Fund

The second component of the Sadaqa Initiative involves setting up of a Sadaqa Fund with the following objectives:

  • To provide a central platform or meeting place of donors and beneficiaries
  • To serve as an information base on potential donors and beneficiaries
  • To undertake due diligence of intermediaries
  • To generate its own resources for provision of above services

The Fund will be in the nature of a P2P Crowd Fund set up initially for India as part of an action research project undertaken by a team of experts from the Islamic Development Bank Group and King Abdulaziz University. The project aims to explore the challenges in the practical use of crowd-funding platforms for better zakat management and finding solutions thereto by creating a P2P Zakat Platform as a pilot project and linking up the same with a sample of 100-150 Islamic NGOs, Foundations, Cooperatives and Madrasas in 5-8 cities in India providing them with an efficient and cost-less source of funding their activities. India constitutes an ideal case for this experiment for the following reasons:

(i) It has the second-largest Muslim population (perhaps largest donor population).
(ii) Bulk of zakat and sadaqa currently flow to Madrasas and Islamic NGOs with social causes may be facing a shortage of such funds.
(iii) Cost of collection of such funds (through personal collectors) is presumed to be higher than 40 percent indicating huge inefficiencies that must be curbed.
(iv) There is an apprehension of huge leakages and wastage in the distribution of zakat.
(v) Indian NGOs in the Islamic space find it extremely difficult to scale up their programs and activities as they avoid the conventional banks and financial markets due to presence of the “interest” factor.
(vi) The macro regulatory and fiscal environment in India favors a move towards cash-less and transparent flow of funds in all sectors of the economy including Islamic philanthropy.

Possible challenges to adoption of crowd-funding solutions could be many, that include behavioral (inertia with old system; lack of awareness and resistance to use of technology; tendency among zakat payers (muzakki) to conceal their identities as an indicator of piety or due to fear of hostile actors in the society; unhealthy competition among the Islamic NGOs making it difficult for them to come under a single platform etc.); legal (possible tax liability on donors/ recipients/ intermediaries; liabilities arising out of anti-money-laundering provisions); Shariah-related (pronouncements deeming zakat payments to NGOs as unIslamic); competency-related (lack of technological and other competencies among the actors to make best use of the platform), and other factors. An action-research methodology is recommended as it can effectively bring to the fore the real challenges by documenting them as they occur and throw up possible solutions as these are tried out.

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