Ramadan is a month when Muslims give their Zakat (obligatory donation) and increase their general donations and prayers in mosques. This is driven by the belief that every act during this month is rewarded by God many times more than outside this month.
As a result, Ramadan is one of the busiest periods for Muslim charities in terms of raising funds. It is estimated that about 35 per cent (if not more) of their annual income is raised during this month. Charities start planning for Ramadan campaigns three months before the start of Ramadan.
In order to assess the potential impact of Ramadan lockdown on Muslim charities, I reviewed the latest submitted audited annual accounts of 20 mainstream Muslim charities focused on international relief.
Each year, these charities support more than 100,000 orphans, distribute millions of food packs globally and provide live-saving food and shelter support during international emergencies.
In the last reported period these 20 charities collectively raised £370m, of which UK donations were £225m (61 per cent). About £80m was raised during Ramadan alone.
The lockdown conditions mean Muslim charities will not be able to raise funds through community events and iftars or in mosques during their busiest time. In addition, the economic uncertainty and fall in household income will reduce the ability of donors to donate as they did before.
My analysis suggests this could reduce Ramadan income by 50 per cent of the target level. Based on the last reported positions of the 20 charities, this can be estimated at about £40m, some 20 per cent of their annual UK income.
These 20 Muslim charities spend about 11 per cent of their income on salaries and employ around 1,300 staff.
The largest category of assets these charities held was £107m of cash, 68 per cent of the total funds they held. Six charities had cash balances below the sector average, making them less liquid than others.
On average, their unrestricted income accounted for 23 per cent of the total income raised. Unrestricted income within Muslim charities will traditionally include Gift Aid and Zakat monies. Most, if not all, international relief projects are eligible for Zakat spend.
During Ramadan, charities raise a significant portion of unrestricted funds by way of Zakat and Gift Aid. A significant fall in income during Ramadan could have the bigger effect of reducing the unrestricted funds available to Muslim charities. About half (46 per cent) of these charities total funds were unrestricted. However, seven charities held unrestricted funds below the total average during the last reported period.
Impact of lockdown
Ramadan during lockdown will probably have an immediate impact on Muslim charity finances and their ability to raise funds during the rest of the year. The sudden drop in income will increase pressure on charities to reduce their overall costs – and salaries, being the largest cost, will need to be reduced. Although the government has announced that it will support 80 per cent of the income of furloughed staff, this will have little effect on these charities.
If the expected cash is not raised during the month of Ramadan, these charities might suffer immediate cash-flow issues. If unrestricted income is significantly reduced, they will have less flexibility to use unrestricted funds to cover deficits in projects, overheads or activities that are funded by unrestricted income.
The response to these challenges must be immediate and targeted for the long term. Going forward, cash-flow forecasting should drive cost-cutting and strategic decision-making. Reducing the wrong costs or at levels more than required can have a detrimental effect on long-term fundraising, programme quality and the levels of compliance required to protect staff and beneficiaries. Some Muslim charities focused on international relief deliver the same service, with little that differentiates between them, so they might consider merging to save back-office costs and possible project delivery costs abroad.
These will not be easy decisions, but at a time of great uncertainty Muslim charities must act to protect themselves and the beneficiaries they serve around the world.
Nasir Rafiq is the founder of DUA Governance, and a former finance director at Islamic Relief Worldwide