We are experiencing a crisis like none other in modern history: a global pandemic that has stalled economic activity all over the world.
The International Monetary Fund reported in June 2020 that the global economy will shrink by 4.9% this year – a decline worse than the Great Depression during the 1930s. There has been a massive increase in the number of unemployed people, up by 50% in the OECD (Organisation for Economic Cooperation and Development) 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 most severe on the 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?
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 Centre for Asian Philanthropy and Society’s Doing Good Index 2020, only 11% of social delivery organisations (SDOs) surveyed in Malaysia receive government contracts. This is low compared with an Asia average of 26%, with Singapore outperforming the average at 31%. Channelling more revenue to SDOs means that they can do more for those they support. (SDOs are organisations engaged in delivering a product or service that addresses a societal need.)
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 SDOs 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. These skills are abundant in the private sector.
With more companies integrating corporate social responsibility principles and activities as part of the business through Environmental, Social and Corporate Governance strategies, this can be a two-way collaboration where the social sector can also advise businesses on policies and practices that advance social development.
Building alliances and leveraging the strengths of different stakeholders are powerful ways to create an environment where innovative solutions can emerge.
Improved incentives and processes
In Malaysia, one constraint on the amount of donations is the 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 compared with Singapore’s 250% tax waiver for both companies and individuals, the highest in the world, with no ceiling in place. In the West, tax reliefs can range from 20% to 50% of a donor’s gross income.
And the process of qualifying for relief in Malaysia is burdensome too. For an organisation in this sector to attain tax-exempt status, it needs to have been 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 the governance of charitable foundations. Many have been abused and too often politicians have used foundations as a front for their political activities.
In the business of social investment, trust is a key commodity. According to the Doing Good Index, only 48% of respondents trust social enterprises or non-profits in Malaysia. Only 57% of SDOs have a board of trustees, compared with an average of 87% across Asia. This creates doubt about 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 towards doing good.
The fact that there are lots of bad eggs should not mean that we hold back the good ones. As a founder of the CIMB Foundation, I saw firsthand 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 humankind. Apart from just urging those who can to 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.
NAZIR RAZAK & RUTH SHAPIRO
Centre for Asian Philanthropy and Society (CAPS)
Note: Datuk Seri Nazir Razak is the founding partner and chairman of Ikhlas Capital and a member of the advisory board of CAPS. Dr Ruth Shapiro is the co-founder and CEO of CAPS.