Islamic Finance, Mosques & Charities – the Missed Opportunity

This blog represents the well received presentation by the author, he gave as a guest at the launch of the Birmingham City University’s UK’s first Islamic Finance undergraduate degree course.


Islamic Finance has become a multi-billion dollar industry and is fast growing. Despite this growth and reach, this industry has had little to offer Mosques, charities and for the wider uplifting of the state and economies of disadvantaged Muslim societies worldwide.


Islamic Finance has worked to make wealthy Muslims wealthier by helping them avoid the guilt that comes with breaching shariah guidelines – Although there is nothing wrong with that, in my opinion Islamic Finance has a bigger role to play in promoting the finances and impact of Mosques and charities, especially in the UK context.


Islamic Finance is a component of the Islamic Economic system which aims to create a fairer and just society in which hard work is rewarded, those that are at disadvantage are supported, business and entrepreneurship is promoted, and infrastructure is built that benefits all – Mosques and charities play an equally important role in achieving these objectives.


In UK, the top 20 International Muslim charities raise around £400m with around £100m raised in Ramadan alone (see blog). In total when combined, the UK Muslim charity sector can be estimated to be raising around £500m each year. This is despite it being a relatively young sector (only 30 years +) but a fast-growing sector.


Mosques are built using Qard-e-Hasan financing

The majority of Mosques in UK are successfully built using Qard-e-Hasan, interest free community loans, and this is also the case when they extend their facilities. There is no Islamic Finance solution in UK that provides this interest free facility to Mosques in spite of the underpinning strong business model of Mosques.


Each Mosque has a ever growing number of worshippers and donors. They are engaged in a never-ending cycle of Friday prayers and Ramadan worship, during which funds are raised to return the loans.


Mosques are the heart of Muslim community – this is where everything starts from (i.e. marriages), sustains (i.e. prayers and education) and ends (i.e. funerals) – promoting them should be the first priority of the Islamic Finance sector.


Islamic loans for buildings and ICT systems


The UK Muslim INGOs have seen a significant growth in their income. With this growth, a time comes to upscale the back-office facilities and the ICT systems – this is crucial for good governance. Some of these required investments are significant and can’t be covered by the general funds raised in one year and therefore the financing solution makes business sense.


Despite the fact that these charities have stable income and have the ability to payback loans, there are no interest free solutions available to them. The existing solutions are too focused on private and commercial initiatives.


Ultimately the beneficiaries suffering in the most remote parts of the world pay the price for the inefficiencies and weak governance caused by this lack of investment.


Foreign exchange (forex) costs with no hedging solutions


UK Muslim charities transfer around £250m each year worldwide to support beneficiaries. Sometimes the transferred currency has to exchanged up to three times before it reaches the beneficiaries. This poses a significant cost on the charity finances.


Unlike the mainstream non-Muslim charities where they have hedging products available to mitigate their forex costs, the UK Muslim charities have none.


Surplus cash – nowhere to go


In 2020, I analysed the accounts of the top 20 Muslim charities and noted that they held around £107m in cash balances (see blog). UK Muslim charities raise around 40% of their annual income in the month of Ramadan. This is then spent through out the year based on the need and ability to deliver.


The business model of the UK International Muslim charities is such that there will always be surplus cash held by them. It is unfortunate that there are lack of suitable Islamic Finance short term investment / finance solutions in place that can provide low risk returns and at the same time provide benefit to the UK community.


Islamic Finance products – Sustainable relief of poverty


The UK Muslim sector often lacks the required focus and priority on activities that are at the heart of sustainability and capacity building for the long term relief and impact in UK and worldwide. The nature of these activities requires Islamic Finance input and initiative. For example:


a) Micro Finance – building capacity and self-reliance


These are small interest free loans to the poor and disadvantaged individuals for business and self-reliance. Micro finance projects are carried out by some household UK Muslim charities worldwide but not on the scale needed and required on the ground – partly because this is not popular with UK fundraisers and also due to local registration restrictions.


However, In my opinion this activity has a significant potential in UK where a significant number of unemployed or disadvantaged youth and old can benefit. For this to work, an Islamic Finance approach is needed where businesses, professionals, charities, and government agencies need to partner and devise solutions.


b) Endowments (Waqf) – investment in the future


Waqf has historically been at the heart of Muslim charity with its long-term benefits in this world and in the hereafter. However, this approach is often ignored by donors over activities that provide benefit today (i.e. food projects) and also by charities due to their lack of ability to deliver such projects – these projects could be investments in self-sustaining buildings, infrastructure and businesses.


