The philanthropic landscape in Malaysia is as dynamic and diverse as the country itself, and it has been evolving over the years. Overall, Malaysia is rich in charitable activities and expressions of generosity, and it offers a multifaceted environment for philanthropy and non-governmental organizations (NGOs). My 28-year residence in Malaysia and a 13-year journey within its nonprofit sector have given me a deep understanding of this vibrant field. I explore the sector’s intricacies in this blog post, highlighting its strengths and challenges.
The Diversity of Nonprofits
Malaysia’s nonprofit sector is a tapestry woven with various threads, each organization representing a unique mission and set of objectives. Religious and non-religious NGOs coexist, addressing a wide array of issues from community welfare to environmental conservation. This diversity enables a holistic and more comprehensive approach to social challenges, ensuring a broad spectrum of needs is met.
As a majority Muslim nation, Malaysia’s philanthropic sector is driven by Islamic values and modern financial mechanisms. Notable innovations include the Sukuk Ihsan Programme by Khazanah, a sovereign wealth fund that supports educational projects with a fund of USD 282 million.[1]
The sector’s most significant opportunity lies in multi-sector partnerships for social impact, exemplified by initiatives like the Social Outcome Fund, which leverages impact bonds to incentivize collaboration between businesses, NGOs, and government agencies to tackle social challenges, and the Malaysian Collective Impact Initiative, bringing together diverse stakeholders to implement a shared vision for educational improvement. This initiative also includes leveraging the growing force of businesses with dedicated corporate social responsibility (CSR) arms. By forging powerful collaborations that bridge the gap between businesses, NGOs, and government agencies, multi-sector partnerships unlock a transformative force for social change. This synergistic convergence of resources, expertise, and networks empowers these diverse entities to tackle complex challenges with greater efficacy and reach, far exceeding the capabilities of any individual sector.
State-Run Nonprofits and Religious Organizations
Malaysia is a constitutional monarchy comprising 13 states and three federal territories. Nine of the 13 states are ruled by sultans (monarchies), while the other four have rulers appointed by the King, Malaysia’s federal head of state. The position of King is unique in Malaysia. Unlike a traditional monarchy, it’s not a lifelong role. Instead, the nine sultans themselves elect one of their own to serve as King for a five-year term, creating a rotating monarchy.
Each state has a written constitution, legislative assembly, and executive council. The executive council is accountable to the legislative assembly and is led by a chief minister. The federal territories include Kuala Lumpur (the capital city region), Putrajaya (the administrative capital), and Labuan (an island off the coast of East Malaysia). They have the same status as states but lack separate legislatures or heads of state.
State-run nonprofit organizations, established and funded by state governments, are crucial in addressing various societal needs. Religious state-run organizations hold a distinctive role in managing and distributing zakat, a form of almsgiving and a religious obligation for Muslims. One notable organization in Selangor, a state in Malaysia, is Zakat Selangor (Lembaga Zakat Selangor – LZS).
Zakat Selangor is key in effectively managing zakat funds in the region. It oversees the collection and distribution of zakat, aiming to reduce social disparities through a mix of religious, social, and economic initiatives. LZS has shown financial strength, with its collections increasing annually. For example, it collected 733.3 million ringgit (USD 183.30 million) in zakat in 2017 and over a billion in 2022 (USD 227.30 million). Despite challenges like the COVID-19 pandemic, the organization’s growth is attributed to the rising awareness of LZS among Muslims in Selangor, bolstered by their extensive campaigns. LZS has facilitated this growth by offering various payment options, including salary deductions, online banking, and direct debit services, simplifying the zakat fulfillment process for Muslims.
Technology and Nonprofits
The advancement of digital technology has significantly influenced nonprofits like LZS in Malaysia. With about 80 percent of Malaysians having internet access, primarily through mobile networks, integrating technology into operations is essential. Digital tools tailored for the nonprofit sector, such as donor management and fundraising platforms, have enabled organizations to improve operational efficiency and transparency. This technological shift is vital for maximizing social impact in Malaysia, a country actively fostering tech talent development and digitizing traditional sectors, including nonprofits.
Addressing Governance Challenges
The diversity in Malaysia’s nonprofit sector, however, presents governance challenges. The sector is overseen by various entities, including the Registry of Societies (ROS), the Companies Commission of Malaysia (CCM), the Prime Minister’s Office, state governments, the Registrar of Youth Societies (ROY), and religious councils. While this multi-body governance provides specialized oversight, it can lead to regulatory complexities and inconsistent standards. NGOs must navigate this complex landscape, which can be particularly daunting for those with limited resources. The absence of a centralized regulatory body for charitable organizations in Malaysia further complicates the legislative framework, leading to a lack of coherence.
