The Sadaqa.Fund Initiative involves setting up of crowdfunding platforms as part of a research project to support the human development efforts in this sector by identifying the challenges and opportunities with creative and alternative sources for financing.
Two P2P Crowd Funds are being set up initially for India and Indonesia as part of a research project. 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 Islamic NGOs, Foundations, Cooperatives and Madrasas in India and Indonesia, providing them with an efficient and cost-less source of funding their activities. India and Indonesia together, constitute an ideal case for this experiment for the following reasons:
(i) The two countries have the largest and the second-largest Muslim population in the world.
(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 in India, 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 environments in both countries favor 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.