Endowments are investments and although are a charitable product, there delivery is no different from any commercial endeavor. This requires the right and experienced business and commercial skill, hence endowments projects to succeed have to be large in scale so that they can afford the required delivery cost efficiently and effectively.


Muslim charities often lack the right corporate structure, skill and will (due to the long-term nature) to understand and manage the risks associated with endowment projects – this is where Islamic Finance sector can play a role in coming up with large scale funds and delivery partners.


In summary, there is a significant role Islamic Finance sector can play within the Mosque and Muslim charity sector – this is often ignored over profits for the wealthy. By focusing on the Mosque and charity sector, the impact of Islamic Finance can reach far and wider in UK and beyond.


End –


Author: Nasir Rafiq is the Founder and Director of Dua Governance Chartered Accountants and Business Advisors – He is a widely experienced Fellow Chartered Accountant (ICAEW) and a Charity Financial Governance Expert.



Reading between the lines – Human Appeal Inquiry

The Charity Commission on the 28th October 2021 published its decision of its 3 ½ year long inquiry into Human Appeal. This was a comprehensive investigation that has had a profound impact on the charity itself and some of the individuals involved.


This decision has caught my attention as I feel it has some important governance learning for the wider Muslim charity sector, especially charities with international operations.


In 2019, I analysed the accounts of 20 of the largest international relief charities. I found collectively, they raised £350m in UK of which around £80m was raised alone in Ramadan. Hence, there is a lot at stake, and it is imperative that charities learn lessons from such Inquiries.


Background to Human Appeal Inquiry


On 18th April 2019, the Commission opened a statutory inquiry (a serious inquiry) into Human Appeal. The inquiry focused on how Human Appeal trustees conducted themselves in relation to their duties, decision making, due diligence and financial controls.


At the time the Inquiry opened, the charity was of a significant size with an income of £36m, operations in 24 countries and over 100 full-time staff including six directors and a CEO.


My reading of the Inquiry report


The Commission report is a valuable read and trustees of all Muslim charities should read and understand the findings in this report, as much of it, is relevant to all International NGOs.


I will set out my observations below, reading between the lines.


The Trustees can’t wash their hands off overall responsibility

In large charities, trustees employ the executive and delegate responsibilities to them. This does not mean trustees have no responsibility and when something goes wrong, the trustees can simply blame the CEO and get away with it.


The Inquiry concluded that there had been misconduct and/or mismanagement in the administration of the charity by its then Trustees and identified that a significant factor in the misconduct and/or mismanagement was insufficient oversight of the charity’s executive by the then Trustees.


Steve Roake, Head of Compliance Visits and Inspections at the Charity Commission, said “While trustees of larger charities will delegate certain tasks to staff members, we and the law are clear that trustees retain ultimate responsibility for running their charity. and our guidance is clear that trustees must ensure that robust reporting procedures are in place. Responsibility for ensuring they have sufficient information and are adequately informed to make decisions rests with the charity trustees”.


It should be noted that in the detailed report, the Commission did not single out the CEO for misconduct, never mind gross misconduct.


Ignorance of Trustee(s) is not a defence


The Commission report states that part of a trustee’s role is to review proposals and challenge assumptions critically and objectively in making decisions.


No one should be able to direct the trustees or drive decisions through without sufficient consideration. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties.

In large charities (especially), it is imperative that formal systems and process are in place that provide scrutiny over Executive decision making – this does not mean, the Executive are deprived of decision making – This is one bicycle that requires both tyres to run in sync for good governance.


Trustees approve the strategy and budget. The Executive run the charity and provide timely and robust feedback to Trustees so that they are adequately and collectively assured and informed.


It is insufficient for the CEO to rely on informal relationships with the Chair of Trustees or a small of group of trustees.


It is not enough for due diligence to be done by management; Trustees must have systems in place that can adequately assure them that due diligence is actually done


Often when asked, trustees assume due diligence of donors and partners is done by management because they are paid to do it. When public funds and donor monies are involved, this is not sufficient or a responsible answer by any standard.


