Salman Ahmed Shaikh
Importance of Social Finance in Pakistan
The United Nations Development Programme in 2016 revealed that multi-dimensional poverty in Pakistan stands at 38.8%. Poor people usually depend on their incomes for consumption expenditure given the lack of other assets in their ownership. In addition to that, the non-availability of other marketable assets makes them excluded from the formal financial services. On the other hand, the government is constrained with a low tax to GDP ratio and high debt servicing and other non-development expenditure. As a consequence, it has a large fiscal deficit and very low spending on development and even less on direct support to the poor.
According to Pakistan Center for Philanthropy (2002), the government funds comprise only 6% of the total funding for the non-profit institutions in Pakistan while the average for several developed and developing countries is 40%. This shows that the government is also not able to provide substantial indirect support by funding non-profit institutions. On the other hand, the microfinance outreach in Pakistan is approximately 5 million people, which is less than 10% of the total poor population in the country. As a result, this void of social finance is largely filled by private giving in Pakistan.
Vibrant Operations of Third Sector Institutions in Pakistan
To give just a glimpse of how important the third sector is in the socio-demography of Pakistan, a few major success stories are mentioned. The Sindh Institute of Urology and Transplantation (SIUT) is a privately funded dialysis and kidney transplant centre in Karachi. It is the country’s largest public sector health organisation providing services free of any cost. Shaukat Khanam Cancer Hospital and Research Center is the country’s largest cancer hospital with an annual budget of Rs 10 billion ($ 96 million). The hospital was built through private donation drive in 1994. Edhi Foundation which originated from Karachi holds the Guinness record for the world’s ‘largest volunteer ambulance organization’ since 1997. Indus Hospital in Karachi provides free of cost treatment. It is a private hospital working on donations and has treated 2.3 million patients during 2007-2016. Among the numerous food distribution centres, Saylani Welfare Trust provides meals twice a day to more than 50,000 people in the city of Karachi free of cost.
In Pakistan, the annual corporate philanthropy is around Rs 4.8 billion ($46 million) which is around 0.6% of the profit before tax of the listed companies, according to Pakistan Center for Philanthropy (PCP). However, the share of corporate philanthropy in overall private giving is not significant. According to PCP, the total estimated charitable giving in Pakistan stands at Rs 300 billion ($2.8 billion) in 2015. In the provincial studies, the amount contributed in the year 2013 stood at Rs 67.9 billion ($0.65 billion) in Sindh and Rs 103.69 billion ($1 billion) in Punjab, according to PCP reports for individual philanthropy in Sindh and Punjab.
A recent estimate by Pakistan Peace Initiative (2017) contends that people in Pakistan pay around Rs 554 billion ($5.31 billion) in charity every year. When this amount is compared with Pakistan’s Public Sector Development Program (PSDP), it turns out to be 83.77% of the total PSDP for the 2015-16 budget. In addition to that, the estimated total annual giving by Pakistani Diaspora in the USA which includes money, goods and time exceeds $1 billion.
How to Promote Waqf in Pakistan?
From a practical and policy perspective, the above statistics highlight conduciveness for Islamic social finance institution of Waqf to provide an effective basis of channelizing charitable funds in the private philanthropic sector.
With a predominantly Muslim population which engages in significant private giving, social intermediaries who can transparently and efficiently mobilize charitable giving can enhance the socio-economic impact of private giving. Given the high prevalence of cash based giving and higher trust deficit between people and the public Zakat agency, the Islamic institution of cash Waqf can be suitable for effectively channelizing the charitable giving in the form of cash.
The current legal environment is favourable since charitable organizations are exempted from income tax. Since a great majority of people pay in cash, thus cash Waqf can be conducive in such a scenario by capitalizing on a consistent source of funds and giving them permanency in terms of the effects and impacts. Below, we list some recommendations for increasing the effectiveness of the institution of Waqf in contemporary application in the socio-economic milieu of Pakistan.
Charitable spending can be seasonal and impulsive. Hence, there is a need for accessible avenues to match targets and mobilize resources efficiently through organized institutions such as Waqf. Soliciting charitable contributions using online medium in cash Waqf can be more efficient and bring more participation, especially in the cases of emergency. It can also help in capitalizing on short term impulsive charitable spending on special occasions and events.
In soliciting charitable contributions to Waqf, it is effective to market the positive externalities. For example, Shaukat Khanam Cancer Hospital in fund raising campaigns highlighted that how much bricks a given contribution could provide for the construction of building. Also, Al-Khidmat Foundation highlights that how much a given contribution is required to finance studies of a particular number of students in their schools. This type of marketing strategies can create a sense of achievement and fulfilment for the respondents as well.
It is important to provide tax incentives to engage more people and corporations towards establishing Waqf. Corporations who engage in corporate philanthropy can effectively establish corporate Waqf. This will also help their social marketing. The contributions to these Waqf by individual and corporate donors shall be made eligible for tax credit like it is the case with other recognized institutions in Section 61 of the Income Tax Ordinance 2001. If a donor dedicates real estate to an existing Waqf or to establish a new Waqf, the taxes related to registration and transfer of property shall be exempted.
It is vital to create social awareness for creating right kind of Waqf at the right place. Given the preference ranking of the respondents and based on social needs, targeted efforts shall be made in sectors and segments of more social priority, such as food security, basic literacy and basic health. Some educational institutes and hospitals which receive donations also provide an opportunity for voluntary teaching and running free medical camps. Establishing such institutes independently, as Waqf or from Waqf capital can also offer opportunity of volunteering. This will be especially attractive and conducive for the 50 million youth in the age-group of 15-29 in Pakistan.
In past, the abrupt nationalization of Awqaf dented the confidence of people in the country. Thus, it is vital to ensure the independent status and operations of Waqf. Providing an enabling environment to the non-profit sector will help in scaling up the efforts to meet the underdevelopment challenges and making swift progress towards achieving the targets of Sustainable Development Goals (SDG) by 2030 in the area of poverty, inequality, quality education, basic health and providing decent work.
The article was first published in Islamic Finance News Malaysia on September 5, 2018.
Categories: Articles on Islamic Economics