Dubai startup wants to launch ‘Amazon for zakat’

Finocracy hopes its digital platform will help connect nonprofits with Muslim giving and bring Islamic fintech to life

Dubai-based startup Finocracy plans to launch a digital zakat platform to connect charities with Muslim donors, capitalising on a wider push to modernise Islamic giving and ignite an emerging social fintech sector.

Set to launch in May before the holy month of Ramadan, Human Crescent will allow Muslims to pledge zakat directly to a network of nonprofits and charities. The aim is to create a one-stop-shop for zakat contributions, and to increase funding to projects generating long-term impact, said Finocracy CEO Raafi Hossain.

“If you want to buy a television, you don’t go to, you go to Amazon. That’s what we’re trying to do in the zakat space. The charities already exist, we’re just trying to aggregate opportunities for people,” said Hossain. “It’s a tremendous opportunity and a tremendous logistics challenge.”

Faced with a $15bn global shortfall in humanitarian funding, aid agencies are increasingly looking to sharia-compliant giving as a means of filling the gap.

"People want to make sure their money is going to the right source"The UN estimates that between $232bn and $560bn was given in zakat globally in 2015, while other estimates put the figure nearer to $1 trillion. Even a small slice of this capital would help plug the UN’s emergency needs, noted Hossain.

Human Crescent’s founders would like to see the platform tap into $1bn of such giving within five years, he added. 

Human Crescent will translate the eight traditional zakat categories into six causes, and plans to feature global NGOs working with trafficking victims, refugees, education, microfinance, disaster victims and poverty alleviation. This year’s drive will additionally focus on the Syrian and Rohingya refugee crises.

The site will help zakat donors track the impact of their giving in different sectors “like a stock portfolio”, said Hossain. Charities will also be required to report back and outline how the funds were used.

Although the platform is open to everyone, Finocracy anticipates the first wave of users will be Muslims in countries more comfortable with online transactions. In time, they hope it will gain a user base in the Middle East, as fintech brings e-commerce and digital banking into the mainstream.

“When it comes to giving in the Gulf, people want to make sure their money is going to the right source. Clicking a button doesn’t have the same emotional engagement [as giving directly to a person in need],” said Hossain. “One way to combat that is to show the beneficiaries and impact of the donation on the digital platform to create engagement.”

Reluctance to use fintech points to a wider problem of how to maximise Islamic giving in the Middle East. The region’s slow adoption of online finance hampers nonprofits’ efforts to tap into a vast, but opaque, network of Islamic philanthropy.

According to Hossain, part of the problem is that the Islamic finance sector has struggled to attract young people, the driving force behind the fintech revolution in other markets. Investors have also proved wary of sharia-compliant platforms, he said. “You end up with great platforms, but they have little technology backing because tech is expensive,” said Hossain. “It’s a chicken and egg scenario.”

Finocracy is one of the founding members of the Islamic Fintech Alliance in Kuala Lumpur, Malaysia, set up last year to promote collaboration between sharia-compliant banks, Muslim philanthropists and technologists.

The firm will also open its first startup incubator in Bahrain this year, to foster innovation in Islamic social finance. Finocracy Labs will focus on four technologies: artificial intelligence and machine learning, blockchain technology, the Internet of Things, and peer-to-peer technology. The scheme is backed by professional services firm EY, the Economic Development Board of Bahrain, the World Congress of Muslim Philanthropists, and the Islamic Corporation for the Development of the Private Sector - an arm of the Jeddah-based Islamic Development Bank.

“There is a waiting game being played around the viability of Islamic fintech,” said Hossain. “Poverty is decreasing around the world. But what we want to see is a very robust middle class emerge, and achieving that has a lot to do with connecting Islamic finance with technology.”