WaqfGirl

The Legal Framework for Nonprofit Organizations

2010-06-09T13:03:00.000-07:00

by EVELYN BRODY
in Nonprofit Sector : A Research Handbook.

Powell, Walter W.(Editor). New Haven, CT, USA: Yale University Press, 2006. p 243.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=256

Copyright ? 2006. Yale University Press. All rights reserved.

Most challenging, there is no single “law of nonprofit organizations.” Much of the common law of charity, property, and wills and trusts has found its way into state statutes. We find state laws on nonprofit corporations, federal and state tax laws, and state (and sometimes local) laws on charitable solicitations. Like businesses, many nonprofits worry about laws (sometimes with special rules for nonprofits) on contracting, labor and employment, torts and insurance, employee benefits, antitrust, bankruptcy, and political activity, as well as laws that govern specific industries such as hospitals and day care. Of final importance are several sources that are not themselves law but that influence legal development. The American Law Institute (ALI) published the Restatement (Second) of the Law of Trusts in 1959, and has published two portions so far of the Restatement (Third) of the Law of Trusts (the first, issued in 1992, covers prudent investing; the second, issued in 2003, addresses, among other topics, the definition of charity and the cy pres doctrine). Also in 1992 the ALI produced the Principles of Corporate Governance, relating to business corporations, and in 2001 opened a project on “Principles of the Law of Nonprofit Organizations,” for which this author is Reporter. The American Bar Association’s 1987 Revised Model Nonprofit Corporation Act (the “Model Act”) has been enacted (sometimes with variation) in more than two dozen states; the ABA’s prior version was adopted in thirty-nine states. The National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1972 adopted the Uniform Management of Institutional Funds Act (UMIFA), enacted (sometimes with minor variation) in forty-eight jurisdictions; a major revision of UMIFA had its first of two required readings in 2003. NCCUSL also approved a uniform trust code in August 2000, and states are beginning to adopt it. 5 In discussions below, for simplicity we usually refer to the ABA’s Model Act, UMIFA, the Uniform Trust Code, and the various ALI projects in lieu of specific state laws. Finally, an increasing amount of secondary legal guidance is being produced (see, for example, the very helpful ABA Section of Business Law 1993; Siegel 2006).

Choice of Form

Creators of a new charity can generally choose between two basic regimes: the nonprofit corporation and the charitable trust. 16 (Informal or other unincorporated voluntary associations, which traditionally function under the laws of agency and partnership, could expose the participants to personal liability.) State nonprofit corporation statutes vary. For example, New York State provides rules for four different types of “not-for-profit” corporations; states following the ABA’s Model Act differentiate between “public benefit,” “mutual benefit,” and “religious” corporations (as does California, whose law inspired the ABA); and Delaware and Kansas have a single statute covering both business and nonprofit corporations. Additionally, some states have enacted statutes for, among others, “unincorporated associations” (granting members limited liability), homeowners associations, cooperatives, health-care corporations, and mutualbenefit insurance companies. Finally, many states, again with variation, have codified the common law of charitable trusts, and adopted such specific statutes as UMIFA (Fisch et al. 1974; Bogert and Bogert 2000; Fremont-Smith 2004a). American advisers routinely recommend the nonprofit corporate form, although the trust form might be particularly appropriate for a charity (such as a grant-making foundation) that manages a fund of money and makes distributions.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 247.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=260

Copyright ? 2006. Yale University Press. All rights reserved.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 246.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=259

Copyright ? 2006. Yale University Press. All rights reserved.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 245.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=258

Copyright ? 2006. Yale University Press. All rights reserved.

A Historical Overview of Philanthropy, Voluntary Associations, and Nonprofit Organizations in the United States, 1600– 2000

2010-06-08T14:19:00.000-07:00

PETER DOBKIN HALL

in Nonprofit Sector : A Research Handbook.
Powell, Walter W.(Editor).
New Haven, CT, USA: Yale University Press, 2006. p 32.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=45

Copyright ? 2006. Yale University Press. All rights reserved.
accessed 7th June 2010

CHARITABLE, EDUCATIONAL, RELIGIOUS, AND OTHER NONPROPRIETARY ACTIVITIES BEFORE 1750

The land area now occupied by the United States was the object of rivalry between several European powers. Spain occupied a huge area of North America, stretching from today’s Florida, Alabama, and Louisiana in the Southeast through Texas, New Mexico, and Arizona in the Southwest and California on the West Coast. France occupied Canada and much of Maine and the territories composing the Louisiana Purchase. The Dutch held New York. The Swedes established a small colony on the Delaware River. And a variety of British settlements, most of them initially ventures by private trading companies, occupied the East Coast between Maine and Georgia. Settlement began at a time when European law was still emerging from the shadow of feudalism. Statutes were uncodified and judicial decisions only spottily reported. Customary and local law continued in effect, resistant to efforts to impose national uniformity on centuries-old patchworks of parliamentary enactments, royal decrees, and decisions by a variety of lay and ecclesiastical courts. Accordingly, the legal and institutional heritage of the Old World that colonists brought with them varied, depending on where they had come from and the nature and extent of their encounters with the legal systems of their native lands (Billias 1965). Religion and material circumstances affected the ways in which colonists drew on Old World institutions and practices. In the farther reaches of the Spanish empire, where colonial administrators were few and far between, clergy tended to assume judicial responsibilities, bringing to the task notions of the law that owed more to Scripture and local custom than to the laws of Spain or Mexico (Saunders 1995, 1998; Rosen 2001). Beyond administrative centers like Montreal, the French took a similarly casual view of legal formality, freely adapting Old World practices to New World exigencies (Banner 1996). The legal and governmental institutions of British North America developed very differently from those of the French and Spanish colonists, who governed substantial native populations as agents of the papacy or the Crown. In contrast, the English settled in areas with sparse native populations, and as inhabitants of colonies established by joint stock companies (such as Massachusetts and New York) or proprietorships (such as Pennsylvania and New Hampshire) their primary task was crafting institutions of self-government. This orientation to self-government was evident even in royal colonies (such as Virginia and the Carolinas), where governors appointed by the Crown held sway with the assent of elected legislative assemblies. The English brought with them a rich heritage of selfgoverning corporate institutions. Townships, the basic political building block outside the South, were treated under the law as municipal corporations, with citizens electing boards of selectmen. Churches— even Catholic congregations before the appointment of an American bishop in the 1790s— were governed by boards of deacons, elders, or vestrymen elected by their congregations. The handful of colleges— Harvard (1636), the College of William and Mary (1693), Yale (1701), Columbia (1754), Brown (1764), Dartmouth (1769), and the College of Charleston (1770)—were governed by boards of self-perpetuating and ex officio (either elected officials or clergy) trustees, fellows, and overseers. Like the French and the Spanish, the English settlers also shaped their Old World legal and institutional heritage to suit circumstances and their religious and political inclinations. In Congregationalist Massachusetts and Connecticut and in Anglican Virginia, where churches were supported by taxation and dissenters were forbidden to practice their faiths, religion was tightly bound to the interests of government. In colonies such as Rhode Island and Pennsylvania, where religious toleration was the rule, self-supporting and self-governing congregations enjoyed an autonomy that anticipated the status of voluntary associations of the nineteenth century. While evidently familiar with associational and corporate forms of collective action, the colonists were slow to embrace them. Corporate institutions such as Harvard and Yale were regarded as governmental or quasi-governmental entities (Whitehead 1973). Purely private corporations in the modern sense were virtually unknown, since colonial governments lacked the authority and legal knowledge to issue charters. By the middle of the eighteenth century, fraternal organizations (such as the Freemasons) and other informal clubs and associations (such as Benjamin Franklin’s famous Junto) began to appear. But on the rare occasions when they sought to formalize their status— as did a group of Connecticut physicians who sought to incorporate as a medical society— their efforts were firmly rejected. Charitable and educational activities that had primarily been the responsibility of the church in England were parceled out variously in the colonies (Trattner 1979; Katz 1996). In Virginia, as in England, parishes took care of the poor and ignorant. In New England, these responsibilities were exercised by municipal authorities. In larger cities such as New York, Boston, and Philadelphia, city governments operated specialized facilities— almshouses— to care for the dependent and disabled— out of which came the Bellevue hospitals of New York (1731) and Pennsylvania (1751; Rothman 1971). Because colonial legal codes did not clearly distinguish between public/private and proprietary/nonproprietary do- mains, corporations and associations (when they existed at all) served public rather than private purposes. These included maintaining public order and providing education, poor relief, and (in most colonies) religious services. Government meant a very different thing in colonial America than it does today; although colonial governments and municipalities collected taxes and enacted laws, they usually entrusted the actual tasks of caring for the poor, healing the sick, and educating the ignorant to families who could provide these services at the lowest cost. In New England villages, for example, the poor and dependent were often auctioned off to the lowest bidder. Where churches were taxsupported, the tasks of levying and collecting these taxes were carried out by the churches themselves, acting under authority delegated to them by government (McKinney 1995). Many of the early almshouses were contracted out to managers who could operate them at the lowest cost to the public. In colonial America, public and private domains were so imperfectly delimited that, in New England, it took until the 1670s for private property rights to be clearly established— and another 125 years passed before common law conceptions of property rights were universally accepted (Nelson 1975; Horowitz 1977). Legislatures generally refused to grant equity jurisdiction to colonial courts, and without them, trusts— charitable and testamentary— were unenforceable, resulting in the misdirection or failure of early charitable trusts (Prescott v. Tarbell 1804; Bowditch 1889; Curran 1951; Hall and Marcus 1998). In addition to substantial gifts from abroad, there was a modest tradition of indigenous philanthropy. The bequests of clergyman John Harvard in 1638 to the colony (“towards erecting a Colledge”) and Boston merchant Robert Keayne in 1656 to the town of Boston (“for a Conduit and a Town House Comprising a Market Place, Court Room, Gallery, Library, Granary, and an Armory”) and to Harvard College (which received books and real estate) suggest that while charitable giving was not unknown in colonial America, government was more likely than any private body to be its recipient (Bailyn 1970). Such institutions as Harvard, William and Mary, and Yale were regarded as public corporations, subject to legislative oversight and supported significantly in the form of legislative grants of money, real estate, and “privileges” (which could range from the levying of special taxes to a monopoly on the operation of ferries) (Sears 1922; Foster 1962; Harris 1970). Both the growth of trade and the integration of the colonies into the British commercial system in the late seventeenth and early eighteenth centuries initiated a wholesale transformation of legal, political, social, and religious institutions. For much of the first century of settlement, the English settlers of North America had been cut off from Europe by the Puritan Revolution and by incessant religious warfare on the continent. After the restoration of the Stuart monarchy in 1665, the Crown and Parliament began to look to the colonies as sources of cheap raw materials and growing markets for manufactured goods. Because trade regulations restricted the colonists’ production of certain manufactured goods, which British merchants were eager to exchange for certain commodities (timber, fish, tobacco, furs), growing numbers of Americans entered into a market economy, creating growing differences in wealth and upsetting traditional patterns of deference and mutual responsibility. Natural population increase, supplemented by renewed immigration, disrupted older forms of community. Trade brought epidemics of smallpox and other diseases, as well as an increasingly visible population of poor and dependent people for whom the public was expected to take responsibility. These changes forced Americans of the early eighteenth century to rethink the meaning of scriptural injunctions about loving one’s neighbor. Influenced by Newtonian cosmology, Boston minister Cotton Mather (1663– 1728) reframed doctrines of charity in Bonifacius

American Revolution

The centrality and effectiveness of voluntary associations in the Revolution served to kindle hostility toward them after the war, as Americans sought to establish governmental and legal institutions based on democratic principles. Democratic theory as it existed in the late eighteenth century viewed associations as inimical to popular government, not only because any combination of citizens was viewed as a threat to the political rights of individuals, but also because people feared that such associations representing special interests could capture control of elected governments.

During the last quarter of the eighteenth century, most states outside New England enacted laws restricting the powers of corporations, repealing sections of British common law relating to charities, and restricting the ability of citizens to give property to charities (Davis 1917). Southern states, influenced by Jefferson’s concerns about “un-republican” institutions, were particularly hostile to private corporations, associations, and charities. Virginia disestablished the Anglican Church and confiscated their assets (Terrett v. Taylor et al. 1815; Hirchler 1939). New York created the Regents of the University of the State of New York, which exercised regulatory authority over all educational, professional, and eleemosynary organizations (Whitehead 1973). Pennsylvania annulled the Elizabethan Statute of Charitable Uses and, by declining to give its courts equity powers, discouraged the establishment of charities, since without equity jurisdiction, courts could not enforce trust provisions (Liverant 1933). Even such states as Connecticut and Massachusetts, which would become the national centers for the chartering of corporations and the founding of private charities after 1800, were ambivalent about them in the decades immediately following the Revolution: Connecticut limited the amount of property eleemosynary corporations could hold, while Massachusetts declined for decades to grant its courts the equity powers needed to enforce charitable and other trusts (Curran 1951). Like other Americans of the time, Massachusetts Attorney General James Sullivan worried about the hazards that “the creation of a great variety of corporate interests” posed for republican institutions (Sullivan 1802). Sullivan’s misgivings were not far-fetched. In New England, which had chartered two-thirds of the 300 corporations in existence by 1800, business and eleemosynary entities had been generally chartered by conservative legislatures to help established elites resist the democratic masses, who were themselves using associational vehicles to mobilize politically (Davis 1917). As the nation completed its first decade under the federal Constitution, the institutions of republican government still seemed extraordinarily fragile. And of all the forces threatening its stability, none seemed so potently dangerous— to conservatives and liberals alike— as associations (which could accumulate unlimited political power) and corporations (which could accumulate unlimited economic power).

At the end of the eighteenth century, indigenous philanthropy and voluntarism were still embryonic. Most philanthropy was devoted to public institutions— municipal governments, schools and colleges, and religious congregations (most of which were tax-supported). Voluntary participation in organizations was restricted to fraternal associations, local social clubs, a handful of medical societies, and the secretive political societies that would eventually form the basis for political parties. The absence of a legal infrastructure to enforce charitable trusts, as well as broad hostility toward corporations, discouraged private initiatives professing to benefit the public.

The Search for an American Law of Charity

Given the primitive state of American law in the early nineteenth century, it was inevitable that the increasing number of voluntary associations and growing range of purposes they served, as well as the swelling amounts of property being given for charitable, educational, and religious purposes, would produce political controversy, acrimonious litigation, and landmark court rulings (Wyllie 1959; Miller 1961). The federal system, which limited the power of the central government and allowed states wide latitude to set their own policies, ensured that the outcome of this process would reflect the diversity of preferences already characteristic of the American people. The most famous of these struggles involved New Hampshire’s Dartmouth College. Founded in 1769 under a royal charter on a gift from the Earl of Dartmouth, the college remained stalwartly Congregationalist in a state in which religious dissenters had become the dominant political force. In 1816, the state’s newly elected Baptist governor, William Plumer, with encouragement from Thomas Jefferson, took control of the college and proceeded to reorganize it as a public institution. Its twelve-member self-perpetuating board was replaced by twenty-one gubernatorially appointed trustees and twenty-five legislatively appointed overseers who enjoyed veto power over the trustees (Jefferson 1856:440– 441). The president of the college was required to report annually to the governor on its management, and the governor and his council were empowered to inspect the college every five years and report on its condition to the legislature. When the old board of trustees contested the action, the New Hampshire Supreme Court upheld the state, drawing on the generally accepted doctrine that corporations, as creations of the legislature, were entirely subject to the state’s will (Trustees of Dartmouth College v. William H. Woodward 1817). The story might have ended there had not influential U.S. senator and Dartmouth alumnus Daniel Webster (1782– 1852) suggested that the ousted board of trustees appeal to the U.S. Supreme Court on the grounds that the state had violated Article II, Section 10 of the Constitution, which forbade states from impairing the obligation of contracts.

The charter, Marshall stated, was not a grant of political power, an establishment “of a civil institution to be employed in the administration of government,” or a matter of government funds. It was, rather, a “contract to which the donors, the trustees, and the Crown (to whose rights and obligations New Hampshire succeeds) were the original parties. It is a contract made on a valuable consideration. It is a contract for the security and disposition of property. It is a contract on the faith of which real and personal estate has been conveyed to the corporation. It is then a contract within the letter of the Constitution and within its spirit also” (Trustees of Dartmouth College v. William H. Woodward 1819). As such, Marshall ruled, Dartmouth’s charter could not be altered by the legislature “without violating the Constitution of the United States.” Despite the ruling in the Dartmouth College case, legal doctrines on the status of eleemosynary corporations remained confused. Although the Court affirmed the Constitution’s prohibition of states’ impairing the obligation of contracts, the decision did not require states to treat charitable corporations favorably. Even today, many states remain hostile to charities despite the Dartmouth ruling. Even the Supreme Court itself seemed ambivalent about the issue: in the same term in which it decided for Dartmouth College, it also affirmed the power of the Commonwealth of Virginia to hold invalid a charitable bequest by one of its citizens to establish a religious charity in another state (Philadelphia Baptist Association v. Hart’s Executors 1819). It was not until 1844 that private charity received an unambiguous blessing from the federal courts, when the Supreme Court heard the Girard will case (Francois Fenelon Vidal et al. v. The Mayor, Aldermen, and Citizens of Philadelphia, et al. 1844). The case involved the will of Stephen Girard (1750– 1831), a multimillionaire Philadelphia merchant who had left the bulk of his estate to the city for public works and for the establishment of a school for orphans. The central issue in this case involved the status of charitable bequests in states that had repealed the Statute of Charitable Uses. In the erroneous belief that the power to establish charitable trusts stemmed from this statute, earlier court decisions had upheld the power of states that had annulled it to limit or prohibit such trusts. But by the 1840s, advances in legal scholarship permitted the attorneys for the Girard estate to show that the Elizabethan statute had, in fact, merely been the codification of a long series of previous acts and precedents and that, as a result, the status of charitable trusts was unaffected by the repeal of the 1601 statute. Although the decision in the Girard will case secured under federal law the right of individuals to create charitable trusts, this decision did not affect particular states which chose to limit their activities. Nor did it particularly stress the importance of private philanthropy, since most of the objects of Girard’s legacy were public institutions. By the end of the nineteenth century, the legal and regulatory treatment of philanthropic and charitable institutions and voluntary associations fell into two broad categories (Zollmann 1924). A handful of states, almost all of them in New England, embraced a “broad construction” of charity under which virtually any kind of not-for-profit associational activity was not only permitted but encouraged through tax exemptions. For example, Massachusetts’s 1874 charities statute extended property tax exemption to any “educational, charitable, benevolent or religious purpose” including “any antiquarian, historical, literary, scientific, medical, artistic, monumental or musical” purpose; to “any missionary enterprise” with either foreign or domestic objects; to organizations “encouraging athletic exercises and yachting”; to libraries and reading rooms; and to “societies of Freemasons, Odd Fellows, Knights of Pythias and other charitable or social bodies of a like character and purpose” (“An Act” 1874). Trustees who managed charitable funds were both permitted broad authority in financial management and protected from claims by donors and beneficiaries. Most other states favored a “narrow construction” of charity, which restricted the kinds of activities that could be legally deemed charitable and required even those to demonstrate their redistributional and noncommercial intent as a condition for tax exemption. Thus, for example, Pennsylvania’s nineteenth-century charities statute required that such entities advance a charitable purpose (as defined in the statute), donate or render gratuitously a substantial portion of its services (limiting a charity’s ability to charge fees), benefit a substantial and indefinite class or persons who are legitimate subjects of charity, relieve government of some of its burdens, and operate entirely free of private profit motives (see Episcopal Academy v. Philadelphia et al., Appellants 1892 and Zollmann 1924). Clearly, many of the kinds of entities designated as charitable under Massachusetts law would not have been regarded as such in Pennsylvania. Where charities and tax laws favored private initiatives, philanthropic and voluntary enterprises flourished. Where the law discouraged them, they did not (Bowen et al., 1994; Schneider 1996). In the Northeast and upper Midwest, privately supported schools, colleges, and charities were founded in great numbers.

also, to the extent that institutional endowments were among the largest capital pools of the period, served as arenas for collective economic decision making. It was no accident that Massachusetts, whose charity-friendly laws permitted such institutions as Harvard and the Massachusetts General Hospital to accumulate substantial endowments, became an early center of investment banking— based on the strategic investment of these funds in the textile industry and western railroads (White 1957). In describing the temperance movement, Tocqueville noted the marked differences between the organizations used by the wealthy to pursue their agendas and those used by average citizens. “The first time I heard in the United States that a hundred thousand men had bound themselves publicly to abstain from spirituous liquors,” he wrote, “it appeared to me more a joke than a serious engagement, and I did not at once perceive why these temperate citizens could not content themselves with drinking water by their own firesides. I at last understood that these hundred thousand Americans, alarmed by the progress of drunkenness around them, had made up their minds to patronize temperance. They acted just the same way as a man of high rank who should dress very plainly in order to inspire the humbler orders with a contempt of luxury. It is probable that if these hundred thousand men had lived in France, each of them would singly have memorialized the government to watch the public houses all over the kingdom” (1945, 2:110). The temperance groups were organized as federations of state and local organizations that coordinated their activities nationally through staffed headquarters, newspapers, and periodic convenings of delegates (Putnam and Gamm 1999; Skocpol 1999a; Skocpol 1999b). The increasing use of associations by ever larger numbers of Americans helped to clarify the distinctions not only between public and private domains of activity but also between commercial and noncommercial organizations. Early corporation statutes drew little distinction between joint stock companies and membership associations (Dunlavy 2000). Over time, as Americans grew more familiar with the possibilities of associational and corporate forms, their experiments were eventually codified in the law. In the course of this process, many of the activities that we today think of as especially suited for nonprofits— arts, culture, education, and health care— were as likely to be produced by commercial enterprises as by noncommercial ones. Not until the end of the century, when rising taxes on real estate and other organizational assets and the imposition of inheritance taxes created financial incentives to adopt the not-for-profit corporate form, did the distinction between proprietary and nonproprietary firms emerge with any clarity. The efforts of urban elites in the post– Civil War decades also helped to clarify the distinction, as wealthy cultural entrepreneurs organized nonprofit orchestras and museums, closely tied to nonprofit universities, to help define and solidify the collective identity of the social groups to which they belonged (Fox 1963; Story 1980; Horowitz 1976; DiMaggio 1986; Bender 1987; Wooten 1990). By the 1850s, Americans had largely overcome their suspicion of voluntary associations and private charity. Elites, displaced by religious disestablishment and the political mobilization of the “common man,” turned to philanthropy and associational activity as alternatives to electoral politics (Bledstein 1976). The learned professions, especially medicine and engineering, formed national associations to define and uphold professional standards and to promote the diffusion of knowledge:

Nonprofits and Social Movements

As the United States assumed undisputed leadership of the free world after the Iron Curtain descended over Europe in the late 1940s, the policies of public and private institutions that subjugated racial and religious minorities and women became increasingly difficult to defend. Although the seniority of southern congressmen ensured that no significant civil rights legislation was enacted by the federal government until 1964, nonprofit advocacy groups, funded by foundations, worked tirelessly to change public opinion on civil rights issues and to pressure political leaders to change their votes.

One of the great legacies of twenty years of Democratic control of the White House and Congress was a liberal activist federal judiciary. Two significant legal innovations enacted by these jurists transformed litigation into an important instrument of policy making and turned nonprofits into major agents of policy change.

The first was the adoption of the doctrine of incorporation by the U.S. Supreme Court beginning in the late 1930s (Friedman 2002:203– 207). The incorporation doctrine derives from the Fourteenth Amendment, which declares that no state can deprive a person of life, liberty, or property without “due process of law.” In a series of cases, the Supreme Court held that these words “incorporated” the Bill of Rights in such a way as to make them applicable to the states. This meant that states that routinely deprived nonwhites of rights guaranteed by the U.S. Constitution— such as the right to vote— were subject to the jurisdiction of the federal courts.

The second innovation was a change in the federal rules of civil procedure— the code that defines the kinds of legal action permissible in the federal courts. In 1966, the U.S. Supreme Court, which enacts these rules, changed the rule governing who had standing to initiate litigation to permit “claims by unorganized groups” to be presented “as if they were those of organizations” (Friedman 2002:255). The impact of this rules change was dramatic. As legal historian Lawrence Friedman writes, “Litigation in late-twentieth century America became a political and economic instrument, a tool, a locus for strategic behavior. The class action was an important way to involve courts in battles over civil rights, corporate governance, protecting the environment, and consumer protection. And class action is central in the society of ‘local justice.’ Class actions depend on quirks and accidents of procedural history and the peculiarities of the American legal order— many legal systems have no such beast as the class action at all. But the class action has long since transcended its origins. It grew fat on the fodder of twentieth-century culture” (Friedman 2002:255). Civil rights organizations such as the NAACP were quick to recognize the opportunities offered by these changes. The NAACP’s landmark 1954 litigation over school segregation in Topeka, Kansas, Brown v. Board of Education, was based on the ability of its litigators to persuade the court that separate educational facilities were inherently unequal and, as such, violated the Fourteenth Amendment, which guarantees all citizens “equal protection of the laws.” This and other federal court decisions based on it compelled a reluctant federal government to initiate the process of intervening in states that excluded nonwhites from public schools, public transportation, restaurants, and other public accommodations.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 52.
http://site.ebrary.com/lib/iupui/Doc?id=10210281&ppg=65

Copyright ? 2006. Yale University Press. All rights reserved.

American Philanthropy

2010-06-08T13:08:00.000-07:00

by Robert H Bremner
Chicago History of American Civilization
Editor: Daniel J Boorstin
Publisher: the University of Chicago Press, Chicago
1960

History of American Philanthropy

Colonial America
. John Winthrop's (Puritan leader) lay sermon "A Model of christian Charity" aboard ship Arbella to the people travelling from England to New England in 1630 - duty of neighbourliness and brotherly love.

. William Penn (1644-1718) - refuge for Quakers in Pennsylvania - no conflict between efforts to live a better in the world and endeavours to better it - they regarded the conduct of daily lfe as much a part of religious observance than formal worship - belief in separation between church and state, insistance on individual right of freedom of conscience - concept of stewardship ie man accountable to God for their wealth and the way they spent their lives and wealth

. Cotton Mather (1663-1728) - involved in witchcraft trials- influenced by German ideas - believed in doing good by helping out the poor and needy - also through spiritual and religious preaching - promoter of associations for such purposes - believed strongly that charity should not be misapplied so that it should be withheld from the undeserving- dissaproved of the abuses of private charity

. Benjamin Franklin (1706-90) - an enemy of mather but very much influenced by him - introduced secularism into doing-good - shifting emphasis from pious works and personal charity to efforts to improve general welfare - called for a repeal of the poor laws on the ground that public provision for the needy had a greater tendency to harm the poor- he believed not in making the poor easy in poverty, but in efforts to lead them out of poverty- he promoted voluntary associations (eg voluntary fire fighting company)as suitable for american conditions

. The Great Awakening - George Whitefield- around 1742- a mass movement - a wave of religious fervour that strenghtnedn individual religious independence and weakened the authority of the churches -
a. fostered humane attitudes and popularized philanthropy at all levels of society, especially among the poorer classes;
b. impact on humble men and women , many that belonged to no churche and beyond the reach of religious appeals - gave them the opportunity to indulge in feeling usually regarded above their proper station in life and participate in feelings of piety and benevolence
c. most important change - transformation of do-goodism from a predominatnly upper and middle class activity into a a broadly shared and popular avocation

. 30 years between Great Awakening and the American Revolution - joint public-private partnership in alleviating the poor - many disable soldiers and refugees from the frontiers - churches, friendly societies, public officias and new insitution such as Pennsylvania Hospital etc, jointly financed by taxation and private contributions - helped with the poor

American Revolution and post Independence 1776
.democracy - substantial equality - no classes or upper class - common set of moral values and economic principles - americans did not question the right of any man to get rich by personal effort but concerned with the uses to which wealth was put once it had been won - democracy sought to impose same middleclass standards of thrift, sobriety and responsibility on the rich
.thus,in the first half of the 19th century, the rich American had only 1 extravagance - ie to luxury of doing good - even bequething of large estates to children was frowned upon- there was criticism of the methods by which some of these commercial classes obtained their wealth- early americans voiced suspicion that philanthropy was used by the rich to atone for their method of acquiring wealth - "atonement theory of philanthropic motivation"
.by 1820 many American cities had a lot of benevolent organization (through the principle of voluntary associations)
. many addressed slavery issues, moral reform and gifts to the unfortunate. between 1800 and 1860, many colleges were founded because the federeal govt and the state govts barely supported the field of higher education. Mainly they were set up as theological seminaries and manyu churches organized small colleges which called themselves universitied. ergo Harvard (Unitarian since 1805)
.various gifts and bequests to the Federal Govt towards education were made - founding of Smithsonian Insitution and Lowell Institute were the result of such gifts
. also charity reformers - setting up of almshouses and poor farms to enable the poor to work and have food

Civil War 1861

.many civil war philanthropies on both sides
.Sanitary and Christian Commissions - brought more scientific approach to the charitable actions of the people
.fouding of the American Red Cross

Scientific philanthropy

. end of the 19th century
. period of acquisitiveness and self-seeking but synonymous with generosity and altruism
. more scientific approach - to discover facts about the specific causes of each applicant's need
.bringing about more efficiency and humanity to State welfare services
.depression o f1873-78 - nationwide natural disaster - private citizens, older charitable organization and public authorities set up soup kitchens, breadlines, free lodging houses and distributed coal an dfood to the poor in their homes. - there seemed to be an excess of mistaken charities and chaotic distribution of private charitable assistance - many municipal expenditures for poor relief went to impostors or grafting politicians-
. rise of charity reformers or professional philanthropists - demanding better organization of relief operations, more discrimination in the bestowal of assistance and more attention to the individual needs of the persons helped - unfortunately they demanded stoppage (instead of improvement) of public aid

Came the idea that private charity was to purged of sentimentality and organized into an effective force.- rise of charity organization socieites which acted as clearinghouses and bureaus of information (no aid or assistance given out)- but eventually they provided aid through penny savings banks, coal savings funds, provident wood yards, day nurseries for the children of working mothers

Wholesale philanthropy

Andrew Carnegie and "Wealth"

. he addressed the millionaire class in america - the self made man- he attributed their wealth to their fitness to survive and competitiveness - he attributed a concept of trusteeship to the millionaire class - but as an agent of the public, not a servant of God- trusteeship devolved on the man of wealth because he was fittest to exercise it and in the exercise of this trust he was accountable only to his own conscience and judgment of what is best for this community
.his advise was "To assist, but rarely or never to do all".
. to him it was a disgrace to die rich

Rockefeller, Sr

. a month before Carnegie published "Wealth", Rockefeller made his first gift of $600k to the founding of the University of Chicago.
.he had been a regular charitable contributor, not waiting to be rich before he started giving.
.as his business was in Standard Oil company, there were many detractors to his philanthropy, labelling the gifts and contributions as "tainted money".
. drowning in his wealth, 10 years after the founding of the University of Chicago, Rockerfeller advised "men of worth and position" to put thier surplus money in a trust.

Modern trusts and foundations

From 1901 onwards, Rockefeller, Carnegie etc established a series of foundations.
.Relieving the needy not the objective. they looked at the sources, through research. concentrated on education and medical research
.fear of big and poverful organizations after 1910
.Rockefeller and Carnegie found institutions capable of distributing private wealth with intelligence and vision, and put large-scale giving on a businesslike basis

Retail Philanthropy - business of benevolence
.from 1900s onwards
. many organizations and associations such as Boy Scouts, American Cancer Sociaety, Goodwill Industries cameinto being - diversity of interests
. but these were still haphazard not well organized
.WW1 - fund raising efforts - gave rise to professional fundraisers

. individual giving remained the mainstay of american philanthropy

Waqf in Malaysia. Legal and Administrative Perspectives

2010-05-16T21:28:00.000-07:00

by Siti Mashitoh Mahmood

Observations regarding waqf in Malaysia:-

1. Characteristic of many awqaf-Form of ibadah, consisting of immovable assets and dedicated for mosques and cemeteries. Also many Islamic religious schools; reasons
a. Belief in the community that any benevolent act associated with worship is most desirable;
b. Designed to fulfil fard al-ayn;
c. Community is limited in knowledge on concept of waqf ie that waqf must only be in immoveable property;
d. No serious effort on part of SIRC to inform communit about valid practice of waqf involving moveable assets until recently when the SIRC of Selangor, Johor, Penang, FTKL, Malacca and Pahang have introduced saham wakaf.

2. No listing or complete records of waqf. A statutory vesting needs to be effected and notified to the land office which will then be endorsed by the land office on the title – see Circular of Director General of Federal Lands and Mines (No 8/99)

3. Some waqf given over land has not observed the rule that the land must be wholly owned in perpetuity by the waqif. Many land is held under leasehold title ie 99 years, so any waqf land given in respect of these leasehold titles do not fulfil the permanency requirement.

4. Many waqf properties came under the Control of Rent Act 1966 , and due to the limited rental that can be charged, many of these properties became uneconomical and fell into disrepair. The CRA was repealed in September 1997.

5. Local Government Act 1976 - waqf property is subject to municipal rates same as other property.

6. Waqf property is also not exempt from state acquisition under the Land Acquisition Act 1960, subject to appropriate compensation.

7. Awqaf are vested in the respective SIRCs. Some of the SIRCs proposals for istibdal have been objected to by the local Muslim community, leading to inability of the SIRC to develop the waqf property optimally.

8. SIRCs are empowered to appoint committees to assist them in the performance of their duties-

State-Enabling subsidiary legislation-Delegated committee-Subsidiary Companies of SIRC

Malacca-Zakat and Fitrah, Wakaf and Baitulmal Affairs Rules of the State of Malacca 1982-LUKMAL- to determine investment policies and overall management of awqaf assets in the state-MAIM Properties Sdn Bhd

Johore-Wakaf Rules 1983 -Wakaf Committee of Johore – empowered to invest and exchange (istibdal) awqaf assets with the permission of the SIRC johore. Also empowered to establish collective shares (wakaf musytarak) by unifying other forms of awqaf shares

Perak-Control of Wakaf Rules 1959-State Wakaf Control committee- to advise the SIRC on all matters relating to awqaf and their administration

Penang-(under enactment)-Committee of Wakaf – investment of waqf-As-Sahabah Holding

FTKL- (under enactment)-Development and Investment Committee (of the Jabatan Agama Islam, ie secretariat to the MAIWP) – interalia the development and investment of awqaf assets-Pusat Rawatan Islam Sdn Bhd and Baitulmal Zenith Battery Sdn Bhd

Sarawak - (under enactment)-Baitul mal and Wakaf Board- to administer assets of Baitul mal and manage its collections contributions to the fund

Selangor- (under wakaf enactment)- Wakaf Management Committee – administer and manage all matters relating to waqf in the state of Selangor Bakti Suci Properties Sdn Bhd

Negeri Sembilan-( under enactment)-Committee on Investment-Edi Fajar Development Sdn Bhd

9. Other bodies that assist the SIRCs are the Wakaf Development Corporation (Malaysia) Sdn Bhd, the Research Division of JAKIM and the Department of Wakaf, Zakat and Haji in the PM’s Dept.

10. Some SIRCs have established companies to develop existing awqaf assets in Malaysia.

11. Problems faced by SIRC in developing awqaf assets-

a. Financial constraint due to low income from awqaf assets – inability to incur debt or obtain credit
b. Legal constraints due to the various laws ; also illegal settlement of awqaf properties by squatters; claims by heirs of founder who challenge the waqf
c. Administrative constraints due to lack of manpower and capability in administering the waqf assets and optimizing their economic potential, project management or financial background
d. Non strategic location and small sizes, and scattered
e. Opposition to commercialization projects for waqf property by local community
f. Lack of understanding and exposure by the local community of the waqf as an Islamic developmental institution – and indifference to the idea that the waqf is fard kifayah and should be encouraged.

12. In FTKL-

a. Process for the receiving and transferring of awqaf asset in FT under the MAIWP;- (SEE PG 110) – handled by the Baitul section (GRSU? What is this?)) one of the steps involve a survey of the property by the GRSU officer to investigate the status and availability of the property for constituting a waqf. Once transferred to the MAIWP, the responsibility for development and administration is given to the Development and Investment Section under the Jabatan Agama Islam WP(JAWI) (the secretariat of the MAIWP). But, if awqaf is for mosque or surau, they are handled by the Kariah Unit of the Dakwah section of JAWI, and if it is religious school it will be administered by the Education and Research Section.

b. Motives of founders ranged from spiritual or religious reasons, to more mundane reasons such as not wishing to pay the municipal assessment rates, or the lands are situated in non-strategic locations where no development can be effected.

c. Istibdal – there is a general fatwa by mufti of FTKL regarding the validity of istibdal - each istibdal is to be approved by the mufti on a case by case basis

Super Freakanomics

2010-04-07T05:59:00.000-07:00

by Steven Levitt & Stephen Dubner

1. People respond to Incentives.
2. Declared preferences are how people say they behave. Revealed preferences is how people actually behave.
3.Gary Becker - "the economic approach" - a systematic means of describing how people make decisions and how they change their minds.
4. Natural experiment is a set of conditions (in the natural world) that mimic the experiment you want to conduct (in a lab, eg) but for whatever reason, you cannot.
5. Rational decisions - a typical person makes rational decision in line with his own self-interest.
6.Altruism - what about giving money away?
Experiment: - the game Ultimatum - demonstrates seemingly kind behaviour in Ultimatum are inextricably tied in with potentially selfish motivations. the game Dictator - show that human being seem hardwired for altruism.
7. But, John List's experiments showed that when a person comes into some money honestly and believes another person has done the same, he neither gives away what he earned nor takes away what doesn't belong to her.
8.So how to explain the games that show altruism? Could be because lab experiment results are unbelievable because:
a. selection bias in terms of volunteers;
b.scrutiny - effect on the behaviour of the volunteers;
c. context - ie the incentives/social norms/ framing references/past experiences which results in a productive way to act;
d. forced cooperation.

Note too that US tax codes are the most generous in allowing deductions for contributions.

9. Impure altruism or warm-glow altruism.
10.Externality is what happens when someone takes an action but some one else without agreeing, pays some or all the costs of that action. It is an economic version of taxation without representation.
11. How to address a negative externality?
To make sure the doer faces the full costs of his action ie to "internalize" the externality.
12. Not all externalities are negative.

Social Capitalism in Theory & Practice

2010-04-05T06:22:00.000-07:00

by Robert Corfe
http://yunusphere.net/2008/03/06/social-capitalism-robert-corfe/

"In the first volume of my book, Social Capitalism in Theory & Practice, I’ve

explained how industrialised societies in the developed world are ready for such a transformed view of humanity and such a fresh approach to politics.

37 – In the same volume I’ve also elaborated on the need for such a viewpoint, on the grounds that a fair and egalitarian society can only be achieved through the willing cooperation of all sectors of society.

38 – I’ve also argued strongly that a fair, free, and egalitarian society can never be achieved by Socialism as we’ve known it, for a host of reasons, but primarily because:- 1. The spirit and aims of collectivism contradict the needs of freedom and the individual; 2. The resentment of class consciousness oppresses aspirational values; 3. The bureaucratisation of enterprise destroys the business dynamic, and hence imposes an authoritarian elite for production and distribution; and 4. and most significantly, the idealisation of a proletarian class – however that is defined – has not led to a free and egalitarian society, but on the contrary and everywhere, to a society which is shackled by the restrictions of its limited vision.

39 – Social Capitalism, as described in the second and third volumes of my book, is dependent on the ownership and management of the means of production, distribution, and exchange, not by any abstract collective entity, but by individuals at the grass roots level, and through their influence on the hierarchy of authority.

40 – This is made practicable through changes to company law in conjunction with proven systems of co-determination and employee share-ownership. It leads to what I have described as the Responsible Society."

Labor and social capital: disengaging from social justice?

2010-04-04T03:42:00.000-07:00

by Dr. Lou Wilson and Keri Chiveralls

Idea of social capital started from Marx. "For Marx capital is both the accumulation of wealth and a social relation, which leads to the formation of social classes and social power".

Pierre Bourdieu began to publish on the forms of capital in French language journals in the 1960s and 1970s. His work was not accessible to English language audiences until the publication of Many Forms of Capital in 1985. According to him, capital can present itself in three different forms: cultural capital, social capital and economic capital. Critically, Bourdieu (1985: 241-248) suggests social capital has three elements:
1. The social relationship that enables individuals to gain access to resources possessed by their associates.
2. The amount of those resources. 3. The quality of those resources

Bourdieu’s work was extended by James Coleman (1988), three types of capital are physical, human and social capital. Like Bourdieu, for Coleman, social capital is an endowment of social structure, located in the spaces between and among individuals.

While Coleman (1988) saw social capital in terms of its benefits to individuals or groups, Bourdieu (1985) saw social capital as an explanation of social stratification.

the concept was not popularised until the release of the works of Robert Putnam (et al. 1993, 1995. In this seminal study, Putnam argues that governmental effectiveness in Italy can be tied to levels of social capital in the regions through the rubric of civic engagement. Putnam’s work suggests that in order to attain economic growth, community development initiatives must consider the importance of civic groups that may seem to have little to do with either politics or economics. An important conceptual shift takes place in Putnam’s writings as social capital becomes no longer a property residing in relationships between individuals but the property of groups and even nations.

Latham (Australian labor politician)
In his book with Peter Botsman, The Enabling State: People Before Democracy, Latham (2001) argues that we live in a period of relentless insecurity, which threatens the cohesion of our society. The welfare state is said by Latham to have failed to provide certainty in this time of insecurity. The new insecurity is associated with economic prosperity but some people are being left behind and excluded from the benefits of the new order, which is attributed by Latham to the provision of “passive welfare services” that encourage welfare dependancy. Passive welfare services are programs that provide social security to citizens without requiring mutuality in the form of work for the dole schemes and similar forms of obligation (Latham 2001).
Latham is often accused by his political opponents of simply lifting his ideas from Tony Blair’s New Labour and the Clintonian Democrats. Without wishing to unpack politically motivated accusations of plagiarism against Latham, it is clear that Latham’s ideas on social cohesion and social exclusion are in accord with the so-called “Third way” project of Bill Clinton and Tony Blair.

In broad terms, Latham (1998: 31-36, 126, 165, 223-231) argues that the cost of providing social welfare must be reduced and wage earners made to pay more for their retirement, the education of the children, their health and periods of unemployment because the state can no longer raise taxation from capital as it has in the past. The advent of transnational corporations and the new international mobility of capital means that rather than taxing nationally-based capital, governments are increasingly involved in a bidding war to attract capital investment. Therefore social welfare assistance must be reduced or made to pay for itself.

Conclusion
The concept of social capital is not new, having received theoretical attention from the time of Marx’s conception of the term as a form of social power related to the formation and reproduction of social stratification and from scholars as diverse as Bourdieu, Coleman and Putnam.
Mark Latham clearly prefers Robert Putnam’s normative reconception of social capital as a virtuous, singular entity. Latham believes social capital in this sense is capable of transforming the Australian social protection system to make it more compatible with neo-liberal economic reforms, which Latham also favours. Unlike his predecessors in the Labor Governments of the 1980s and 1990s, Latham does not advocate redistributive social justice policies to alleviate the impact of neo-liberal economic reform on Labor’s core supporters. Latham argues that the redistributive welfare state undermines the “risk positive culture” that so many cultural theorists hold to be the hallmark of “late-modern” society. Instead he favours an expanded “user pays” system of social protection and substituting redistribution with relatively inexpensive social capital nurturing programs which will reduce the tax burden on “risk takers” and build virtuous cycles of trust, reciprocity and prosperity.

Bowling Alone: America's Declining Social Capital

2010-04-04T01:36:00.000-07:00

Robert D. Putnam

"social capital" refers to features of social organization such as networks, norms, and social trust that facilitate coordination and cooperation for mutual benefit.

For a variety of reasons, life is easier in a community blessed with a substantial stock of social capital.

In the past, America has been very famous for civic engagement and an active civil society. This seems to be a prerequisite for democracy.

US has been enriched by this social capital through conventional civic associations. There used to be a lot of social connections and neighbourliness. But this has changed in recent times (1970s to 1990s). This is evidenced in declining voter turn out, church attendance, associations and clubs, union membership, parent teacher associations. Volunteering in mainline civic associations had also fallen from 24% of adults in 1974 to 20% in 1989.

But there has been a countertrend - in large organizations like environmental groups or feminist groups. They have large numbers of members - but mostly tertiary associaitons (ie 3rd level involvement) eg writing out donations. they don't get involved in each other.

a 2nd countertrend is the rise of non profit organizations.
a 3rd countertrend is the rise of small support groups eg Alcoholics Anonymous

The reduction in social capital is due to females going into workforce, mobility of the workforce, changing family units, technological advances changing habits (tv, computer, internet)

A History of Philanthropic Foundations: The Islamic World From the Seventh Century to the Present

2010-02-08T16:56:00.001-08:00

By Murat Cizakca, 2000, Istanbul, Bogacizi University Press

Outlined the economic dimension of the awqaf during the Ottoman empire and the historical evolution of the same. After coming to the conclusion that the awqaf system had been eroded and emasculated by 2 major reforms – 1. State control of the awqaf and 2. Destruction of family waqf.

These 2 major reforms in Ottoman Turkey right through its reinvention as a republic in the 1920s were due to three main reasons . Firstly, misuse of powers of istibdal by trustees, secondly, family awqaf and questions relating to circumvention of Islamic inheritance laws and colonial perception that family awqaf cannot be considered as charitable and finally, non-availability of land held under private ownership of waqf to be taxed by the state.

In respect of other Muslim countries which were colonized by Western nations, the influence on land and administrative laws by the Western powers hastened the emasculation of the waqf and diminished its public role.

Revival and modernization of waqf in Turkey

However, developments in the second half of the 20th century in Turkey had restored the waqf somewhoat. Ironically, this was in part due to Turkey looking at the lessons of the great American foundations and trusts which were at the time actively involved in business simultaneously with the provision of public benefit..

The factors for the revival and modernization of the waqf in Turkey are:-
a. weakening of Kemalist Jacobinism and rise of democracy
b. capitalist accumulation

Both of these led to changes in the law:-
1. Law No 903 of 13th July 1967
a. The will described in the foundation documents is not changeable
b. The civil tribunal is authorized to register the waqf and to give it judicial personality
c. The word “establishment” tesis, used exclusively in the Turkish Civil Code is replaced by the word “vakif”
d. No waqf can be created that opposed the law or national interests, support current politics, a certain rae or community;
e. Vakifs can be tax exempt provided 80% of vakif revenues are to be reserved for public purposes. Tax exemption to be granted only by council of Miinisters
f. Control of vakifs is directly vested with the General Directorate of waqfs
g. Annual profit of a waqf is to be added to the original capital of the waqf stated in the waqf deed and is reported at the beginning of each calendar year to the inspetors
h. A multitude of persons, associations and even the state can create a waqf;
i. A waqf is now allowed to establish a company and allocate the latter’s total profits, or a share thereof, to its own specific purpose (including returning dividends to the waqf)
j. Establishment of a waqf has been simplifie
k. Istibdal has been reintroduced and is applied subject to decision of the court
2. Elimination of ambiguities regarding taxability of companies established by waqfs ie not tax exempt – Minitry of Finance Offiial Gazette dated 28 July 1994
3. Corporation Tax Law No 199 – limited donations to the tax-exempt waqfs by outside companies to 5% of the latters profit. (cf US position which allows max 10% of a corporation’s pre-tax net income, and 50% of individual income.

The result is that:
a. a tax exempt waqf can own a business if they are units internal to the waqf – they are exempt even though they are profitable eg Diyanet Vakfi
b. a waqf that is not tax exempt are considered as businesses
c. companies can establish their own waqf (see Article 137 of Turkish Trade Law eg Vehbi Koc foundation
d. waqf can purchase shares of a company which are not traded on the stock exchange – decision of General Directorate of Wqf on 6th August 1999.

Result:
GDW managed waqf properties inherited from the Ottoman era are 37,917 properties
between republic in 1923 to 1967 – only 73 new waqfs were established.
Between 1967 to 1985 alone, 1877 new waqfs had been formed.

GDW takes 5% of net income of all awqaf as supervision and auditing fees

Turkey also has a “Thirrd Sector Foundation” which is a waqf representing 700 other waqfs

on waqf model

2010-02-07T02:05:00.001-08:00

by Murat Cizakca
2002

How awqaf became undermined – politics, State, colonization and Western influence
• Suggestions: Legal -
• Incorporation, limited liability, mutawalli as mudarib
• Public benefit criterion
• Conditions for recognition
• Capital
• Registration
• Tax treatment
• Business activities
Looking into the current developments in the West and the growth of the non-profit sector

Joint Venture Modes in the Development of Waqf Properties

2010-02-07T02:04:00.001-08:00

by Mohammad Tahir Sabit Mohammad
2007 Universiti Teknologi Malaysia, EPrints

Financing of waqf lands development
• Joint ventures – mudarabah or musharakah mutanaqisah
• Issues of ownership of waqf land post development, as opposed to ownership of building
Legal impediments
• Malaysia – non transferability of waqf lands under the respective State Islamic Administration Enactments
• NLC – Torrens system – buildings on land recognized as part of land
Solutions
• Setting up of a Waqf Holdings Corporation as a body corporate to carry out the transactions
• Licence of land coupled with equity in building

Sustaining the Means of Sustainability: The Need for Accepting Wakaf (Waqf) Assets in Malaysian Property Market

2010-02-07T02:03:00.000-08:00

byMohammad Tahir Sabit Mohammad
2007 University Teknologi Malaysia, EPrints

Present legal framework excludes wakaf lands from the land markets and access to credit market
• Land registration
• Title security
• Trading
• Marketability
• Equal market value
• Collateralization
Solutions for legal framework - a uniform and comprehensive code of wakaf law and amendments to the various state legistations, NLC, Land Acquisition Act-
• Wakaf as a body corporate capable of holding land
• Classification of wakaf land as prime, secondary
• Registration of wakaf lands as wakaf titles
• Transferability of secondary wakaf lands
• Leasing of prime wakaf lands
• Wakaf lands cf leasehold titles – perpetuity?
• Enforcement of long term leases of wakaf lands – wakaf leases
• Suitability for collateralization
• Recognition of these wakaf leases in terms of their value, transferability and collateralization
• Valuation of various types of wakaf lands

Waqf-Based Microfinance: Realizing the Social Role of Islamic Finance

2010-02-07T02:02:00.000-08:00

by Habib Ahmed
2007, Islamic Research and Training Institute. Paper written for the Internations Seminar on Intergrating Awqaf in the Islamic Finacial Sector in Singapore March 6-7, 2007

Waqf based poverty focused microfinance institution
Sustainability and Operational issues of a waqf-based MFI-
• Mitigating Credit Risk
• Resolving Moral Hazard Problem
• Economic viability
• Operational and Risk Management issues
Financing of activities
• From waqf funds (these can be used for qard)
• From deposits (these can be used for qard and loans??)
Asses, Liability and Risk Management issues
• Different reserves – takaful, profit equalization, capital reserves
• Depositors and withdrawal risks
Maaging risks and returns – risk of decay of the endowment must be eliminated – choosing a proportion of low-risk assets in such a way that the returns on theses assets can cover the expected loss from microfinancing activities

Waqf Management in Malaysia

2010-02-07T02:01:00.001-08:00

by Syed Othman al-Habshi
Chapter 6 in The Islamic Voluntary Sector in Southeast Asia, 1991
editor Mohamed Ariff
publisher Institute of Southeast Asian Studies, Singapore

Administration of waqf lands in Malaysia-
• Administrative set up of the relevant dept within each State’s Relgious Council requires drastic review in terms of size structure and personnel
• No complete listing of waqf properties made
Observations
• All Muslim cemeteries considered as waqf lands as then exempt from quit rent
• Mosques, suraus and religious schools usually arise from specific wakaf – under Shafie cannot change the purpose of the lands
• Waqf for specific purposes form the largest proportion of waqf lands, particularly for cemeteries
• Concludes that therefore only 10% is available for income generating purposes
• But not all wakaf land has been traced and transferred to the religious departments. Some still in original trustees hands eg mosque committees
• Many of these rented out long term and below market rental
• Many are under Rent Control
• Most are in towns, a few in the rural areas
• Lands transferred subject to quit rent except for cemeteries or if transferred to the President State Religious Dept thereby making it government property – therefore no incentive to transfer the lands – costs money for the religious dept to upkeep the wakaf lands
Development of wakaf properties
• Not well developed. Mostly just rented out
• Melaka and Penang have made some progress at developing wakaf lands. Also Perak and Terengganu
• Many lands are uneconomical in size and shape and sporadically situated
Generally, shortage in personnel, funds and expertise

Waqf, perpetual charity and poverty alleviation

2010-02-07T02:00:00.000-08:00

by AbulHasan M Sadeq
International Journal of Social Economics 29,1/2 http://www.emeraldinsight.com/0306-8293.htm

2 issues in waqf-
• Creation of endowment
• Administration
A waqf body can raise cash waqf to finance development activities on landed waqf properties such as commercial buildings to generate further income.
This income is used to further the primary purpose of the waqf.
Waqf institution to provide educational, medical facilities and infrastructure
Waqf as poverty alleviation tool

Charities in Islamic Societies

2010-01-22T01:44:00.000-08:00

Amy Singer

Islamic societies – based on 2 assumptions – Quran and hadith provide the common core for reference, which repeatedly praise charity – and that the interpretation of the Quran and hadith are diverse by different muslim societies of different eras.

Zakat and sadaqa not distinguished from each other but certain verses imply two kinds of donation ie obligatory and voluntary giving
Everyone , even those with little worldly possessions, could invoke God’s blessings by voluntary giving eg many common daily actions are considered as sadaqa
Charity generally in the form of individual charitable efforts. But with the development of government agencies and new non-governmental forms of association – a “mixed economy of charity” has emerged.

The Ottoman empire was not a welfare state – rather they were welfare society – the welfare ethos was rooted in society at large and it was the entire society, including the sultan, which participated in providing social services and not the state alone or primarily.
Relying on Halil Inalcik (An Economic and Social History of the Ottoman Empire) – unlike the modern welfare states which give development aid ie developing people’s ability to sustain themselves, the Ottoman Empire provided relief services. Provision of social services was largely through waqf endowed with individual wealth obtained primarily through war booty, military salaries and agrarian tax revenues. They were not regular expenditure from the state coffers before the second half of the 19th century.

Charity supported not only the poor but other including scholars, students, mosque employees, travelers and sufis.

The poor
• P 159 – 2 main factors by which someone is judged to be poor - the existence of need (haja) and the absence of surplus (fadl)
• But there are ambivalent or even negative attitudes to begging in the Quran or hadith (p 168) – although it notes begging as a response to need and includes beggars as a category worth of charity (v 2:177) but it praises the poor that do not beg importunately (v 2: 273)
In the late 19th century shifting definitions of need and entitlement came about - questions of the deserving and the undeserving poor. Also, status of religious scholars and sufies became less important.
Police tool increasingly aggressive role toward vagrants - defined as people without work, and were seen as undesirable and unsightly, and even criminal. Vagrancy laws came about- by 1890, Ottoman law regarded those with no specific residence or job as "vagrants" while the 1909 "law on Vagrants and Suspected Persons" criminalized vagrancy

Waqfs (pg 91)
• Began to appear in greater numbers from roughly 9th century
• Roots in Roman, Byzantine and Sassanian laws and practices, but developed within the context of Muslim legal and cultural demands together with political, social and economic realities.
• Endowments are the most public form of charity in Islamic societies
• Colonial rulers scrutinized waqfs because it seemed to interfere with modern private property regimes and the reform of landholding for purposes of agricultural modernization and development
• Eg of waqf – public kitchen of Hurrem Sultan in Jerusalem (1552) – to feed 400 “the poor and pious, the weak and needy” – the kitchen relied on the revenues from more than 20 villages in the surrounding countryside as well as income from a double hammam
• Other types of waqf – Muhammad Bey Abu al-Dhahab (1772-75) gov of Ottoman Egypt – waqf of mosque, college, fountain and zawiya in Cairo with properties to support the waqf
• Wide range of people made waqr
• Cash waqfs relied on yields generated from investments
• Motives that can be deduced – urban and rural development, imperial legitimation, desire for personal prominence, avoiding restrictions on the division of inheritance, protection of wealth from imperial confiscation, promotion of community or sectarian interests, preservation of social hierarchies and cultural norms (p 104)
• They were also important agent of settlement in newly conquered regions eg in Cairo, endowments of large mosques in Damascus by Selim I and Suleyman I
• P 109 – “Like many philanthropic endeavors, the founding of waqfs was a means to preserve social hierarchies and cultural norms. For the most part, endowments funded activities that reinforced the dominant values of a society: the place of religion and ritual; the accepted curriculum of study and the goal of education; the physical shape of cities; the conventional practice of medicine; the preservation of family wealth; and the status of the poor as poor and dependent. Much of the poor relief distributed through waqfs was aimed at supplying subsistence or relief rather than what is today called development aid. Much good work was accomplished, but it did not have radical aims such as the redistribution of wealth, the promotion of general literacy, or the eradication of need.”

Waqf reforms
•By 19th century, many reforms to the waqf were placed in the Ottoman empire as well as well as other colonized Muslim areas.
• By this time, large amounts of property all over the Muslim world belonged to waqfs. Eg 75% of arable lands in area of today’s Turkey, 1/5th of Egypt, 1/7th of Irran, ½ of Algeria, 1/3rd of Tunisia and 1/3rd of Greece. Amount of urban property in waqf was considerable. There were 20000 waqfs in Ottoman empire, and had a total annual income of equal ot 1/3rd of annual govt revenues (p 186) –
o All of this excapted taztion entirely
o Perception was that waqfs were detrimental to fiscal capacity of the government esp to fund military and bureaucratic reforms
o In colonized areas, they were seen as stumbling block to agricultural modernization because they hindered land transactions and devleopemnt and prevented access to capital thru sale and mortgage
• Legitimacy of family waqfs as beneficient endeavours bcos they supported public purposes only after the disappearance of original line of family beneficiearies]
• In the Ottoman empire, waqf management was decentralized. Even imperial waqfs had a local manager that reported to the chief black eunuch of the Topkapi palace (darusseadet agast). Total revenues not available to government.
• the waqf management could not be easily challenged. Some of th surplus revenues were abused by the imperial waqf managers who kept them for personal use instead of to maintain or improve the institutions they managed.

So began the reforms to waqf in Turkey.
• Establishement of ministry of Imperial Waqfs (Evkaf-I umayun Nesareti) by Sultan Abdulhamid I (1774 – 89) – at first just to oversee the sultan’s own endowments and to check on the control of the chief black eunuch.
• The destruction of the Janissary corp and the consolidation of all janissary waqf holdings under the ministry (1826), which also extended the minsistry’s power to all aqaf under the control of the chief eunuch, the grand viszier, the shaykh al Islam and the Istanbul qadis, and later (in 1838) the incoporation of the Haramyan waqf administration into the ministry
• Tanzimat reform era (1839 – 1876) that strengthened the sultan’s power and dispersed authority was recentralized to Istanbul and the sultan himself – note the Land Code of 1858 and later the Mejelle 1879

With the reforms, all waqf revenues were forwarded to the ministry, which will then reallocate an annual sum to each waqf as the budget for its expense. Individual waqf managers in the provinces were relieved of their financial authority , which undermined their administrative power. This also diminished the awqaf’s ability to fulfil their original purposes.

• The ministry of Waqfs in Turkey was replace by a General Directorate of Waqf s in 1924. All waqfs in the administration of an official authority at the time of founding of the Republic was nationalized.
• 1954, the Turkish Vakiflar Bankasi was established using the capital from the nationalized waqfs
• 1967 – new waqf law drawing on American foundation law as well as on traditions of Muslim law – provided an impetus for a renewed interest in establishing foundations.

The End of Poverty How we can make it happen in our Lifetime

2009-12-10T20:46:00.000-08:00

Penguin Books Ltd
Jeffrey Sachs

On Economic Growth of countries
In the past 200 years, he notes that the key to growth was consistency. The fact that US maintained an income growth of 1.7% pa consistently.

Why there are different rates of growth in different regions?
He disputes the zero-sum view that the rich countries became that way by transfer of income form the poor countries through force or otherwise, because of the evidence of a overall growth in the world income, at a different rate in different regions.

His program for migrating an unstabilised economy to a market economy – 5 pillars:-
1. Stabilization – ending high inflation and establishing a stable convertible currency (even thru the setting up of a world supported fund to back the currency)
2. Liberalization – allowing markets to function by legalizing private economic activity, ending price controls and establishing where necessary commercial law
3. Privatization - identifying private owners for assets currently held by states – can be done entire enterprises or piecemeal.
4. Social safety net – pensions, health care and or benefits for the elderly, poor to help cushion the transition
5. Institutional harmonization – gradual adoption of economic laws, procedures and institutions of western Europe?

But most importantly, must establish a broad-based goal or purpose or guiding principle for the economic transformation. Eg for Bolivia it was establishing democracy, ending hyperinflation and reinvention of the country. For Poland, it was a return to Europe.

Each country will be different – he calls it clinical economics – differential diagnosis.

He says that for a country that needs help –
Poor countries need a leg up because they don’t have enough even for subsistence, what more growth and investment and the only way to provide this is by official development assistance by donors. The idea is to increase the income per capita for the country (as opposed to increasing GDP)
• Public sector should concentrate on 5 kinds of investments-
o Human capital
o Infrastructure
o Natural capital
o Public institutions
o Parts of knowledge capital involving r&d for health , energy, climate
• Private sector (funded by private savings ), would be responsible for investments in-
o Businesses (agriculture, industry or services
o Knowledge capital
o As well as for household contributions to health, education and nutrition

5 reasons why he says government should finance the public sector investments –
1. Many infrastructure characterized by increasing returns to scale. If done privately, it can only be afforded by monopolies which would overcharge, and then result in too little utilization by public
2. Nonrival goods – goods when used by 1 person is not diminished by others eg scientific discovery of DNA
3. They exhibit strong spillovers or externalities to their effects. Ie I want you to be healthy so you don’t transmit disease to me.
4. As a matter of right and justice, everybody should have an adequate level of access to key goods and services eg health care, education , safe drinking water
5. To help poorest of the poor to get them started in productive activities

He talks abut the poverty reduction strategies of poor countries, and compare them to the Millenium Development Goals. He says, the problem is that there are missing practical lingkages between the PRS and the MDG – usually, underfunded too.

He says that a true MDG-based poverty reduction strategy should have 5 parts-
• Differential diagnosis
• Investment plan – shows the size, timing and costs of required investments
• Financial plan – how to fund it , and calculate funding gap that need donors
• Donor plan – get a multilayer donor commitment to fill the MDG gap
• Public management plan – outlines the mechanism and governance and public administration needed to implement the expanded public investment strategy

He says that cash transfers alone are not an attractive way to deliver ODA, because they only tend to fill the consumption gap. To end poverty trap he says the ODA must be used for investments in infrastructure and human capital and thereby empowering the poor to be more productive on their own account, and putting the poor countries on the path to self sustaining growth.
(he made a reference to Hernando de Soto’s book The Mystery of Capital, which analysed a single factor – ie the lack of property rights ie titles and deeds – for the poor’s single handed failure in development) Sachs says, there are more than just 1 factor.”

At pg 327-
“Despite the fact that much of the free-market economic theory has championed this vision, economists from Adam Smith onward have recognized that competition and struggle are but one side of economic life, and that trust, cooperation, and collective action in the provision of public goods are the obverse side. Just as the communist attempt to banish competition from the economic via state ownership failed miserably, so too would an attempt to manage a modern economy on the basis of market forces alone. All successful economies are mixed economies, relying on both the public sector and the private sector for economic development.”

“The linkage to democracy has a strong economic dimension, however, because research has shown repeatedly that the probability of a country’s being democratic rises significantly with its per capital income level.” (p 333)

Developing the Theoretical Foundations of Economics in Islam

2009-11-19T05:02:00.001-08:00

Abbas Mirakhor

From New Issues in Islamic Economics & Finance

• 2 approaches to the systematic development of Islamic economic theory
o to start with Western approach to consumer theory and the theory of the firm and then proceed with the analysis by imposing a series of Islamic constraints on the solution
o to ignore Western assumptions regarding consumer and firm behaviour and assume behaviour that would be compatible with Islamic doctrines, not accepting man as he is but as he should be
• efforts to formulate a coherent foundation for Islamic economics have been disputed by 2 grps of thinkers:
o the group that expresses dissatisfaction with the pace and direction of progress made thus far in Islamic economics and disagrees with the concept, methodology and objective of the discipline
o the group that expresses a strident New Weberian critique of islam, in general, and Islamic economis, in particular, and views Islamic institutions and thought as contrary to the growth and development of Muslim societies (he refers to Kuran a lot)
• a problem is for all Muslim economists to reach a consensus-
o with respect to vocabulary
• so far the only 2 fundamental propositions agreed on are
• interest is riba
• risk-sharing and profit-sharing is the Islamic alternative
• also agreement on 2 fundamental issues
• “Justice and Equity” as the focus of the prophetic message
• the Quran, hadith and fiqh as the sources of Islamic law
o with respect to naming the emerging discipline
o with how to define it
• “means-end” characterization satisfactory?
• The unacceptability of the notion of “scarcity” in the Quran
o New institutional economics
• To do more research on Islamic economic institutions and their operation at present in Muslim societies.
• To create an incentive structure for the establishment of new institutions compatble with Islamic objectives
• He suggests that along with an Islamic economic vocabulary, 2 other sources are useful in order to develop a common language-
o History of thought-
• That its ok to borrow the results of investigation from others, That ideas developed belong to all humanity
• “…,moral philosophy gave birth to political economy, out of which grew the present discipline of economics. And moral philosophy from the Middle Ages to the time of Adam Smith was influence by the scholarship of Muslims. While the historians of economic thought generally ignore Muslim contributions, they emplhasize the Aristotelian thought fo the Middle Ages. However, the latter arrived in Europe already influenced by Muslim intermediation and was as Aristotelian as present day neoclassical economics is classical.” (p 224)
• on Hicks model of mercantile behaviour (1986) , Adam Smith and Theory of Moral Sentiment
o Economic hermeneutics – which as used by Abbas Mirakhor does not mean tafseer but rather the process of extracting economic meaning from the first order of interpretation done by fuqaha (see Ali Khan and Chapra in The Future of Economics)
o Relating Hermeneutics to the Islamic Economic History – see Hasanuz Zaman in The economic Funcitons of the Early Islamic State (International Islamic Publishers, Karachi 1981)

Strengthening the Islamic Financial System: Lessons from the Crisis

2009-11-10T04:30:00.000-08:00

Public Lecture
Dr Abbas Mirakhor
29 September 2009
Securities Commission Malaysia

1997 Asian crisis gave rise to policy recommendations by IMF which included-
• avoid debt dependence
• rely mostly on equity investments
• if must have debt, shld not be more than 25% GDP
• countries’ obligations should not be geared to short term
• must have enough strength in economy
• shld ensure sovereign bonds include certain clauses to ensure risks are shared equally between creditors and debtors
• transparent balance sheet, marked to market financing, not heavily leverage
• domestic institution must be regulated
• shld establish orderly bankruptcy procedures and restructuring mechanism for workouts
• periodic audits of the soundness and stability of the economy, “financial sector assessment report”

Majority of IMF members accepted this, but major economies incl the US did not implement them eg they refused to have financial sector assessment

The recent subprime crisis occurred and 2 possible explanations:-
Conventional and non conventional

Conventional explanation-
1. policy failure
a. to undertake strengthening regulations, lax monetary policies and fiscal policies
b. refusal to deal with asset and actual incentives of policy makers towards highly risky and complex instruments.
c. These are premised on the interllectural idea o the policy maker which drives his policies.
i. In Greenspan’s idea, he believes in “perfect markets”. If this is true, the risks in the economy will be distributed efficiently. 2 issues affect any economy- (a) what is the total aggregate risk in the economy (b) how do you distribute this risk among the participants of the economy. If you believe in perfect markets, you will want as many instruments to spread the risks efficiently;
ii. The idea that the value of the firm relates to its marginal profitability. So it does not matter how it is financed, ie whether debt or equity. MM model. If you believe in this idea, instruments can be derived based on payoff which is interest rate;
iii. EMH- were the prices of the security includes all the information that a decision maker requires. So if the price increases, it means demand increases and later with over demand supply increases which leads to prices falling again. Thus, Asset Bubbles will never occur
d. The conclusion is that Greenspan will never interfere in policy and regulate markets as you don’t believe that either monetary policy or regulatory measure will affect asset bubbles.
e. But in Dec 2008 Greenspan concluded that he was following a flawed model.
2. regulatory failure – hands off policy, segmentation of economy
3. governance failure – internal and external idea that profit seeking did not create a systemic risk – too complex, too big instruments and institutions resulted
4. globalization failure- increase the vulnerability of the world system, becos there was no institution to overlook the global system. An excess in sovereign funds of some countires , invested in the debt instruments of the US – treasury bills – created a huge inflow into the US – no regulation – debt imbalance

Non conventional explanation

• crisis cannot be avoided in a financial capitalist society where it is based on interest and debt contracts
• 2 components to this-
o capitalism is vulnerable and fragile due to the Fractional Reserve banking system (refe Morris Alais or Holbern) – the fragility sets in because once the banks can create credit, they can also create “shadow banking” ie leverages without taking deposits
o this is the money multiplier of the conventional banks and the leverage of the shadow banks. The fragility is due to the ease in contraction and expansion
• so the “Chicago Plan” during the Depression years came about, but was not adopted as the banking lobby was so strong – the suggestion of that school being that the banking system that operates on 100% reserve
• also mismatching – banks borrow short and lend long. If this does not occur, there won’t be ny need for banking deposit insurance. James Token proposed this system which would anchor the market economy
• Keynes says that capitalism and market economies are inherently fragile because the system interferes with surplus / shortfall of supply of funds. Even in a market economy, there can be no perfect balance, cos savers and investors have different motivations. So consumption in 1 period cannot validated investment in a previous period. So you also cannot guarantee full employment situation.There is also rentier class (interest rate system). If you don’t have this class, saving will find its way into a project and the payoff will be the profit. With interest, it creates a wedge in the economy that make the system fragile. So he says get rid of interest and the rentier class.
• Minsky, a student of Keynes – repeated Keynes ideas and he says financing must be done based on equity financing – “Financial Stability Hypothesis” – during prosperity, firms see investment opportunities, use equity to finance it with little debt. When prosperity picks up momentum, the businessman decides that he want to take advantage by undertaking debt in order to grow. Then begins interest payments, asset bubbles leading to financial distress – “rolling bubbles”
• Soros – “super bubble” which takes magnitude fromt eh bursting of smaller bubbles within it.
• So there must be equity financing and risk sharing to stabilize an economy

What are the lessons for Islamic Finance?

Since they exist side by side with conventional system

-how do you cushion the system from price shocks, so that they can adjust very rapidly in such events
-islamic mathematical models of finance before this assumed that they were bank based, but this cannot be relied on to create stability
also regulatory frameworks is important. The major lesson from the crisis is reulation. We are not assured, because there is no quality control. So a stong enough regulation must be in place acceptable in all jurisdiction and an authority with enough mandate to implement. Otherwise the system can be destroyed. – reputationa damage of sukuk failures

with 100% reserve system, there is no money created. Only the State will create money.

A Short Outline of the Foundations of Islamic Economics

2009-11-10T03:46:00.000-08:00

Usama Uthman
2nd Harvard University Forum on Islamic Finance 1998

He defines Islamic economic system as one that constitutes 3 aspects:-
moral values
economic policy
economic theory

The Challenge of Poverty and the Poverty of Islamic Economics

2009-11-10T03:41:00.000-08:00

by Mohammad Omar Farooq
SSRN eLibrary 2008

Islamic economics is suffering from "poverty of substance" . As a discipline it is just a "context of post colonial Islamic resurgence." He finds that Islamic economics is focussed on the alleviation of poverty (why? because poverty leads to kufr) rather than achieving affluence. He calls this "economics of poverty".

This is achieved through a "caring society" and via a reliance on the zakat mechanism to alleviate poverty. He cites the situation of roaming zakat payers that cannot find any zakat beneficiaries during the rule of Hadrat Umar and Umar Ibn Abdul Aziz (2nd khalifa). However he questions the extent of effectiveness of zakat, and speculates that the affluence of the times came from redistribution of wealth obtained through conquests and not thru zakat.

Farooq observes that "Islamic economics" is torn between those that want to "Islamize" the current body of conventional economic thought and those that reject conventional economics outright. But neither focuses on poverty. Even Choudhury (of hte Tawhidi economics) does not tackle poverty head-on. Farooq opines that poverty is not caused by shortage, but by failure in distribution/ redistribution.

Islamic Economics and Finance - a Fiasco

2009-11-10T02:48:00.000-08:00

by Masudul Alam Choudhury
Middle East Business and Economic Review Vol 20 Issue 1 page 38

Islamic economics as based on a Tawhidi epistemology. Takes it on a completely different paradigm, based on Principle of Pervasive Complementaries. Based on this principle, assumption of scarcity cannot exist in Islamic resource allocation plan as resources flow occurs over three time dimensions, as oppose to linear. Therefore, there would be no such thing as production possibility curve, opportunity cost, marginal substitution, competition.

A THEORY OF SOCIAL INTERACTIONS

2009-11-09T00:23:00.000-08:00

NBER WORKING PAPER SERIES

Gary S. Becker*
Working Paper No. 42
CENTER FOR ECONOMIC ANALYSIS OF HUMAN BEHAVIOR AND SOCIAL INSTITUTIONS
National Bureau of Economic Research. Inc.
261 Madison Avenue, New York, N.Y. 10016
June1974

Therefore, charity is a form of self—insurance that is a substitute
for market insurance and government transfers. Presumably, the rapid
growth of these latter during the last 100 years discouraged the growth of
charity.

CIVIL SOCIETY, SOCIAL ENTREPRENEURSHIP, AND ECONOMIC CALCULATION: TOWARD A POLITICAL ECONOMY OF THE PHILANTHROPIC ENTERPRISE

2009-11-09T00:22:00.002-08:00

Peter J. Boettke and Anne Rathbone∗
The Philanthropic Enterprise Working Paper 8
2002

State and Civil Society

But, the view that conceives of civil society as the foundation for the effective operation of the state is flawed on several grounds in our opinion. We do not deny that a vibrant democratic society is grounded in a healthy civil society and institutions of self-governance. This is so mainly because it limits government from expanding its scope of activities. Such a limiting constraint on the scope of government is necessary to ensure that government is restricted to those because of the important distinction between finance through voluntary means and finance through the coercive means of taxation.

State- activities it can do well and avoids those tasks, which in fact it lacks the knowledge and incentives to accomplish effectively. The attempt to conceptualize the market as contrasted with civil society also commits two errors of commission and one error of omission. First, it underestimates the coercive nature of state action. The state, as Max Weber emphasized, is a geographic monopoly on coercion. The state is a powerful instrument through which some parties can gain by exploiting others. Second, it underestimates the role of civil society as an opposition force of self-governance against the coercive power of the state. It was this aspect of 19th century America that so captured the imagination of Alex de Tocqueville. Tocqueville saw America=s propensity for selfgovernance as opposed to reliance on the formal structures of state action as a defining characterization of that society. Self-governance was seen as alternative to the state, not as a prerequisite for a working state sector. Third, the contemporary juxtaposition omits a discussion of the importance of the self-enforcing norms and bonds of trust, which are evident in everyday economic life. Formal contracts and various less formal alternative institutional facilitators of voluntary cooperation are at work in the day-to-day operation of a market society. Benson (1990) suggests that in the United States, seventy five percent of commercial disputes are settled privately through arbitration and mediation. Rubin (1997) points out that in developed economies businesses have learned methods of doing substantial amounts of business without relying on contracts and the threat of legal enforcement makes private arrangements easier.

Civil Society – Market and non Market

In short, market activity is embedded within a larger context of rule-governed behavior. We suggest instead of the distinction that sees the profit motive as contrasted with civil society, that the more appropriate contrast would be the traditional state versus civil society dichotomy, where civil society is divided into non-market and market activity.

Market

In short, what spurs entrepreneurship is the lure of profit, and what disciplines entrepreneurs is the penalty of loss. The property rights structure provides the incentives and establishes the issue of the residual claimant, and the price system provides economic actors with the information to act on the bases of those incentives to utilize resources effectively.

State

But can we say anything in alternative contexts? First, lets consider the state sector and in particular because it is considered responsive let us consider the effectiveness of democracy in assuring that agents act in the interest of the principals. In this example the agents are elected officials, and the principals are the voting public. Is the vote mechanism as effective in disciplining the behavior of the agents in relation to the demands of the principals, as what we argued was the case in the market setting?

The voting mechanism is governed by the logic of concentrated benefits and dispersed costs. The interaction in democratic politics is one characterized by rationally ignorant voters, specially interested votes, and vote seeking politicians. The bias of this interaction is for the politician to concentrate benefits on the well-organized and well-informed special interest voters and to disperse the costs on the unorganized and ill-informed mass of voters.

Non profits

Does the non-profit sector avoid the pitfalls of the state sector? The non-market component of civil society certainly avoids the pitfall of coercion, but it does not have recourse to the institutions of property, prices and profit and loss to the same extent as the market component does. Instead, the non-market sector relies on face-to-face interaction and the disciplinary devices most appropriate for that sort of interaction, namely reputation.

Social Entrepreneurship

Our concern goes to the disciplining of the conjectures of social entrepreneurs. How does the social entrepreneur know if they are doing the right thing in their choice of project A, or project B? How does he calculate the use of scare time and financial resources? We contend that he can do this only by limiting those initiatives to those, which can be directly monitored and disciplined on the basis of face-to-face mechanisms of self-governance. The social entrepreneur does not have recourse the anonymous mechanisms of self-governance that exist in a market economy.

The problem faced by these entrepreneurs was twofold. The social entrepreneurs have to acquire capital from private organizations and must convince the donors that the money is necessary and will be directed to the goal of putting the neediest students through college. What makes this problem especially difficult is that United Student Aids Fund, Inc. was attempting to privately provide a service that the government was already in the business of providing. This makes the problem of convincing private donors to donate money all the more difficult. Thus the notion of reputational collateral is the method by which the social entrepreneur must attain capital. The social entrepreneur must convince the private donors that the government provided service has failed to meet the needs of low-income students to attain loans and additionally that the money donated to the United Student Aid Fund, Inc.would better enable the needy students to attain student loans and that the students would complete their education. Yet, the nature of any nonprofit is that it operates under the structure of a bureaucracy and as such is subject to “soft budget constraints” (Kornai, 1980). The private donors must be convinced that their money is necessary even though the government already provides such a service but also must be convinced that the money will not be misused in the traditional bureaucratic fashion but that it is making society better off or is reaching the neediest students in a manner that was previously
lacking.

The second problem is giving the money to the students who not only need the money the most but that desire the assistance thus the social entrepreneur must engage in not only establishing his own reputational collateral in an effort to acquire capital from private donors but must identify and acquire reputational collateral from the students who are receiving the assistance. This all occurs in the philanthropic arena under which there is no price mechanism because the market has been unable to facilitate exchange in the face of government provision of such services and thus assessing willingness to pay through the price mechanism is not possible. Market prices convey information among buyers and sellers. Without the price mechanism there are proxies for the exchange of information and the determination of willingness to pay. It then becomes the task of United Student Aids Fund, Inc. to assess which students want to go to college and which among them are most likely to finish. This is the only way to ensure future private donations. The government program need not prove the value added in the final product

The Kalamazoo Promise: A study of philanthropy’s increasing role in the American economy and education

2009-11-09T00:22:00.000-08:00

Shelley Strickland
WORKING PAPER FOR ASHE 2008 CONFERENCE

Philanthropy is an indirect catalyst for economic development,particularly to improve the greater Kalamazoo community.

Use the logic model developed by public affairs and philanthropy scholar Peter Frumpkin (2006). He contends that while external factors and broader economic and political forces are also considerations, three primary interrelated elements factor into the logic model (see Figure 1).
First, the theory of leverage considers the tactics a donor might employ. These tactics take two forms. One is the type of grant-making technique (project grants, short-term, grants, matching grants, loans, large grants to a few select recipients, issuing requests for proposals, high-engagement levels, funding overseas, joint ventures, and capacity-building grants). The second tactic is the programmatic technique (funding in communities, not program areas; new initiatives and pilot programs; support for nonprofit collaboration, not isolated work; private funding for public programs; funding of commercial ventures within nonprofits; funding for organizations created by grantmakers; and funding for independent evaluations). The combination of tactics informs the theory of leverage, which determines the philanthropic inputs.

The theory of change can be considered the core of the logic model. Frumkin contends that five possible change theories exist in philanthropy. Donors attempt to train individuals for leadership in a field, build stronger organization, create new networks, influence political channels, and generate new ideas and programs “with the goal of shaping the underlying paradigm and conversation.” The theory of change affects the activity, outputs and outcomes of a gift. Scholarly and media attention on the Promise has primarily focused on these elements.

Finally, the theory of scale determines the broad public impact. This can be measured in terms of financial strength, program expansion, comprehensiveness, multisite replication and the acceptance of a new doctrine within a field.

Current scholars, then, are not discounting pioneering concepts; they instead claim that economic concepts on philanthropy are incomplete, inconclusive or incorrectly prioritized.

Rather than either a public goods explanation of philanthropy or a focus on private consumption, Duncan (2004) advances a third model: “impact philanthropy.” He claims this model will predict philanthropic behavior because it captures the ways philanthropy interrelates with other aspects of giving, such as the relationship of a charitable organization to its donors or fundraising activities. His model accounts for negative gift externalities in ways previous research does not. For example, an “impact philanthropist” who seeks pleasure from seeing the measurable result his or her own personal giving alone makes on a charitable organization could actually have that charitable fulfillment decreased by others’ gifts. Duncan’s previously noted concept of “impact
philanthropy,” a new alternative to economic theories, helps account for explanations of why donors such as those to the Promise did not provide operating support. An impact philanthropist, as opposed to a public goods or private consumption philanthropist, perceives a greater impact by targeting a specific part of the production process that can be measured (Duncan, 2004).

Tax deductions do not fully explain motivations for the ultra rich. “The mega giver takes every advantage of the tax laws. But tax savings isn’t the primary force behind giving. And for many, tax isn’t a factor at all” (Panas, 2005, p. 162). With an estimated $250 million endowment established (Lydersen, 2006) for the Promise in particular, the donors were not likely motivated by taxation implications.

The remarkable resources of such donors, exemplifying the concentration of wealth in a select few, present the opportunity to alter our society and our marketplace, especially as they bring creative approaches to philanthropy

RELIGION, CULTURE, AND ECONOMIC PERFORMANCE

2009-11-09T00:21:00.003-08:00

Marcus Noland
Institute for International Economics

“Whatever the sins of Western imperialists, Islam was developing more slowly than the
West during a period of Islamic conquest and geographical expansion into Europe. “

3 possible reasons offered-

Intellectual roots – “closing of the doors of ijtihad” (just follow , no need to inquire attitude) prevented a critiques of current practices “a la Protestant Christianity”

Sociological roots – earlier – warrior tribe with plunder method for amassing wealth, later coalescing into socially dominant town tribes with slave owning economic structure – with sedentary bureaucratic – does not lead to “development through intensive means”

Institutionally – eg inheritance laws with concentration on redistribution prevented long term corporate institutions that can amass wealth

However, the writer found that there is no evidence that Islam inhibits economic growth.

Economics of Philanthropy

2009-11-09T00:21:00.001-08:00

Entry in the Encyclopeadia of the Social and Behavioral Sciences
2001 Elsevier Science Ltd
ISBN 0080430767

Individuals are sensitive to the tax deductions allowed by the US tax system. Tax deductions increase the giving by private sector. There is crowding out effect of government grants on private charitable giving.

Review on the book "Economic Concepts of Ibn Taimiyah" by Abdul Azim Islahi

2009-10-25T15:43:00.000-07:00

Mohammed Hamid Abdallah in Journal of King Abdual Aziz University

The author brought in historical background and also made comparison to earlier thinking on economic matters from the Greeks,etc

Main ideas of Ibn Taimiyyah-

Market Mechanism-
"Just price" - price of an equivalent good taking into account the subjective value to buyer and the seller

"market mechanism" - determined by supply and demand

"Price regulation" - policy of price control by government - just and unjust price regulation.
just - done at times of emergency such as famine or war and also at times of market imperfections
unjust - creation of a price thru manipulative means to increase or decrease supply or demand

Property Rights - all property belongs to Allah but all (individual, society or govt) can claim property rights and shld use it on behalf of Allah. Ibn Taimiyah not in favour of poverty as it would lead to a distraction from religious duties.

Money and Interest - money should not be traded as a commodity

State- its role in economic life, al hisbah, etc

Public Finance - from zakah, ghainimah, fai, kharaj and gizyah. there should also be financial obligations on the individual other than zakah

Taxation - shld not be heavy expecially if spent on luxuries by rulers rather than as benefit for the poor.

Economic Thoughts of Redistribution of Income and Wealth: A Comparative Analysis

2009-10-21T05:17:00.000-07:00

By Azizi Che Seman and Nor Aini Ali

Comparison between conventional and Islamic views on redistribution of wealth.

Distribution

Conventional – there are 2 types of people who have a right to acquire wealth and property and to dispose
• Those with primary rights – ie those that participate in the process of production (ie those that have any of the 2 factors of production – labour, land, entrepreneurship or capital)
• Those with secondary rights –

Islam – enjoins upon those in the primary group to share with the secondary group

Redistribution

Redistribution of wealth is important when the market system is imperfect.

Conventional:-

Arguments against redistribution
1. labour and capital are paid in accordance with the value they produce. Land and capital owners receive profit or interest because the land or capital they own is productive
2. freedom of contract
3. taxation and transfer programs interfere with the basic incentives

Arguments for redistribution
1. utlilitarian justice – ie a dollar in the hands of a rich man is worth less to him than a dollar in the hands of a poor man
2. or if someone has more than another, a utility gain will result from transferring income from those with more to those with less – utility function
3. simple fellow feeling
4. social contract theory – Rawlsian justice – inequality would only be tolerated in a society as long as some of the benefits went to those at the bottom
5. Marx – he places all value on labour and none on capital, so that profits are an expropriation by the capitalist of the fruits of labour’s effort
6. Income distribution as a “public goods”

Islamic

1. Redistribution is aimed to maintain justice and equity in society
2. Ibn Taymiyyah – eradication of poverty is an obligation of the state
• It is duty of state to help people better themselves financially
• Redistribution of income is duty of the state
• There are other obligations on Muslims apart from zakah = on the basis of need of the society
• Do this by right taxation, in addition to zakah
• Waqf for the use of the rich is considered invalid because wealth should not circulate among the rich only
3. “Ibn Hazm (994-1064) who says that it is the duty of the rich of every country to support the poor, and that the ruler has a right to force them to do so, if zakah and other public revenue is not sufficient.”
• Basic standard of living is food, shelter, clothes and water
• State must provide for the basics
• But the function of eradicating property is not just left to the state but also to the rich
• Taxes can be imposed if zakah is not sufficient

Philanthropy and Social Justice in Islam: Principles, Prospects and Practices

2009-10-11T02:19:00.001-07:00

Samiul Hasan
University of Technology Sydney

This book analyses concepts pertaining to social (distributive) justice in Islam
Resource mobilisation options
Practices and issues in different Muslim polities
Giving in terms of cash and volunteering time

Islam emphasises philosophy not rituals
But charity straddles both worship and practice

Chapter 2 – he studies different Muslim nations
Table (pg 37) on Muslim nations and the State of the Nation
He finds that “around 50% of World Muslims live in countries with a British colonial past” subject to common law
A lot of inequality between the countries, and within them of socio economic background-
Measured by 2 yardticks of development (used by international bodies such as UNDP-
• Infant mortality rate
• Level of adult literacy
(see table pg 41)

Many Muslim nations only in existence for the past 50 years. His findings (see table pg 44)
• Generally, there is a direct correlation between low income inequality and human development potential (ie low infant mortality rate and level of adult literacy) although this is not applicable to all the countries
• 11 of them are OPEC members . Of these where the countries are dependent on petroleum export earnings for the largest percentage of the GDP All except for Indonesia (soon to be non OPEC), have monarchy or civil/military authoritarian system of govt. This applies to non-OPEC member petroleum exporting countries such as Egypt, Oman, Sudan and Syria. There is a direct relationship between a petroleum based economy and the citizen’s ability to control the policy regime
• Disparities in economic status are lower where philanthropic activities are high.

Chapter 3 – he studies the concept of social justice in Islam

Social justice – 3 types within the philosophy of Islam-
• Relational – ummah (brotherhood), asabiyah (social solidarity), kindness, non judment, do good deeds, respectful
• Retributive – qisas, hadd, repentance and mercy, adherence to the law
• Distributive – lawful activites such as trade, compassion to others, use of property in lawful, correct , responsible manner, trustee of all property belonging to God, non hoarding, charity, takaful (here he cites Kamali: Freedom, Equality and Justice in Islam 1999)

All within framework of fairness and equity

He says that Islam does not provide the principles, but the guidelines.

Chapter 5 – studies Property: accumulation and distribution

Eg by trade
Other economic activity

Chapter 6 – Philanthropy in Islam : basic principles and doctrine

Cites Gladstone 1979 (?) (not in the biblio) “the feeling which mkes men who are materially comfortable, mentally uncomfortable so long as their neighbours are materially uncomfortable”

Cites Payton (Robert L Payton 1988: Philanthropy: voluntary Action for the Public Good (NY: American Council on Education : Macmillan) – 3 facts to philanthropy –
• Voluntary giving
• Voluntary service
• Voluntary organization

He takes these 3 dimensions and studies the different aspects of philanthropy in Islam.

Charity vs Philanthropy – although he seems to suggest a difference, but he does not show any difference, although he says “ “In that sense we can truly say that philanthropy is more an Islamic concept than charity.” ???

Fundamental principles of philanthropy

1. seeking God’s pleasure
2. self purification
3. self contentment
4. timeliness
5. charity to begin at home
6. high standard of intentions and quality of charity
7. moderation
8. proactive in philanthropy
9. purposive philanthropy
10. inclusiveness
11. altruism
12. secrecy

Significance of philanthropy

1. charity as a form of prayer
2. charity as an investment (in the hereafter)
3. material rewards?
4. Heavenly rewards

Chapter 7 – Philanthropy in Islam: forms and facets
Islam promotes Obligatory and non obligatory

Obligatory-
• Zakat ul mal
• Ushr on agriculture produce
• Zakatul fitr

Non obligatory-
• Festival of sacrifice charity – eid adha
• Alms
• Sadaqa – in many forms, eg a glass of water, a smile , kind word

He also suggests that volunteering is accepted and encouraged – “do good deeds”

He cites SayyidQutb who “maintains that zakat is superior to the Western concept of charitable alms and has nothing to do with charity which is a non-islamic concept (see Carre 1984:151 (???) and Mitchell 1969:253 (???) (both no citation in bibliography)

Chapter 8 – talks about management of zakat

Chapter 9 - Islamic Charitable Foundations

He talks about the waqf

History
Conditions for waqf creation
Perpetuity
Purposes and motives for waqf formation

Purpose “a good work” or “an approach to God”

Motives-
• piety
• status
• politics
• protect property from confiscation (stimulated family waqfs)
• protect women’s rights ie property from predatory relaives

Chapter 10 – waqfs in different societies

Waqf management –
Over the years it has been by govt agencies, by private independent administrator and by community or group

Nation states – led to control of waqf by state – negative stand towards waqf – adding fees to the waqf fund – abolishment of family waqf in some countires (eqypt, libya, Syria, Tunisia and UAE). In Kuwait, they are restricted to 2 generations, in Lebanon they face compulsory termination of it become uneconomic, inflict irreparable damage or become extensively fragmented (see Rashid: see Awqf Experiences in South Asia (new Delhi: Institute of Objective Research)

New form of waqf – cash waqf

Social development : purposes and issues-
Mainly mosques, poor houses, shelters, -

urbans services, education , health and hygiene.

Used to provide urban services. Only when municipalities start to deliver urban services did these wane
Health and hygiene – hammams
Education

Mismanagement and misappropriation of waqfs

Q of perpetuity being challenged – see Egypt, Syria and Lebanon. In Morocco, a perpetual waqf is on that survives for more than a century

Other issues – selling of waqf properties, undertaking phohibited economic activities within the properties, management of the properties, mutawallie’s abilities, legislation

Chapter 11 – management of philanthropy in a poor muslim polity

Zakat management
Waqf management-
• Bangladesh situation

Chapter 12 – discussion, conclusion , recommendation

Places onus on governments

See table pg 287 on what govt can do to promote the waqf-
1. contributing to and leading the duty of Islamic scholars and advocates by organizing awareness and mobilization campaigns and serving the scientific dimension of waqf
2. adopting measures: transparency in management of waqf funds, involve scholars and honest people
3. using control, accounting and inspection
4. simplify laws regulations to waqf formation and amnagement
5. allow waf creators to choose waqf managemnt process

Waqf, perpetual charity and poverty alleviation

2009-08-24T15:55:00.001-07:00

AbulHasan M Sadeq
International Journal of Social Economics 29,1/2
http://www.emeraldinsight.com/0306-8293.htm

2 issues in waqf-

Creation of endowment
Administration

A waqf body can raise cash waqf to finance development activities on landed waqf properties such as commercial buildings to generate further income.

This income is used to further the primary purpose of the waqf.

Waqf institution to provide educational, medical facilities and infrastructure

Waqf as poverty alleviation tool

Waqf Management in Malaysia

2009-08-24T15:53:00.000-07:00

Syed Othman al-Habshi

Administration of waqf lands in Malaysia-

Administrative set up of the relevant dept within each State’s Relgious Council requires drastic review in terms of size structure and personnel
No complete listing of waqf properties made

Observations

All Muslim cemeteries considered as waqf lands as then exempt from quit rent
Mosques, suraus and religious schools usually arise from specific wakaf – under Shafie cannot change the purpose of the lands
Waqf for specific purposes form the largest proportion of waqf lands, particularly for cemeteries
Concludes that therefore only 10% is available for income generating purposes
But not all wakaf land has been traced and transferred to the religious departments. Some still in original trustees hands eg mosque committees
Many of these rented out long term and below market rental
Many are under Rent Control
Most are in towns, a few in the rural areas
Lands transferred subject to quit rent except for cemeteries or if transferred to the President State Religious Dept thereby making it government property – therefore no incentive to transfer the lands – costs money for the religious dept to upkeep the wakaf lands

Development of wakaf properties

Not well developed. Mostly just rented out
Melaka and Penang have made some progress at developing wakaf lands. Also Perak and Terengganu
Many lands are uneconomical in size and shape and sporadically situated

Generally, shortage in personnel, funds and expertise

Waqf-Based Microfinance: Realizing the Social Role of Islamic Finance

2009-08-24T15:52:00.001-07:00

Habib Ahmad
2007
Islamic Research and Training Institute.
Paper written for the Internations Seminar on Intergrating Awqaf in the Islamic Finacial Sector in Singapore March 6-7, 2007

Waqf based poverty focused microfinance institution

Sustainability and Operational issues of a waqf-based MFI-

Mitigating Credit Risk
Resolving Moral Hazard Problem
Economic viability
Operational and Risk Management issues

Financing of activities

From waqf funds (these can be used for qard)
From deposits (these can be used for qard and loans??)

Asses, Liability and Risk Management issues

Different reserves – takaful, profit equalization, capital reserves
Depositors and withdrawal risks

Maaging risks and returns – risk of decay of the endowment must be eliminated – choosing a proportion of low-risk assets in such a way that the returns on theses assets can cover the expected loss from microfinancing activities

Sustaining the Means of Sustainability: The Need for Accepting Wakaf (Waqf) Assets in Malaysian Property Market

2009-08-24T15:50:00.001-07:00

Mohammad Tahir Sabit

Universiti Teknologi Malaysia

2007/2008

Present legal framework excludes wakaf lands from the land markets and access to credit market

· Land registration

· Title security

· Trading

· Marketability

· Equal market value

· Collateralization

Solutions for legal framework - a uniform and comprehensive code of wakaf law and amendments to the various state legistations, NLC, Land Acquisition Act-

· Wakaf as a body corporate capable of holding land

· Classification of wakaf land as prime, secondary

· Registration of wakaf lands as wakaf titles

· Transferability of secondary wakaf lands

· Leasing of prime wakaf lands

· Wakaf lands cf leasehold titles – perpetuity?

· Enforcement of long term leases of wakaf lands – wakaf leases

· Suitability for collateralization

· Recognition of these wakaf leases in terms of their value, transferability and collateralization

Valuation of various types of wakaf lands

Joint Venture Modes in the Development of Waqf Properties

2009-08-24T15:48:00.000-07:00

Mohammad Tahir Sabit

2007/2008

Universiti Teknologi Malaysia

Financing of waqf lands development

· Joint ventures – mudarabah or musharakah mutanaqisah

· Issues of ownership of waqf land post development, as opposed to ownership of building

Legal impediments

· Malaysia – non transferability of waqf lands under the respective State Islamic Administration Enactments

· NLC – Torrens system – buildings on land recognized as part of land

Solutions

· Setting up of a Waqf Holdings Corporation as a body corporate to carry out the transactions

Licence of land coupled with equity in building

Latest Development in the Western NonPRofit sector and the implications for Islamic waqf

2009-08-24T15:45:00.000-07:00

by Murat Cizakca
2002

How awqaf became undermined – politics, State, colonization and Western influence

· Suggestions: Legal -

· Incorporation, limited liability, mutawalli as mudarib

· Public benefit criterion

· Conditions for recognition

· Capital

· Registration

· Tax treatment

· Business activities

Looking into the current developments in the West and the growth of the non-profit sector

The Non-profit Sector in a Changing Economy

2009-08-22T21:57:00.000-07:00

Publication by the Organization for Economic Co-operation and Development
2003

Synthesis

NP sector -
39.5 million people in full time employment in NP sector (excluding traditional coops) in 35 countries accrding to Johns Hopkins Comparative Non-profit Sector Project,
it employs 3.6% of working age population, representing 7.3% of non-agricultural employment and 46% of public sector employment.
As a separate economy, it would be the 6th largest economy in the world after US, Japan, china, Germany and France (Salamon,2002).

Since sustainability is dependent on funding, many NPs have become more entrepreneurial, less dependent on public funding and experimenting in innovative ways to raise funds.

Most NPs operate at local level. They contribute to local development by-
-defining new goods and services related to the specific needs of the local territory
-generating integration and creating jobs
-improving the atmospher and the attractiveness of the territory
-consolidating partnership and empowering local actors
-emphasising "the long run" and therefore consolidating sustainable projects (ECOTEC,2001)

There has been "competition" between NPs and the for profits.

"All the chapters in this book contend that the non-profit sector is now a recognised and legitimised component of the advanced economies of the OECD." (p14)

Part 1 of the book - key trends, and also mix of revenues have changed over the years (primarily gifts & grants, governmental funding and earned income) the latter has become chief source of NP revenue overall

Part 2 - - how to finance the NP sector-

philanthropic investors - trust, risk and uncertainty - the idea that lies behind venture philanthropy is that enlightened investors will accept a lower financial return if the receiving organisation demonstrates that it can generate important social benefits.

Barriers to access to finance - provision of financial instruments to individuals who normally would not qualify - thru microcredit, comunity based financial institutions such as credit unions, cooperative banks

Part 3 - evaluation of the NP sector

Management lessons from Ottoman Leadership

2009-08-22T21:16:00.000-07:00

Lecture by Professor Mustafa Ozel
4th July 2009 10.30am
Seri Pacific Hotel, Kuala Lumpur
Johor Corporation's Business JIhad Lecture Series

Western superiority comes out of organizational differences. These organizational factors are superior to the Muslims’. How did this come about?

Longetivity of an institution is rare, so that very few states or organizations can endure for more than 200 years. Historians have looked at civilizations. All in all, in the last 7000 years, only 40 of those survived more than 200 years. It is not lasting to be a lasting organization.

As for the present capitalist system, there are about 100 million companies in the world. In the US alone there are 7 million companies. In Paris, there is an association or a club called the “Hennokians” whose memberships is restricte to companies existing more than 200 years old, and there are only 40 companies that qualify.

What is the main principle of creating such considerable longetivity?

Ibn Khaldun studied this. Also Tsu Ma Chien, a Chinese historian. He says all organizations arise out of a basic principle. Each will have its own basic priciple. For example in the Sung dynasty, the principle was “justice”, but after awhile this principle became corrupt. All dynasties rise when the principle is pure and genuine and fell when it became corrupt. Tsu Ma Chien said that short term changes occurred every 30 years, medium changes every 100 years and long term changes every 300 years.

All historians will talk about degeneration of principles, so that when it is lost, the organization transforms and decays.

The question is, what was the guiding principle fot he Ottoman polity?

The Ottoman principle was set 200 years before the Ottoman empire even appeared on the world stages. It began with Ald Aslan (Brave Heart Lion) who forwarded this idea. He wanted to combine the Arab and Persian ideals and named his son Malik Shah. His priciple is that you can conquer a land on horseback but you cannot rule a land on horseback. He believed in assimilating both Arabic and Persian knowledge in order to rule. This was the basic principle of the Ottomans.

Compare this to the Japanese Tokugawa dynasty. After the final battle of Sakgehara which marked 300 years of peace for Japan, the shogun never got back on a horse.

There is also the japanese company Kongogumi established in 578AD. It was started by a Korean temple builder, and today all major Buddhist temples in Japan are built by this company. Their longetivity was not secured by gloodline, but thru principles. In his will, Kongogumi declared that after him, if there is a son that can carry out the principle, then let him carry on. But if not, to give him a salary, but offer the best manager his family name, and if he accepts, he is to be given the company. This company has lasted 1400 year.

The idea is to take good people and let them administer. In the Ottoman empire, no Turks had ruled. It was the non-Turks that ruled the empire.

Prof Ozel developed a 4 stage model based on the historical evidence. He believes that most organizations go thru these stages. All stages are associated with a crisis. It was always thought that the strong is the one that survives, but actually it is the one that is most adaptable that will survive. Since all entities will face crisis, so long as it can adapt, it will survive.

Stage 1 crisis – “leadership”
This does not mean the CEO ro the boss, but it is an attitude or a way of thinking or acting and becoming a role model for the rest. There are 3 substages-
a. Transformational Thinking – this is often done by an individual. It indicates
a. Knowing the world (eg in todays terms, knowing capitalism) – concept of capitalism today does not equate to free markets. Every capitalist is a lover of monopoly. It is concentrated political power against the masses and it is free capital looking for the highest profits supported by state power
b. Knowing your world (so in Islam, it means the Muslim world) – the Islamic economy concentrates on the Medina model. In order to understand it, must study the Jahiliyah economy. They were very sophisticated traders. Hashim the grandfather of the prophet had created the mudarabha concept (see verse al-Quraish) there were joint stock companies which invested into caravans. The Prophet when he migrated to Medina found 4 main communites there (Pagans, Jeews, Christians and Islamic). He asked them all to bring 100 articles of values from each community, and found 52 commonalities. This later became the constitution of Medina. He also visited the markets of medina and decided they cannot be the markets for the Muslims. So he established a separate market for Muslim in an area he rented from a Jewish family, which flourished. After a while the Jewish leader was unhappy, so the Prophet decided to move to a piece of flat land . He established 3 main principles for the market ie a Muslim economy.
i. That is should be built on flat place – in modern terms, there should be no informational asymmetry, and must be transparent
ii. Not capturing any particular place in the market and say it is your property. So no monopolistic tendencies. Governemnt authority should not allow “rentier” approach to the economy. It should not give any advantages to any particular group. This is also achieved by the waqaf institution. Every city is a market. The community depends on each other. In order to enter the market, there are 2 institutions, the hammam (public bath) and the big mosque (jamid kabir). So the idea is that you must be physically and spiritually purified to enter the market. Your should trade within the market only;
iii. Price formation – can only be set by Allah. So no party or power can know the just price. Only Allah knows
In this circumstances when there is minimal price fixing or information asymmetries and no captured market, it is an Islamic market whether is is run by Eskimoes or Russians.

b. Organizational Thinking – you cannot expect 1 person to keep on doing the thinking. So the innovativeness must become an organizational quality. Only 1 thing prevents this from happening – the ego of the leader. Most times when you have an innovative leader, you tend not to listen or seek counsel from others. But in the sacred texts there are many examples where the prophets sought counsel eg Moses and David. In this way you can make individual transformational thinking into organizational thinking.

c. Strategic Thinking – in the face of competition, 2/3rds of organizations fail. They cannot transform because they prefer their comfort zone. But for those who manage to transform so far, they will need a long term sustainable advantage. You would make plans with your rivals in mind.

Stage 2 crisis – “autonomy”

There are many talented people in an organization. But often the organization will go astray and become pyramidic where all the power is concentrated in the top. So the different people at the bottom feel they cannot prove their talents and become dissatisfies. They either leave and they compete with you, or they remain within and continue their opposition to you. Either way it is not in your favour. In a nutshell, power must be shared, if this is done successfully you will grow and also go thru the next crisis.

Stage 3 crisis – “control”

The nature of man is that with success comes dissapointment. People must be trained with rational empowerment. There must be a rational hierarchy empowerment

Stage 4 cirisi – “renewal”

In the last 200 years in Turkety they are experiencing a crisis of renewal. The rational bureaucracy turns into irrational bureaucracy. It becomes a self seeking entity instead of putting the interests of the organization first. In this stage, they do not allow the right questions to be asked. The wrong question is usually “how can we make the organization stronger” . the right question is “how can we make the people stronger”?

*********************************************************************

The Non Profit Economy

2009-08-04T06:17:00.001-07:00

by Burton A. Weisbrod

Chap 1- 4 themes of the book - (1) informational inequalities (2)diverse demands (3)sources of revenue and the nature of its outputs (4) the nonprofit sector of the economy is interdependent with the goernmental and for-profit sectors.

Issues in the role of nonprofits in the mixed economy - 2 categories - (1)what kinds of activities should nonprofits engage in? (2) how should nonprofits be financed.

Activities - potential justification for nonprofits - due to failure of private markets (due to external effects or informational assymetries) or of government, or because of great diversity of consumer demands for collective action.
Financing - should they be permitted to engage in profitable activities to subsideze their unprofitable, collective type activities? if so, what limits should be imposed, in recognition of the effects of their profit seeking on the private economy?
if not, are we willing to accept a reduced level of activity in the non profit activity?
shoudl nonprofits be restricted to the activities for which they have been tax-exempt status, and restricted even further to financing only tru donations?

Different types of nonprofits - clubs (benefit members only), trust type, collective type nonprofits, for-profit in disguise (not true nonprofit)
3 key characterstics of nonprofits - (1)no one owns the right to share in any profit or surplus of a nonprofit (2) nonprofits are exempt from taxes on corporate income (3) some nonprofits reeive a variety of other subsidies - donations to them are tax deductible and they are exempt from many other forms of taxation in addition to the tax on corporate profits.

Chap 2 – Options among Institutional Forms.
3 major forms of institutions available to any society – proprietary, governmental and nonprofit.
Proprietary – efficiency in meeting consumer demands at minimum costs is main strength. Respond to wants and needs only if accompanies by money demand. Market failures caused by informational asymmetry, or when there is demand for collective-type goods affecting parties other then the seller and the buyer eg defense
Governmental – more incentive to respond to the demands of the political process. Finance through taxes. Effective in meeting collective demand.
Nonprofit sector- attractive in meeting heterogenous demands from minorities who are willing to pay for high levels of services. Their rationale has 2 components - (1)provision of collective goods (2) when consumer demands are heterogenous ie diverse. Nonprofits have better access to diverse, localized information, thereby overcoming some of the problems of over- and underutilization. Ie they can meet collective demands in situation of governmental “failures”.
Meeting diverse collective demands - findings that greater homogeneity in society leads to a larger role for government, greater satisfaction of collective demand and smaller role for non profit eg in Japan. Conversely in the US, a country of diversity, the nonprofit sector is sizable.
In US tax deductibility is used to encourage donations. In the UK, there is no tax deductability for charitable donations.
Which form to choose? This depends on (1) which is more efficient? This depends on the type of output. For well informed consumers, the proprietary institution is more efficient. For limited consumer information, the nonprofit or governmental is better. And also depends on (2) considerations of equity (3)cost per unit output – different forms is more cost efficient in a different quality range. Note that costs increase with quality output (4) quality of output required
The advantages and disadvantages of every form of institution are crucially related to informational problems.
So the Big Question is – how to reward behavior that contributes to public good?
Chap 3 – Incentives and Performance
Information is critical. Without it we cannot reward people or organizations that do what society wants or punish those who do the opposite.
Quote, pg43-44-
‘In short, the success or failure of any type of institution lies in its ability to obtain information on product quality and consumer demand and in its incentive to convey to consumers information on the extent to which its product meets that demand – that is, to use the information in socially desirable ways. For-profit, governmental, and nonprofit institutions differ both in their ability to obtain information on social wants and demands and in their incentives to act on it. As a result, each has a distinct niche to fill in an economic system. Institutional pluralism is vital.’
When society is using a particular form of institution to provide output, it is implicitly rewarding certain types of behavior.
Chapter 4 – Anatomy of the Voluntary Nonprofit Sector
3 principle categories – 1 private and 2 public types. These are
1.Proprietary / commercial eg trade association, clubs, associations
2. collective – external benefits to those that do not help finance the nonprofit eg museum
3.trust – combination of private goods and consumer protection eg nursing homes.
Taxes – (1)tax exempt and (2)donations which are tax deductible
Also, in the US the tax laws determine which organizations are classified as nonprofits and therefore tax exempt:-
a. Definition under US tax laws as organizations that are “organized for charitable or mutual benefit purposes”.
b. There are more than 2 dozen major classes of organizations included. See sect 501(c) for all the classes.

Why are some allowed tax-deductible status? – the tax deductibility amounts to a subsidy – these are given on the assumption that public encouragement is needed because otherwise there would be too little of these type of services provided – so they fit into categories, presumably, or providers of collective services or trust services. They help to meet the demands of persons who are unsatisfied by the level or quality of governmental provision of such services. – so public subsidies ought to reflect public benefits
The Collectiveness Index – a spectrum from purely private to purely public. An organization that provides purely collective goods, ie virtually all of the benefits from which accrued to persons who did not pay for them – should receive the highest measure of collectiveness. – these most justify public subsidies since they would receive little or no revenues either from sales or membership dues; if they received any revenue at all it would be in the form of contributions, gifts or grants (CGG).
So the collectiveness index is an indicator of the extent to which the organization provides external social benefits.
Thus, all nonprofits should not be lumped into one Nonprofit sector when their collectiveness index range between 1 – 97%
Chapter 5 – Charitable Donations

Policy choices on how to finance the nonprofit sector are not independent from decisions about the level and kinds of activities to be undertaken.
Source of financing is primarily from donations.
Table from page 90

Type of Organization Outputs Source of financing
For profit Private goods Sales revenue
Governmental Collective goods Taxes
Nonprofit Collective/trust goods Donations

Ability to solicit donations are dependent on several factors:-
1. Govt decision to give subsidies and the form of the subsidies
2. Limits on amount of its funds used for fundraising
3. Regulations and other policy measures

Also, donations are affected by
1 . tax rates
2. deductability of donations
4. fraction of organization’s revenues used for fundraising or administration
5. the organization’s age – seems to be a proxy for its trustworthiness

What drives the nonprofit organization in terms of fundraising?
They are not seeking to maximize profits, but one theory proposed and widely accepted is that they wwant to generate as large a total budget as possible. “This hypothesis is consistent with our evidence that each of the seven classes of nonprofits spent on fund raising up to the point at which the marginal contribution to gross organizational revenue is zero.” (p 101)

Chapter 6 – Revenue from Sales
p11
“Jerald Schiff and I hypothesized that nonprofits pursue the goal of maximizing their output of a “charitable” service, subject to the necessity of at least breaking even financially. We see the nonprofit organization as a potential provider of two kinds of goods or services – charitable and “private”; the organization’s managers and directors prefer t produce the charitable good, which is financed by private donations and by governmental support, but they may resort to selling private output to “cross-subsidize” their charitable activities. This model of behavior, to the extent it is correct, implies that private businesses do,indeed, have reason to fear that reductions in governmental support prompt nonprofits to extend their activities into markets for private goods.”
Q- whether nonprofits should be restricted, taxed , or even prohibited from competing with the proprietary sector – this question is becoming a policy issue.

So taxation policies and questions –
a. nonprofits are granted exempt status for broad purposes such as education or community development
b. how should the organization’s costs be allocated between it exempt and non exempt activities?

Society’s unwritten but de facto policy seems to point to the fact that public-type goods are produced by organizations funded by donations, private-type goods by those funded by sales.

Is it unfair to the proprietaries to allow nonprofits to enter business?
Must look at 2 arenas-
Arena 1 – competition in the specific industry for which the nonprofit has been given exempt status – this should not be controversial. The legislative process indicated that the govt determines that the nonprofit form is socially preferred on grounds either of efficiency or of equity, but non profits would not exist to an appropriate degree without subsidization – ie govt is deemed to have knowledge that leads to maximization of “social welfare”.

Arena 2 – competition in the market for unrelated outputs – questions of costs and revenues
Chapter 7 – Volunteer Labour
Value of donated time is tremendous. See p 132 for figures.
Chapter 8 - Are nonprofits really different?
If nonprofit is to perform a useful role,they must provide outputs that cannot be provided profitably by private enterprise.
Consumers who are well informed should be indifferent about the institutional form of a seller. All that should count is how satisfied the consumer would be with a particular seller’s output and its price. When consumers are underinformed relative to producers, however, they may turn to nonprofit organizations.

Chapter 9 – Recommendations for Public Policy
Nonprofit is - a component of a mixed economy AND It is consists of a vast array of institutional hybrids (many forms of institutions that combine elements of private enterprise and government).
IRS under present law is the principal regulatory body for nonprofits – thru tax-exempt and nonprofit status and also classified as tax deductible. But IRS has no power to limit entry into the sector.
So public policy should be directed towards 3 issues-
Kinds of outputs that they should/should not produce
Methods used to generate funds
Administrative mechanism or institutions
Goal for the proposals- (1)) to insulate nonprofits from pressures to deviate from their social role they can and should play in a modern and mixed economy and (2) to help move the economy to a better balance of institutional responsibilities among private enterprises, governments and nonprofits.
Proposals-
1.Nonprofits should be encouraged to provide collective goods, and not otherwise.
2.Non profits should be far more restricted from engaging in “unrelated business activities” that lie outside the range of their tax-exempt activities, and the scope of exempt purposes should be defined in more limited ways.
3. Interlocking control of nonprofits and proprietary firms should be abolished.
4. Tax deductibility should be dropped as the primary public encouragement for contributions – there are disadvantages .
5.To offset the effects of eliminating deductibility, tax credits should be adopted for contributions to approved nonprofits.
6. Special postal subsidies for nonprofits should be abolished and replaced by broader, less restrictive subsidies.
7. The IRS should be replaced as the principal regulator of the nonprofit sector – establishement of a new agency?
8. A comprehensive statistical program should be developed to provide data about the nonprofit sector – its size, composition, outputs, fund-raising activities, and interactions with the private market economy.

The Foundation: a Great American Secret: how Private Wealth is Changing the World

2009-06-22T05:40:00.000-07:00

Joel L Fleishman

Chapter 1 - Foundations
"And behind each foundation stands a wealthy individual or family that chose to declare "enough is enough" , and then gave away a significant portion of their wealth for the benefit of the wider community rather than hoard it, inest it, or spend even more of it on personal pleasures." (p.2)

"The bottom line of this book is that foundations, along with the organizations that they support, are the great secret of the dynamism of America's civic sector." (p.3)

Foundations play 3 roles -
(1) Driver
(2)Partner
(3) Catalyst

He concentrates on the foundation as a driver and as partner.

"when a foundation can define and limit a problem, and believes that it can map a strategy for solving the problem, then the Driver role may be appropriate, especially when no other institution can play that role as well or as faithfully as the foundation. If you're familiar with the workings of venture capital, you might think of the Driver role as similar to that of the general partner, who invests a large - often the largest - share o the money required to start a new venture, occupies one or more seats on the ventre's board, and plays a decisive role in hiring the CEO and making other critical decisions." (p.5)

Partner - "the role of Partner is likely to be appropriate whenever a foundation has a strategic objective that can be accomplished by working with an existing, usually nonprofit, organization that shares with the foundation both the goal and the strategy for attaining it. " (p.6)

a Catalyst approach ie "donating to a number of initiatives in the spirit of experimentation." (p.8)

Foundations have limits

-"When a social problem is not discrete and well bounded, when it permeates large segments of society, or when it is created in part by dug-in interest groups, a foundation can usually do little to solve the problem beyond ameliorating some of its symptoms and suggesting, through research or pilot programs, some directions in which ultimate solutions may be found. " (p.10)

On poverty - he says
eg foundations cannot solve issues of poverty - only governemnt can completely remedy. But he says foundations can do something by (a) bringing public attention to it ( b) empirical research on how to tackle it and (c) pioneering solutions that govt can implement.

"..a full-scale solution to our nation's poverty problem. Such a solution waits on government action, which in turn is dependent on the public will to act as expressed through the political process. When the people are ready to take the steps needed to eradicate poverty - including steps that will inconvenience the majority and cost money - then and only then will those steps be taken." (p.12)

Chapter 2 - The Third Great Force : America's Civic Sector

He seems to suggest that a democracy is a sine qua non for a vibrant 3rd sector.
Quare - what about countries which are not democracies?

Civic sector = nonprofit = not-for-profit = third = independent = voluntary = public interest = social. He prefers 'civic sector' because "the word civic connotes what individuals do by virtue of their role as citizens acting voluntarily". ( p.14)

On page 14-15 are figures on the size of the US 3rd sector.

He says the American people places a high value on the civic sector and this is measured by the tax benefits this sector enjoys ie tax exemption for the organization and tax deductions for the charitable contributions.

"the overall revenues of America's civic sector come primarily from four sources - fees for services rendered; income from invested assets; grants or contracts from federal, state, or local governments; and charitable contributions." (p.15)

In the US, the civic sector is large due to -
(a) diversity of views / demands
(b) it is the freeest
(c) historically, the immigrants brought their own needs, and supplied the social services (so compare to Europe, where "governmental provision of many social goods is a long-standing practice that has necessitated a heavier tax burden on the public. In the United States, many such goods are provided instead by nongovernmental, private, nonprofit enterprises." (p.18)
(d)"The freedom provided by public support for the individual citizen's choices is unquestionably one of the greatest benefits of tax deductions and exemptions." (p.22)

Social support for the civic sector

he says there are 2 main kinds of organizations - (a) Charitable groups, which exist primarily to benefit others and 92) mutual-benefit groups which serve their own donors and members. (waqf khairi and waqf al-ahl?). Both types enjoy tax benefits.

"Thus, there is implicit recognition in our legal system and our tax code that civic engagement by groups of citizens is beneficial in and of itself - a form of activity to be embraced and encouraged." (p.21)

So - ta'awon, and waqf are encouraged. Quare - do Muslim governments encourage ta'awon and waqfs and recognize them as beneficial?

Rationale for the tax breaks = public benefit

"The rationale for extending tax breaks to most civic-sector organizations lies not in any specific governmental policy objective but rather in the benefits to society created by the existence of the civic sector itself." (p.23)

Foundations are the operational secret for the civic sector - "...the operational secret is the priming role foundations play in starting new civic-sector organizations, in nurturing them into self-sustainability, and in providing a continuing supply of social venture capital to the civic sector." (p.25)

He quotes Peter Frumkin "Strategic Giving: The Art and Science of Philanthropy" - foundation grantmaking 0 either "instrumental giving or expressive giving".

"Instrumental giving is "strategic" in the sense that it is focused on achieving a particular policy objective and intended to accomplish a significant impact on a specified social problem. By contrast, expressive giving reflects a donor's desire to show support for a cause or an organization without necessarily expecting to achieve a noticeable impact through his or her gift." (p.26)

Fleishman differentiates between private foundations and community foundations. There are alos "supporting organizations". All 3 types function like private foundations.

