FinTech-Enabled Endowment: A Proposed Financial Sustainability Model for Not-for-Profit Human Development Institutes

Abstract

The socio-economic conditions of the world’s underprivileged people have been a matter of concern to the whole world for over three decades. Not-for-profit human development institutes helping this sector have financial sustainability as an important issue due to their usual dependence principally on funding from donors to operate and fund their tasks. This research has adopted a two-fold examination method. Primarily, the financial sustainability of the not-for-profit human development institutes working in Pakistan have been investigated by conducting ratio analysis grounded on donor dependence ratio (DDR), and using constructive grounded theory, a FinTech-enabled financial sustainable model, has been proposed for NPHDIs. Results of the initial phase demonstrated a heavy reliance on donors’ funding, with the DDR varying between 91.73% and 100% based on 10 randomly selected NPHDIs working in Pakistan as a sample. Furthermore, four key themes have been categorized during the subsequent phase, which have been articulated collectively to outline the FinTech-enabled endowment—a proposed financially sustainable model. The DDR for the selected NPHDIs have been found to be greater than 25%, so they are regarded as financially unsustainable. FinTech-empowered endowment is considered as an alternative to donor fundings, as such endowments based on social finance can provide income streams that are considered sustainable for these NPHDIs. The overview and implications lead to new knowledge of tackling the biggest challenges of providing sustainable finance to the social sector. This perspective of ethical finance helps to address the issues faced by this world’s underprivileged segment and address the problems of poverty and inequality elimination.

1. Introduction

The socio-economic development of the world’s underprivileged people has been a matter of concern to the whole world at least three decades [1,2,3,4,5]. Financial sustainability plays a pivotal role for not-for-profit human development institutes (NPHDIs), as both their capability to serve these people [6] and the very survival and existence of these organizations [7] are dependent on it. FinTech-enabled endowment has the capability to provide financial Sustainability for NPHDIs [8,9,10,11] and at the same time contribute towards the achievement of all 17 Sustainable Development Goals (SDGs) aiming at the socioeconomic development of this underprivileged segment [12]. Not-for-profit human development institutes are principally dependent on funding from donors fund their everyday operations [13]. The shift in the donor’s preference for donations can lead to doubtfulness in the generation of funds [14], pushing these organizations into instability [1], which not only holds back their capability to serve this segment but also becomes a big issue for their survival and existence [7], i.e., financial sustainability [6]. FinTech-enabled endowment is one main alternative to donors’ dependent funds, which can provide sustainable revenue streams for these NPHDIs [8,10,12] based on social finance theory [11].

Social finance is often distinguished as a universal remedy for addressing the problems that impact the world’s underprivileged people [11]. It includes endowment and technology [9], more precisely FinTech [15]. FinTech for nonprofit/charity institutes is a complete game-changer based on the theory of IT affordance [8,10]. The issues of traditional nonprofit/charity institutes can be resolved through the adoption of FinTech-grounded technology [16], and this will result in increasing efficiency, minimalizing overheads, and granting comprehensive transparency [17]. However, the concern of financial sustainability of the nonprofit/charity institutes needs more consideration and additional research. Ex ante literature is associated with NPHDIs’ aims on social and sociological views, i.e., their social impact [18], although NPHDIs’ financial sustainability is associated with the essence of management, financial management, and technological applications [19].

Financial sustainability is majorly influenced by the changing donors’ preferences for providing the funds, which leads to obstacles in realizing the required level of funding for these NPHDIs and thus result in short fall of required funding targets [7]. A sustainable NPHDI or sustainable civil society organization (CSO) is defined “as an organization that can continue to fulfill its mission over time and in so doing meets the needs of its key stakeholders, particularly its beneficiaries and supporters” [7,20]. Typically, NPHDIs are extensively dependent on funding from donors, and changes in the donation preferences of the donors may lead to a decrease in and reprioritization of funding for these NPHDIs and thus may jeopardize NPHDIs’ existence and services offered [7]. Given these conditions, the core of this research article is: How can NPHDIs’ financial sustainability be guaranteed through a blend of endowment and FinTech?

This article contributes by proposing a FinTech-blended endowment [10] as a model for the financial sustainability of NPHDIs [20,21], which in turn benefits from the Islamic endowment (waqf)’s revival [22] and ultimately promises the socio-economic development of the people, especially for the underprivileged segment [2]—as awqaf (waqf’s plural) offer the contribution to all 17 SDGs, they can be included in the mainstream financing tool aiming to realize SDGs [12,23]. Explicitly, this research adds to the ex ante endowment fund literature, with focus on its creation and utilization, and its further blending with FinTech, as this research proposes, is a model for the financial sustainability of the NPHDIs through FinTech-enabled endowment. This research also adds to the ex ante social finance literature, specifically responsible finance, as their industry-wide definitions are still evolving as academic literature [11,23,24].

The rest of the research has been organized in the following way: the following section briefly reviews the ex ante literature on this topic and assists in understanding socio-economic development and other related variables, followed by a section which mentions the methodology of the study. The remaining portions demonstrate findings, discussion, conclusion and implication, limitations of the study, and areas for future research.

2. Literature Review

Socioeconomic Development: The core focus of the Sustainable Development Goals is socioeconomic development. