September 21, 2020
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Prostate Cancer

Philanthropy in Need of Innovation

September 21, 2020
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The Edge
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The Edge
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There is an urgent need to mitigate the reality of financial cutbacks with innovation and new approaches to philanthropy. How can this be done?

We are experiencing a crisis like none other in modern history; a global pandemic that has stalled economic activity all over the world. The IMF reported in June 2020 that the global economy will shrink by 4.9% this year; a decline worse than the Great Depression during the 1930’s. There has been a massive increase in the number of unemployed people, by 50% in the OECD area alone. It is during a time of crisis such as this that we need to see philanthropy in action, where individuals and organisations band together to help the most vulnerable. 

In the Malaysian context, our response to COVID-19 has been relatively successful due to accessible healthcare, robust response of the Government and cooperative behaviour of the populace. However, the impact of the pandemic is still dire and more severe on the more economically vulnerable. Our social protection structures are being tested. Ironically, as companies and individuals see incomes deteriorate, they instinctively or necessarily cut back on philanthropy: Just when more is needed most. 

There is an urgent need to mitigate the reality of financial cutbacks with innovation and new approaches to philanthropy. How can this be done?

Stimulating collaboration

One approach is through cross-sector collaboration. There is room for the Government and the private sector to be more involved. 

Procurement is an underexplored area. According to the Doing Good Index 2020 by the Centre for Asian Philanthropy and Society (CAPS), only 11% of social delivery organisations (SDO), which are organisations that are engaged in delivering a product or service that addresses a societal need, surveyed in Malaysia receive government contracts. This is low when compared to an Asia average of 26%, with Singapore outperforming the average at 31%. Channelling more revenues to SDOs mean that they can do more for those they support. Needless to say such organisations are limited in the things they can do, but the government should ask if more procurement can be sourced from them. Indeed, private companies can also relook at their procurement in the same manner. 

The private sector can also help SDO’s and charitable organisations in non-financial ways. For instance, they can contribute through knowledge transfer initiatives as social organisations need help with accounting, financial planning, IT expertise, impact measurement and marketing; skills of which are abundant in the private sector. With more companies integrating Corporate Social Responsibility (CSR) principles and activities as part of the business through Environmental, Social, and Corporate Governance (ESG) strategies, this can be a two-way collaboration where the social sector can also advise corporates on policies and practices that advance social development. Building alliances and leveraging on the strengths of different stakeholders are powerful in creating an environment where innovative solutions can emerge.  

Improved incentives and processes

In Malaysia, one constraint on the amount of donations is the fact that donors face a donation cap. Though donations from individuals and companies enjoy a tax deduction, it is capped at 7% and 10% of their income respectively. This is extremely low if compared to Singapore’s 250% tax waiver for both companies and individuals, the highest in the world, with no ceilings in place. In the West, tax reliefs can range from 20%-50% of a donor’s gross income. And the process of qualifying for relief is burdensome too. For an organisation in this sector to attain tax-exempt status, it needs to be in business for at least two years before it can apply meaning organisation leaders would often have to shoulder the costs personally or find donors to support tax payments.

The lack of government support for charity needs to be studied from all angles. There is a lack of trust stemming from the chequered history of governance of charitable foundations. Many have been abused and too often politicians have used foundations as a front for their political activities. 

Increased professionalism

In the business of social investment, trust is a key commodity. According to the Doing Good Index, only 48% of respondents report that social enterprises or non-profits are trusted in Malaysia. Only 57% of social delivery organisations have a board of trustees, compared to an average of 87% across Asia. This creates doubt on the transparency and accountability of the organisations’ practices as there are no checks and balances. 

We need to calibrate a new balance where organisations that are well governed can have more incentives enabling them to raise and channel more funds to doing good. The fact that there are lots of bad eggs should not mean that we retard the good ones. As a founder of the CIMB Foundation, I saw first-hand how powerful and effective a well-run private organisation can be in helping those in need. The returns on monies channelled through highly committed private vehicles go much further than government schemes or indeed cash handouts. 

To end, as much as COVID-19 has brought much pain to the world, it can also bring out the best in mankind. Apart from just urging those who can give more in these times instead of less, we should also encourage policy changes and innovative collaborations so that more help is available at this difficult time. 

Dato’ Sri Nazir Razak is the Founding Partner and Chairman of Ikhlas Capital and a member of the Advisory Board of the Centre for Asian Philanthropy and Society (CAPS).  Dr. Ruth Shapiro is the Co-Founder and CEO of CAPS.