaqa
- To perform due diligence of potential beneficiaries
- To share and update the information with Sadaqa Foundation
- To assist the Foundation and the Academy in creating public awareness about zakat and sadaqa
- To offer above services for a fee