Articles on Islamic Economics

Hazards of Institutionalized Charity

Dr. Muhammad Asif Jaffer, Assistant Professor, IBA Karachi

A Stanford article [1] mentions that we Pakistanis are among the most charity giving nations in the developing world. Charity to GDP ratio in Pakistan is almost one percent which is more than in other developing countries (Although US and Canada have this ratio at around 1.3).

Apparently, it is a good indicator of generosity reflecting the contributions of the richer segment of the population of this country. However, there is still a need to revisit the pros and cons of the mechanism of this redistribution of wealth.

We have observed massive institutionalization of charity in the past two decades. Concepts of specialization and division of work, originating mainly from economics, have taken over our entire social and ecosystems. People do not have time and resources to locate the needy and the poor, so institutions have assumed this role for the masses. Welfare institutions as social intermediaries take the form of trusts, societies and even corporates, and their main sphere of activities include provision of food, clothing, shelter, medical, and other basic life needs.

These institutions collect donations from individuals and corporates and channel the same to the target audience with their own mechanism. According to a Herald Article [2], around four years back, there was an NGO for every 2,000 people in this country. Ramadan and Eid-ul- Azha are probably the two events where one can see the widespread popularity of these institutions among masses.

This institutionalization has made many things easy and efficient. On one hand, donors do not need to worry about searching for the right and real ‘poor’, and on the other hand, the ‘poor’ use the right channel to get the financial help. Life becomes easy for both the givers and the takers and the intermediaries do the work probably more efficiently by ensuring that the money or the benefits go to the right hands, a win-win situation.  

However, there are certain downsides which in my opinion overweigh the benefits in the long run. The first and foremost is the loss of self-esteem that the benefiting poor gets when it starts receiving the benefits from these institutions.

When a person is helped by a co-worker, neighbour, friend or any other individual in confidentiality, the ego and self-respect of the receiving individual is not hurt or hurt as much as in receiving such benefits publicly from an institution. But, when the same human registers with a social welfare institution for such help and starts getting the same, the ego and self-respect are affected significantly. Such an individual, psychologically, associates himself with ‘a beggar’ and this label once perceived as such closes the door to become self-sufficient again. Getting accepted oneself as being helped kills the motivation to struggle and overcoming one’s own financial turmoil. 

It gets worst when the giving by such institutions is made public. When it is known in the social setup that one individual gets help from XYZ institutions, then the loss of social respect and the perception for class discrimination becomes prominent. Think for example of the photos of individuals advertised for donation collection campaigns by such institutions. Can they get the same sense of social respect and self-esteem as a normal individual do? Probably, they will not get it ever in life after such exhibition. Even if a thousand humans are served by capitalizing on such ads, the loss of one human’s respect and self-esteem is enormous, especially when there can be other ways to get around the same numbers. Probably for this reason, I have seen some responsible social welfare institutions not publishing or publicizing any human images in their donation campaigns.

This social division is strengthened on the other side of the spectrum as well. The givers take pride in thinking that masses are being served by their donations and they gain a sense of accomplishment. Though this seems okay, it strengthens the socio economic division of the rich and poor. We get used to see people eating in free Dastarkhuwans, getting free medical help, and getting their other problems addressed by us. It gives us a satisfaction being the givers. But, we can never afford or like to sit with them on the same dining table or be treated in the same hospital.

In an ideal society, such division should altogether not exist and the deserving people should get help so silently and confidentially that no one other than the giver and taker knows of such transaction. In our religion, it is said that even the left hand should not know the charity given by the right hand. The institutionalization has created a bipolar social division where we take pride in being among givers and this pride is actually achieved at the cost of the death of self-esteem of the takers.

Another downside is the gradual disowning of the personal responsibility towards helping the poor. “I have donated my part to XYZ institution” and “it is now the institutions’ responsibility to take care of them, not mine” are the types of attitudes that are developed over time. Institutions are taking over the perceived role of caretakers, and it creates a disconnection between the two classes, and strengthens perceived supremacy in the mind of givers.

The downsides mentioned so far are on the assumption that such institutions operate transparently. But this is not the ground reality for many of them. Forming a social welfare institution, collecting donations and paying salaries to its runners / directors has become a new business model.

There is lack of accountability and post-audits. There are professional or habitual baggers who get away with funds. There can be favouritism, wastage, bureaucratic processes and inefficient handling of donations. It was reported that several people from the government departments in Sindh received income support funds from the previous government’s flagship income support program and they were later on found to be not eligible. Even encroachment to public places is widespread and because of strong network and goodwill in public, it might be too difficult and risky to get these places vacated despite orders of the courts.

Our strategists need to revisit this culture. Religious scholars and intellectuals should create awareness among the public to realize their personal responsibility towards poor and connect to them. Given these limitations, donors in their personal capacity should spare time and resources to find and sponsor the needy by themselves or engage with institutions in a more interactive way to monitor their activities.


[1] S. M. Amjad and M. Ali, “Philanthropy in Pakistan,” Stanford Social Innovation Review, Vol. 3, No. 4, 2018.

[2] “The rise of NGO’s and their Harmful Impact on Pakistan”.

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