Recent Taxation Changes
Between 2021 and 2022, the Malaysian government decided to tax all foreign income. This policy means that income derived from foreign sources is now taxable, regardless of whether it is remitted to Malaysia. Consequently, NGOs in Malaysia must pay income tax on any foreign income they earn, including funds from parent organizations abroad. This policy has raised concerns among international NGOs operating in Malaysia. However, NGOs may qualify for a tax exemption on their foreign income, although achieving this status can be complex.
The financial burden of the new taxation policy could impede international NGOs’ operational capabilities, affecting their sustainability and potentially reducing the funds available for charitable activities. This impact could diminish the effectiveness and reach of these NGOs. Faced with increased financial pressures, some international NGOs might reconsider their presence in Malaysia or contemplate relocating to countries with more favorable tax regimes. Such departures or downsizing could negatively impact the local communities they serve, especially in areas where local NGOs lack the capacity (financial resources, manpower, expertise) to compensate for the lost services. These tax regulations may also deter international NGOs from expanding or initiating operations in Malaysia, limiting the exchange of global expertise and resources.
Empowering the Nonprofit Landscape in Malaysia
Despite these challenges, significant opportunities exist to strengthen Malaysia’s nonprofit sector, especially for local organizations, through capacity-building and upskilling initiatives.
Bridging the Skills Gap
Nonprofits in Malaysia grapple with the pressing need for capacity-building and upskilling programs. Capacity-building programs can effectively address this gap by providing training in essential areas such as organizational management, fundraising strategies, program development, and technological proficiency. These interventions are crucial for enhancing their operational efficiency, amplifying their impact, and securing their long-term sustainability.
Harnessing the Power of Collaboration
Collaboration between local and international NGOs can be highly beneficial. Such partnerships enable knowledge and resource sharing, bringing innovative approaches and expanded impact. Government bodies and larger organizations can facilitate these collaborations by providing training and dedicated resources for networking and joint initiatives. Furthermore, policies promoting knowledge exchange and personnel movement between local and international NGOs can strengthen these collaborative efforts.
Spotlight: NAMA Foundation
NAMA Foundation’s Philanthropic Leadership and Management training program is a shining example of how targeted training programs can empower local NGOs to reach their full potential. Conducted in December 2022 and led by Dr. Shariq Siddiqui, an esteemed expert in the field of philanthropy, this program brought together leaders from 70 diverse nonprofits across Malaysia, fostering a rich exchange of experiences and perspectives. Participants explored the intricacies of fundraising, program development, organizational management, and financial sustainability, gaining valuable insights into the critical factors that underpin successful nonprofit operations. Beyond imparting essential knowledge and practical skills, the training program catalyzed network building. Participants forged connections with fellow nonprofit leaders, both locally and internationally, establishing a network of support and collaboration that extended beyond the confines of the program.
Conclusion
Malaysia’s philanthropic environment is a dynamic ecosystem characterized by diversity and complexity. While challenges exist in governance and taxation, there are ample opportunities to strengthen the nonprofit sector. Capacity building, networking, and collaborations with international organizations can significantly empower local NGOs to impact their communities.
As Malaysia progresses, government bodies, larger organizations, and philanthropic leaders must continue supporting and nurturing the growth of the nonprofit sector in Malaysia. By working together, it can be ensured that NGOs in Malaysia continue to thrive and create positive change for the betterment of society.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official views of the IU Lilly Family School of Philanthropy.
[1] https://www.reuters.com/article/idUSL4N0XQ2A4/
About the Author
Tulib Ahmed is a passionate advocate for education and sustainable development, boasting over 15 years of experience driving positive change within the non-profit sector. He holds a bachelor’s degree in information and communication technology from the International Islamic University, Malaysia, and his fluency in English, Arabic, and Bahasa Malaysia allows him to connect with diverse communities on a global scale.
Tulib’s career trajectory reflects his unwavering commitment to social impact. For over 15 years, he has worked and collaborated with renowned organizations such as the World Islamic Economic Forum Foundation, NAMA Foundation, and the United Nations. His expertise lies in strategic planning, public relations, partnerships, and marketing.
Tulib actively contributed to organizing the prestigious 10th, 12th, and 13th World Islamic Economic Forums, held in Kuala Lumpur, Johor Baharu, and London, respectively. Currently, Tulib serves as the PR & Partnership Consultant at NAMA Foundation.
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