There is a stark difference between assumption and assurance. When someone else’s money is involved which is the case with donor monies in charities, trustees should not be relying on assumptions and mere alone representations from the executive.


A system of internal control, policy and independent assurance on their effectiveness is something that should be in place as a standard in large charities.


The Muslim charities are often lacking in this area, often because trustees have never experienced similar systems in place elsewhere and there is no compulsion within the sector for such systems to exist. This attitude needs to change – the level of funds and risks involved in the sector demands this.


Submitting true and fair statutory returns on time matters and it’s the trustees that are ultimately responsible

Charities with annual income above £1m require a statutory audit of their year end financial statements. The External Auditors are required to give an “opinion” on whether the charity’s financial statements are true and fair presentation of charity finances and activities.


There are two main types of opinion – Unqualified opinion: means a clean opinion where the auditors consider the financial statement true and fair. Qualified opinion: means a bad / adverse opinion where the auditors raise serious concerns over the financial statements.


Human Appeals submitted 2017, 2018 and 2019 (last three years) financial statements consistently show a qualified opinion disclaimer from its External Auditors.


The reason for these qualified disclaimers is due to unreliable financial records and a risk of material misstatement in its reported income and expenditure. The qualified opinion also relates to a material uncertainty that the auditors felt exists that may cast significant doubt on the charity’s ability to continue as a going concern.


This is a damning verdict on the state of Human Appeal finances, how they are managed and recorded from an independent Auditor. For a charity that raises Zakat and Sadqa monies, this is problematic, more so, as questions can be raised on its ability to account for Zakat monies properly.


The Commission recognised the qualifications of Human Appeal accounts in their Inquiry and were critical of the late and non-submission of the accounts. The Commission considered this to be misconduct and/or mismanagement in the administration of the charity and the Inquiry finds that the trustees of the charity at the time are responsible for this.


It’s the responsibility of the trustees to ensure adequate and capable resources are secured and in place for reliable financial records. International charity accounts are complex accounts with significant compliance burden, this should never be underestimated and ignored by trustees.


My conclusions


Fundraisers work hard to raise funds, they become the face of the charity. They use various strategies to convince donors on the credibility of the charities they represent.


As a result of their work, the money they raise is not just money, it represents someone’s emotions, trust, a memory of a deceased loved one or a simple sacrifice of personal funds.


It is sad when the trustees of that charity let their fundraisers and donors down by not fulfilling their legal and moral responsibilities.


The Commission in the report recognised the progress made during the Inquiry by the current Human Appeal trustees and as a result the charity is in a stronger position going forward.


However, the Commission also recognised remaining areas where significant improvements are still required. Reading through the report, the state of finances maybe one of them.


Author: Nasir Rafiq is the founder and director of Dua Governance Chartered Accountants and Business Advisors –


He is a widely experienced Fellow Chartered Accountant and a charity financial governance specialist.


End –

Stress testing of the 20 large Muslim charities in UK

Ramadan this year will be like no other Ramadan before it. The virus lockdown will mean that there will be no prayers in the Mosques or community iftars (opening of the fast). Ramadan will be at home with family.

Ramadan is also a month when Muslims give their Zakat and increase their Sadaqa donations. Ramadan becomes a peak and most busy period for Muslim charities to raise funds, especially those charities that have international relief operations. They raise funds in UK to deliver projects abroad.

The fundraising planning for Ramadan starts three months in advance and the full year’s income’ depends on the funds raised during Ramadan. The lockdown this year during Ramadan will deprive the Muslim charities from carrying out many of their planned activities.


The story of 20 Muslim charities


Each year these charities collectively raise Zakat and Sadaqa monies for emergencies. This aid saves lives by providing shelter and food when local governments often fail to do so. They provide regular support to more than 100,000 orphans living in poverty. These orphans rely on this support for a better and secure future.

Each Ramadan millions of food packs are distributed worldwide and to coincide with the Hajj ritual hundreds of thousands of Qurbani sacrifices are carried out and the resulting meat is distributed to the most in need and often in the the most remote and hard to reach places.

In order to assess the impact of the lockdown on Muslim charities working in the international relief sector, I reviewed the latest submitted audited annual accounts of 20 mainstream Muslim charities. My objectives were to assess the following:

  1. Total income raised for International relief and how much is related to UK donors.

  2. Total staff employed and the total wage bill.

  3. The average liquidity of reserves and the ability of these charities to spend without selling assets or relying on debtors.

  4. The average level of unrestricted funds that that these charities held and the flexibility these charities had in responding to the economic downturn.

The table below lists the 20 selected Muslim charities in alphabetical order.

These 20 mainstream charities are responsible for a significant portion of the funds donated by the Muslim UK donor. They operate a similar business model and face similar risks and challenges. Their combined financial position can give a good indicator on the potential issues the Muslim charity sector is set to face due to the expected and forecasted economic downturn.

I reviewed each of the accounts and took an average of two years – these latest accounts covered mostly the year 2018. I noticed some issues that made the comparison and the assessment challenging. So, I had to use my own professional judgement and experience to moderate the numbers so that the findings were meaningful and relevant.

Below are the issues that I noted during my review of these accounts.


1. Accounts show historical position more than 12 months old


Often the accounts are submitted nearer the deadline which is 9-10 months after the accounting year-end. As a result, the reported numbers represent figures that may be more than 12 months old.

International relief is a fast paced sector – numbers that showed the position and performance 12 months ago may no longer be relevant. Its important International relief charities work to submit their accounts within six months after the accounting year-end.


2. Income breakdowns are not sufficiently broken down


Income disclosures do not provide enough breakdown to assess the type of income and the geography it relates to. This causes issues when comparing accounts. Different types of income attract a different cost and operating model.


3. Understatement of fundraising costs


Some accounts either understated their cost of fundraising by allocating most of their back-office operations to charitable activities or did not disclose them at all.

Within the Muslim charity sector, the slogan of 100% donation is heavily used and it may be this is resulting in charities to understate their cost of fundraising. Although this approach may suit a certain marketing narrative, it has an effect of hiding costs and the opportunity to control such costs. You cannot fix what you can’t see.


4. Large charity size effect


Islamic Relief Worldwide (IRW) reported income was £127m, the next largest Muslim charity had reported income of less than £40m. This is important to note because if IRW is considered in a similar manner to other charities then what happens at IRW can skew the averages derived from the selected sample that includes IRW. Therefore, it is important to review the averages with and without IRW to ensure the averages were meaningful and relevant.


Findings – the impact of the lockdown


After reviewing the 20 accounts and moderating to ensure they were comparable, my findings are as follows:


I – Income – £370m raised annually of which around £80m raised in Ramadan


In the last reported period these 20 charities raised a staggering sum of £370m during a 12-month period. The UK donations were £225m (61%) of this total raised. This balance included gift aid from HMRC and also included gift in kind income of around £25m – these are goods donated to charities, mainly medical from USA and food from various global Institutions.

It is estimated that these charities raised around £80m (35%) of their income during the month of Ramadan in UK. Due to the lockdown this part of the income is at risk.


Lockdown impact on Ramadan income


Due to the lockdown these charities may not be able to raise funds from the community through Events, bucket collections or within Mosques – this will deprive them from those donors that traditionally either gave cash or pledged money at Events.

The economic uncertainty, 20% salary decrease of furlough employees and a significant drop in self-employed and cash business income can have an impact of reducing the Ramadan income from the expected levels or the levels raised in the last reported accounts.

If the Ramadan income drops by 50%, this can potentially wipe off £40m in total income and around 18% of the total yearly income. Given some costs for Ramadan have already been incurred, this will have an immediate impact on charity finances and the ability of charities to raise funds during the remainder of the year.


II – Payroll – £40m with 1300 employed with many self-employed


In the last reported period, the selected 20 charities spent around £40m on wages and salaries. Using an average salary of £27,410, it can be estimated that these 20 charities employed around 1300 employees.

The total annual wage costs of these 20 charities is around 11% of the total annual income – this is competitive and better than the wider mainstream sector average.

This does not include staff employed abroad on local partner payroll and funded by these 20 charities or those that are on self employed contracts. The number of people that rely on these charities for their sole income is far higher than the reported figure in the accounts. 


Ramadan effect – jobs at risk


The sudden drop in income in one month can increase pressure on charities to reduce their overall costs, salaries being the largest costs will need to be reduced. Although the Government has announced to support 80% of the furloughed staff, this will have little effect on charities.

Furloughed staff will not be able to generate income, jeopardising the ability of the charity to continue employing staff after the lockdown when the funds are no longer there to support them.

The self-employed income support from the Government does not come in until mid-June 2020 – this is after Ramadan and may make it difficult for the self-employed to support the charities during Ramadan.


III – Cash reserves and liquidity – Charities had £107m in cash at year-end


At the end of the last reported period, 20 charities held cash balances of £107m – this was 68% of the total funds they held. This shows the biggest asset these charities have on their balance sheet is cash and the cash they raise is not significantly used to procure assets in UK.

The last reported period showed that six charities had cash balances below the sector average of 68% making them less liquid than others. During the month of Ramadan if the expected cash is not raised then these charities may suffer immediate cashflow issues.


IV – Low unrestricted funds can harm long term viability


On average the unrestricted income accounted for 23% of the total income raised. This is the portion of income where donors do not restrict the income to a project. Unrestricted income traditionally will include gift aid and Zakat monies that the charity can spend on any project that is eligible for Zakat.

During Ramadan, charities raise a significant portion of unrestricted funds by way of Zakat and Gift Aid. A significant drop in income during Ramadan will have a bigger effect of reducing unrestricted funds available for Muslim charities.

Charities held around half (46%) of their total funds as unrestricted. However, seven charities held unrestricted funds below the total average during the last reported period. If unrestricted income is significantly reduced then these charities will have less flexibility to use unrestricted funds to cover deficits in projects, overheads or charity activities that are funded by unrestricted income. 


The response by charities must be robust


Charities must act to protect themselves and the beneficiaries they serve. The response has to be immediate and for the long term. Economists are predicting a long period of economic down turn and recession and the Muslim charities must adjust to this new reality so that they can continue for the long term. I recommend the following key actions:


1. Cashflow forecasting should drive decision making


Trustees and management must base their short- and long-term decision making on a credible cashflow forecast. This must include all cash income and spend and should aim to keep the cash levels at a certain level. The target cash level will be different for each charity based on their strategic priorities and short / long term plans.

The cashflow forecast should be for at least 24 months and the assumptions should be realistic, so that risk is managed properly.

All Auditors will require to assess the going concern of each charity they audit. This means they will need confidence that the charity will be operating without any significant disruption for at least 12 months from the date they sign the accounts – they will need to rely on a credible cashflow.


2. Reducing costs should be led by strategy and plans


All charities will have to tighten their belts and reduce cost. Reducing the wrong costs or at levels more than required can have a detrimental impact on long term fundraising, programme quality and / or levels of compliance required to protect staff and beneficiaries.

Costs should be reduced within the context of an overall strategy and long-term plans.


3. Hidden overheads must not remain hidden


Overseas project overheads can become leaks like that in a water bucket. These overheads are not separately reported as part of the annual accounts and are shown as part of the charitable expenditure on projects. The bigger the overheads, the more funds are required to deliver the actual project overseas.

Charities must consider the costs of project delivery before committing to further spend. This may require pulling out from countries where it is too expensive to deliver projects or consider joint delivery with partners that may be able to deliver cost effectively using economies of scale. These decisions should be based on facts and figures and not mere emotions, which is often the case in the Muslim sector.


4. Annual reporting must improve


We are heading towards difficult times and during these times, charities must work to improve donor confidence in them. This can only be achieved with good audited accounts that donors can use to assess performance and compare. Within the Muslim charity sector many accounts are not user-friendly or provide sufficient detail.

Large charities should consider moving to charity specialist large audit firms. The challenge provided by such firms has an effect of improving the overall external reporting and financial governance.


5. Charities should consider merging to reduce back office costs


Many Muslim sector charities deliver the same service and operate a similar operating model with little that differentiates them. They should consider merging to save back office costs and possible project delivery costs abroad.

Branding can still be maintained with existing trustees still having influence and control. Where there is a will there is way. Muslim charities should be able to provide value for money to UK donors and this is one avenue through which value can be provided. This will also ensure charities can be protected in a tough future economic environment so that they can continue to provide valuable and life saving service to their beneficiaries. 


6. Dua Governance Webinars


Dua Governance is holding a series of free webinars tailored to the Muslim charity sector. These are aimed at trustees, management and those that work with Muslim charities. Topics include the following:

  • How to use Cashflows for decision making

  • Morals of Charity Finance for Trustees and Executive

  • How to Read Charity Accounts

  • Financial Governance for Charity trustees

  • Financial Planning for Trustees & Management- International charities

  • Accounting implications for overseas charity structures

  • Salary Benchmarking – Muslim charities

  • Effective Internal Audits – Charity sector


Author: Nasir Rafiq is a widely experienced Fellow Chartered Accountant (ICAEW) and a Charity Financial Governance Expert.

He is the Managing Partner of Dua Governance, a Charity Governance specialist accountancy firm.

Nasir has held many senior finance positions within the UK charity sector and continues to advise many charities on financial governance matters.


Please email to register your interests.


Islamic Schools the Untold Story of Governance

I recently visited an Islamic school that had not prepared its last 3 years of annual accounts. The Charity Commission had threatened to take them over, so in response they sought my help. After giving the Chairman a roasting for not giving financial accountability the due importance demanded by the regulators and Islam, I discussed the underlying reasons and explored solutions.


This is not the first time, I have come across a private Islamic school in financial difficulty. The same story repeats itself. Having worked as a senior Auditor in the Education sector with KPMG, I have a good understanding on how good governance looks like in the Education sector.


With Islamic schools there is an often an untold story – they are criticised when things go wrong but nobody tries to actually understands the underlying issues, never mind coming up with solutions.


The reality

Islamic schools are often set up by someone passionate about Islamic education on a voluntarily basis and with the support of the community. Personal funds, donations and Qard-e-Hassan loans are the traditional funds that are used to purchase the building, employ teachers and for other upfront costs.


I am yet to find a school where student fees alone cover the running costs therefore reliance is placed on donations and ongoing Qard-e-Hassan loans.


The Governors are never fully remunerated from the School due to Charity Commission restrictions. They often dedicate their full time as Chief Executive and give personal guarantees on the personal loans for the school. Their reputation becomes intertwined with the school. The founding Governor is often consumed by the day to day operations and cash flow challenges.


It is surprising how some of these schools sometimes achieve good Ofsted reports on their academic achievements despite lack of resources. I put this down to the barakah placed by God due to the sincerity of the Governors, staff and parents.


So what does this mean?

These unique features of Islamic schools have some implications. These are symptoms from the issues highlighted earlier.


Qualified staff and teachers cannot be afforded by such schools – reliance is placed on staff working for religious reasons and not for money, volunteers, family friends or on inexperienced staff. This directly impacts on the overall governance and standards of the school. As staff gain experience, they often leave for better paid positions elsewhere.


Due to personal sacrifices by the founding Governors, it becomes difficult for the Governors to delegate authority to Management giving rise to internal conflict and high senior staff turnover.


Cash flow becomes a bigger priority over financial control and accountability due to the loss making situation of the school. Unrecorded debt, the reasons for losses, spend without invoices to avoid VAT is not challenged or addressed. This very attitude contributes to a culture of ambiguity and secrecy.


Those among the community that give significant donations or Qard-e-Hassan loans to the school ascertain a position where they start to influence student admissions and staff employment. This compromises quality and standards.


So what should be done?

In my view and based on my professional experience, some simple steps can significantly improve this dire situation.


1.Before embarking on setting up a school, always prepare a business plan – Good business plans help to explore eventualities, mitigate risk, assess financials at the outset and plan accordingly and helps to ensure stakeholders are engaged in a transparent manner.


2.The school must be self-sustaining. If student fees alone cannot help to breakeven then the school must be supported by other reoccurring income i.e. trading activities, grants. Again this should be explored through business planning. Donations and Loans should not be used to fund core activities. This poses financial uncertainty.


3.As a Governor the following financial KPIs must not be ignored:

a. Bank reconciliations – never underestimate the importance of this. The Governors should ensure it regularly happens and must be aware of the implications. Bank reconciliations are the back bone of financial control.

b. Always be backed by a good Independent Accountant – Volunteers or sympathisers as Accountants may not be forthcoming in making sure issues are highlighted.

c. Ensure the annual accounts preparing process takes place. This provides a good opportunity to assess the financial health to plan for future.


4. It is not sufficient for Management / staff of schools to demand one way delegation – Management / staff should also introduce sufficient checks and balances to provide independent assurance to Governors that delegated authority is not abused.


5. Regular self-assessment against readily available checklists or by professional can help to high light issues before they are picked up by external regulators. These assessment should cover financial and non-financial aspects. Regular self-assessment is common feature among good governed organisations.


These simple steps can instantly make a difference and promote Good Governance in Islamic schools. There is no such thing as a perfect organisation.


In my view gaps are not issues as long as these gaps have action plans against them. Issues and Gaps are growing sins without action plans.


By Nasir Rafiq BA ACA – Governance Expert


Managing Director Dua Governance Chartered Accountants and Business Advisors

UK Muslim INGO sector and its challenges – commentary on the ODI report

I have reviewed the HPG working paper on UK humanitarian aid in the age of counter-terrorism: perceptions and reality by the Oversees Development Institute (ODI). The paper sets out the views of different stakeholders and makes some general recommendations. The paper lays bare some very important issues often ignored and hidden by the donating public and politicians, impacting and hurting beneficiaries on the ground. My views on the report are as follows:


I have no doubt and agree with Banks and the Charity Commission on the money laundering risk around Muslim NGOs due to the high risk areas they operate within to reach those that are effected.


Banks are private businesses that need convincing that INGOs behave responsibly and are able to “demonstrate” good control through good governance and internal control framework – often the lack of it and the inability to demonstrate it, raises the risk for the banks, resulting in transfers or accounts being blocked.


The Charity Commission regulation and inspection is lacking – the compliance standard bar is very low. This has an effect on charity behaviour of just complying with the minimum, always risking non-compliance. One great example is year-end accounts that need to be filed within 10 months after the year-end – The INGOs take 9 to 10 months to finalise these, meaning it is only after this period (9-10 months) the charity can determine its true and fair year-end income, spend and reserve position. The quality of accounts is another matter.


The ODI report has an omission – the external auditors of INGOs were not engaged for their views. These are the only independent checks the INGOs really have on their accounts. These audits take account of money laundering risks and the control environment and transfers to field offices. I am surprised the ODI report missed this – hence may present an incomplete picture.


With my audit experience of the Muslim INGO sector, in my view the issue is not of new guidance but complying with the existing. In my view and experience there appears to be an issue of complacency among INGOs trustees, inability of the Executive, poor capacity of organisations and a culture of taking risks.


I came across a lack of appetite to improve governance and control from the Trustee level beyond talk. The issue of control at Trustee level is often confusingly restricted to banking controls and appointment of officers. Accountability, Delegation, Internal Audit framework, Evaluations and Risk Management with the Muslim INGO sector is poor when compared to mainstream charities and standard practice, especially in the context of operating within high risk areas. This partly because of the inability and inexperience of management in understanding these controls and not being able to implement them.


The other issue is of capacity that is wrongly driven by donor behaviour – the issue of overhead creates an environment where INGOs start competing on low overheads, exposing themselves to risk and non-compliance as management and systems are starved – 100% donation policy within INGOs is wrong and must be discouraged.


For an INGO to operate responsibly with donor money as per “regulation” in the current climate, up to 15% – 20% support costs can be justified depending on INGO business model and life cycle. Donors should be focused on governance and how the money is spent – this is where quality of year accounts and trustee reports are vital and often ignored.


The issue of culture of taking risks among Muslim NGOs must also be addressed. The ability and confidence of saying “No” or pulling out when the it is clear that the “minimum” cannot be achieved in implementing controls in high risk areas. The culture of over-riding controls to reach beneficiaries compromises the true essence of risk management. Muslim INGOs operate in a very difficult environment, often delivering where governments with all their resources fail. The plight of those affected cannot hold back those that are inspired by faith – the current climate requires that in such circumstances a responsible risk management approach is adopted – Muslim INGOs need to learn to work with each other on the ground – meaning if you cant deliver as per regulation then give to the INGO that can – this is a bitter pill to swallow but a pill that may be required.


Lastly, the recommendations made by the ODI report are general and are of common sense nature. I would have expected them to go further. In my view an environment needs to be created where driven by donors and the Charity Commission, INGOs compete each other on improving governance with a star style system like that in the US. This needs to be introduced in consultation with the banking sector so that the banks can ignore noise and rely on something credible and tangible.


Despite the issues identified in the report and my observations, I have great admiration of those that work in this sector, often on low or no salaries, inspired by faith, at times risking their lives and comfort. They are the best of humanity and must be supported by all.


By Nasir Rafiq BA ACA – Governance Expert