Chap 3 - reasons for giving

He claims these reasons are:-
(a) self interest or ego satisfaction- social status giving confers, to acquire wider fame, better representations, more customers for their businesses, influence or general self satisfaction
(b) gratitude
(c) religious obligation
(d) to redeem a negative reputation
(e) a desire for a kind of immortality
(f) to avoid giving excessive wealth to kids
(g) to use it as a vehicle to retain control of a closely held corporation (note the US Tax Reform Act 1969 making it illegal , with very few exceptions, for private foundations to own more than 20% of voting interest in any for-profit enterprise. Also under the Tax Code, individuals involved in both a corp and a related foundation cannot engage in certain transactions eg borrowing money from the foundation)

Why choose foundation?
- uncertainty about how or where to give
- tax or estate planning considerations
- inability to choose between recipients
-desire to create a vehicle for promoting large-scale, lasting social change
p.41

"To put it another way, having achieved unprecendented success in the world of laissez-faire capitalism defined by Adam Smith's Wealth of Nations, our gretest capitalist turned to the world of Moral Sentiments, there to pursue goals that Smith's "impartial spectator" might have approved."

Chapter 4 : foundation's mission - justification for foundations

He claims : "America will exempt your assets and income from taxation in exchange for your using them to produce the greatest possible benefit for society. That means pursuing large-scale and lasting impact, and this alone is the ultimate purpose and justification of foundations."

Q: so intention alone is not sufficient reason for tax benefits. must have large scale and lasting impact to social benefit?

Chap 5: Strategy - principle

Early founders followed scientific method - strategic thinking
a scientific method -
1. getting the facts right by research/survey
2. identifying the problem
3. studying options for action
4. identifying the potential beneficiaries or potential opposition
5. developing plan for action

Foundations - better to be given open-ended, broad mandate rather than specific goals, since they are supposed to exist in perpetuity. Because as conditions change, specific goals get obsolete.

Note: cf specific mandate but 10 powers given to the trustee including istibdal in a waqf.

But foundations must have goal-setting and focus - must have a program focus. this is usually guided by the founder's intent.

Chap 6 - Strategies and Tactics

Strategies include

1. Creating and Disseminating Knowledge
2. Building human capital
3. Public Policy Advocacy
4.Changing Public Attitudes
5. Changing the Law

Tactics are such as

a. Convening a conference, meeting, strategy session
b. Creating a blue ribbon commission
c. Offering and award or prize
d. Buildinga model through a pilot program (this only works if the foundation can nurture th model into self sustainability and replicates it with enough copies to launch the network on a course of sustainable growth) p.80
e. Building instituions
f. Building physical plant
g. Financing litigation
h.Catalyszing partnerships among foundations
i. Catalyzing partnerships with the for-profit sector
j. Building organizational capacities for the long term
k. engagin various media

Chap 7 - Impact

How to detect impact?

Check for the object to be changed. see whether there has been improvement in the object.

a. determine causality
b. check for any intervening or moderating factors

Eg of impact
-major benefits to public
-expansion of knowledge
-helping to launch a movt
-helping an existing organization find a new path
-Catalyzing an urgent social change
-taking an initiative to scale

He notes that many foundations not really interested in impact. just want to show the world their altruism. ie more expressive giving rather than instrumental giving

Quare: should waqfs concentrate on instrumental giving rather than expressive giving, in order to be impactful? see case studies

Chap 8 - case studies

Chap 9 - Foundation problems - transparency and accountability

lack of accountability -
-foundations are unlike operating non-profits which have stakeholders to whom thy are responsible eg universities
-so they are deprived of external feedback adn constraints
-foundation staff are self perpetuating and fundamentally unaccountable to anuone else
-foundations don't have to solicit funds , so they are not accoundtable to current or potential donors
-also differentiate from community foundations, which continually raise money to build their endowments or to become ome to donor-advised funds. Also corporate foundations, which are accountable
-other grant seeking NPs are subject ot market forces

Note: it seems that not having to account and justify their funding allows foundations to be unaccountable.

also, foundation impact has not been studied

-lack of accountability resulting in reulatory and legal changes being suggested to correct this

Fleishman suggests that if the foundations become more accountable and more transparent, they can avoid external regulation n control

"How have the most successful foundations managed to rise above the absence of an external environment that challenged them and demanded accountability? The answer is by developing what I call a culture of high stewardship. They have recruited demanding trustees and high-performig program staff with a strong committment to social benefit, a keen sense of self-discipline, and a deep awareness fo the obligations fostewardship. More foundations must learn how to develops such internally generated norms. " p. 163

tax payers have a stake and interest in how foundations spend their money

Chapter 10 - Strategy

Strategy is fundamental to effective foundation initiatives.
Step 1 - get the problem right
"Carnegie was, as usual, the most articulate among them. In his Gospel of Wealth he wrote, "[T]here is but one right mode of using enormous fortunes - namely, that the possessors from time to time during their own lives should so administer these as to promote the permanent good of the communities from which they were gathered." By "permanent good". Carnegie meant systematically addressing the root causes of social problems over the long term, not merely ameliorating their symptoms. this requires, first and foemost, a clear diagnosis of the problem.

Note: Carnegie said to share the wealth to the place where you obtained them from

using empirical research is a key component to high impact grantmaking

Step 2: indentify the factors that are an obstacle to the problem solving itself

Step 3: Formulate the problem solving strategy
Step 4: Select tactics which are specific means to carry out the strategy
Step 5: Draft an implementation plan

Chapter 11: Characteristics of High impact programs

Major Issues that face them: Focus, alignment, due d about the problem, due d about the solution, intelligent talent selection, due d about prospective grant receiving organization

Entrepreneurial Risk taking - social entrepreneurship - seeks a long-term cure

Opportunistic Thinking

Independence

Effective Grantee Selection

Long Term Thinking and Commitement

Chapter 12: Foundation failure

Due to failure to pay attention to a crucial component of the implementation plan eg research
Lacking in strategy
Mismatch between problem and strategy
Lack of a credible logic model
Weak grantee commitement
lact of relevant grantee experience
Incompatible grantee partners
Failure to include relevant stakeholders
Failure to specify desired outcomes precisely
relying on inadequte leadership
fragmented leadership and uncertain collaboration
inadequate market research
unaticipate consequences

Chapter 13: 3 essential

Discipline, boundaries and persistence

longetivity alone is not a prerequisite to program impact. but the trustees are crucial. he finsds that donor influence is the most powerful determinant of the impact of a foundation (p 214)- setting of guidance as to fields and boundaries and limits.

advice to donors
1 - take care in drafting the instrument of establishment or gift to ensure that intentions are clear and will be carried out according to wishes - describe motivating intentions, list the objectives to be served and explicitly proscribe all other objectives

2. tailor your chosen focus to the size of the endowment available

3. in appointing trustee, tailor the selection criteria and personal qualifications as close as possible to the substatntive mission

4. be catious about naming children and or relatives to foundation board (check out family fund foundations - National Center for Family Philanthropy www.ncfp.org)

Chap 14 - should foundations be permitted to exist in perpetuity?

Sunsetting - reasons for this -
1.focus on present needs - unfair for generations in far future to benefit from wealth today when the needs of today and immediate future due to neglect is so great
2. worry about the trustworthiness of the trustees - this seems to be the dominant reason for sunsetting

Many foundations are sunsetting or putting a time limit on their foundations

Fleishman says that you are not limited to only 2 options when creating foundations ie perpetual foundation or giving assets outrights to an operating charity. He suggests other options-

a. donor-advised fund ie donor advices who to pay asssets, income on assets to intended cause or charity over a period of time or in perpetuity
b.supporting organization - similar to donor advised fund, ie but the organization supports other charities

so it seems, a would be philanthropists has several options-
perpetual foundation
time-limited foundation
donor-advised fund
supporting organization
outright contributions to operating charities
supporting organisation

He notes one drawback for society where it is perpetual - "creating a foundation that pays out only the income on a corpus of assets rather than giving assets outright to nonprofits orbanizations greatly diminishes the resources available for immediate charitable use" (p243)

Then there is infidelity to donor intent - due to absence of living donors over time to oversee that their intent is carried out in the same efficient and effective manner.

Arguments for perpetuity are-
1. society's continuing need for well-designed, carefully instructed foundations with perpetual life
2. institutional knowledge and long-term memory that can be created only within perpetual foundations are invaluable assets that are indipsensale to producing long-term solutions to complex problems
2. perpetual foundations have a monopoly on serendipitous discovery, "Life-limited foundations are usually so fizated onproducing results in the short run that they cannot afford the time or resources to explore the byways of problems where solutions are encountered by chance. Only the perpetual foundations have the luzury to prepare themselves today to solve the problems of tomorrow."
3. Longstanding foundation endowments allow the values of past generations to provide a counterweight to the values of the present eg preserving diversity of animal and plant species, preseravaton of dying languages, no-longer-current art and literary form
4. "The accumulated capital held by perpetual foundations plays a critical balancing role in another, broader sense. Thanks to their power and the slow, steady pressure they exert on behalf of the causes they champion over time, the foundationsserve as both a prod and a counterweight to the government, Perpetual foundations are much better able to criticize adn stand up to politicians and administrations, if they exercise the courage to do so, than are life limited foundations.(p247)

His conclusion is that from a vantage point of social policy, the benefits to the American public from perpetual foundations are significantly greater than the opportunity costs they impose on society.

Chap 15 - enhancing Foundation effectiveness

Main criticism of foundations-" The right decries what it regards as the deliberate disregard by (liberal) foundation trustees and program staff of the intent of (conservative) donors, while the left opposes the long-term growth of foundation assets as an unhealthy concentration of wealth and power."

So, mainly how to introduce transparency and accountability?

Suggestion-
1. Self regulation - a voluntary tranparency and accountability code
2.Government Oversight Reform - currently in the US there is no real oversight, in the UK there is the Charities Commission - funded by contributions by foundations that are allowed as tax credits against any federal foundation tax obligations
3.Federal legislation to mandate or encourage foundation openness

Chapter 16 -Epilogue

Foundation Evolution in 20th century US

1914 - Russell Sage Foundations - the first foundation?

1921 - Frederick Harris Goff in Cleveland created 1st community foundation - aggregating assets contributed by many less-wealthy individuals rather than by one very wealthy person or family alone, with income devolted exclusively to local and regional charitable purposes.

Community foundations evolved in to donor advised funds .

There were restricted, unrestricted and donor advised funds, and community foundation-like entities set up by individual religious, ethnic and racial communities.

Then individual public charities and educational institutions set up what the tax code called "supporting organizations" - here the donors or their designees cannot be the sole voices advising on the distribution of the donated funds but instead usually constitute a minority of the board members , with the majority appointed by the host insitutions

Then came charitable foundations established by corporations eg General Electric Foundation, IBM Foundation, AT&t Foundation

Then came foundation mergers

Last decade of the 20th century saw emergnce of venture philanthropy and is cousin, social entrepreneurship.

"Venture philantropists and social entrepreneurs have been deliberate and thoroughgoing in their efforts to transform the ways existing nonprofits go about doing their work. The especially insist on the use of formal strategy, the insitution of metric-based performance benchmarking, and the attainment of sustainability through the diversification of revenue streams. They have also begun to create new hybrid for-profit/nonprofit organizations for their work and to draw existing for-profit corporations into it as well."

See eBay founder Pierre Omidyar's Omidyar Network
Jeff Skoll's Skoll Foundation and Skoll Fund
Google.org
Branson's commitment to invest 100% o all profits from airline and train companies over next 10 years (expected around $3billion) in effort to combat global warming.

All 4 have different structure.

They are driven by - emergence of a powerful new social conscience among many of the suddenly fabulously rich young and not so young business founders of today andthey bring the same focus on measurable results.

Saham Wakaf Pahang

2009-06-17T20:02:00.000-07:00

Pursuant to Kaedah-kaedah Saham Wakaf 1998 (Pahang) on 2oth December 1998
Tax deductibility of donations obtained LHDN.01/35/42/51/179-6.1

Undang-undang dan pentadbiran waqaf - analisis dan penilaian

2009-06-17T19:59:00.000-07:00

Andri Aidham Ahmad Badir
Paper presented at Konvensyen Sistem Ekonomi Islam on 3rd August 2004, Kuala Lumpur

Jurisdiction of the civil courts in waqaf matters - cases such as Tengku Nik Maimunah, etc.

But with Article 121 (C) Federal Constitution, this was moved to the Sharia Courts.

See cases:
Mohamed Habibullah Mahmood v Faridah Dato' Talib
Soon Singh Bikar Singh v PERKIM
MUIPP & SP v Shaik Zolkaffly Shaik Natar & ors

Pengurusan Waqaf Berkesan: Ke Arah Kemantapan Ekonomi Ummah

2009-06-17T19:50:00.000-07:00

Dato' Ahmah Tajudin Abdul Rahman
Chairman of Board of Trustees
YPEIM
Paper presented at Konvensyen Sistem Ekonomi Islam on 3rd August 2004, Kuala Lumpur

Economic system has 3 parts:
1. Government ("Siasi")
2. Commercial / Market ("Tijari")
3. Social / Nonprofit ("Ijtimai'")

He concentrates on the Ijtimai' sector. Under this sector, the different applicable concepts are zakat, fitrah, sadaqah, waqf, bait ul mal and qard ul hasan.

He considers the waqf as the backbone for the Ijtimai' sector and that it should be deployed as a macroeconomic strategy. It should be given a new dimension in Malaysia by giving an administrative and management structure that is systematic and viable.

He suggests that it should be insitutionalised at a central level. His suggestions include a centrally incorporated institution under the Trustees Act 1969 with participation and membership of both central government and state religious department officials. It should be run based on corporate governance, and there should be a CEO plus committees and departments taking care of such matters as investments, risk managment, audit etc. Accounting should be done regularly according to standard set by MASB and AAOIFI. Under this concept, the statem religious departments will work together with the central governmennt,

My observation: Was this suggestion taken up and leading to the now established Yayawan Waqaf Malaysia?

Waqaf An-Nur Corporation Berhad

2009-06-17T19:48:00.000-07:00

Waqaf An-Nur Corporation Berhad

JCorp established a chain of clinics and dialysis centres under the name of Waqaf An-Nur Clinics since 1st November 1998[1] . This was pursuant to its “Corporate Waqaf” concept as part of its Corporate Social Responsibility initiatives.

The clinics were initially managed by KPJ Healthcare Berhad, one of JCorp’s subsidiaries. On 25th October 2000 JCorp incorporated Pengurusan Klinik Waqaf An-Nur Berhad (“the company”) and took over the management of the Klinik Waqaf An-Nur chain. [2].

The company is a company limited by guarantee and not having share capital. According to the company’s Annual Report 2007, the principal activities of the company are as beneficiary, managers and administrator of waqaf and also acts as “Maukuf-alaihi” for shares and other kind of company business securities from “waqif”, including especially Johor Corporation, the general Muslim community and company or body or other organization and also acts as investment holding company.”[3]

On 1st December 1999, the company obtained tax deductible status for contributions from donors pursuant to section 44© of the Income Tax Act 1967.

Pursuant to a “Hujjah Wakaf” signed by JCorp on 24the October 2000, a waqaf of the clinics including the lands upon which they were situated was created by JCorp with the company as trustee.[1] The Board of Directors of the company consisted of representatives from the State Religious Department and JCorp.

This waqaf was made pursuant to the Johor Administration of Islamic Religion Enactment 1978 (section 44) and Kaedah-Kaedah Wakaf Johor 1983. These were subsequently repealed and substituted by the Administration of Islamic Religion Johor 2003 (see section 89).

On 19th July 2005, the company changed its name to Kumpulan Waqaf An-Nur Berhad.[2]

On 3rd August 2006, JCorp granted another waqaf of all its shareholdings in 3 listed companies ie Kulim (M) Berhad (4.68% of equity), KPJ Healthcare Berhad (4.32% of equity) and Johor Land Berhad (3.57% of equity) totalling a value of RM200 million.[4]

On or about 18th May 2009 the company changed its name to Waqaf An-Nur Corporation Berhad.

70% of the dividends owned by the company through its shareholdings in the listed companies are reinvested in growing the business core as well as in human capital investments to meet long term growth needs. The remaining 30% is channeled to fund the activities of the company.[5]

The Profits (after tax) and Distribution of funds to Special and Trust Funds Account (ie for the purposes stated in the waqaf testimonial) for the company is as follows:-

Year Profit (after tax) Special Funds distribution
2006[6]
3,802,488 2,236,099
2007[6]
1,467,392 1,895,225
2008[2]
2,670,000 (before tax) 540,000

1. Wahid, M.A., Konsep dan pelaksanaan wakaf di Klinik Waqaf AN-Nur Johor Bahru, in Latihan Ilmiah Reserves. 2005, Akademi Pengajian Islam: Kuala Lumpur.
2. Waqaf An-Nur Corporation Berhad, Waqaf An-Nur Corporation Berhad in Mingguan Malaysia. 2009: Kuala Lumpur.
3. JOhor Corporation, Annual Report. 2007.
4. Johor Corporation, Waqaf Korporat untuk Jihad Bisnes, J. Corporation, Editor. 2007.
5. Johor Corporation, Corporate Wakaf Concept. 2006.
6. Kumpulan Waqaf An-Nur Berhad, Annual Report. 2007.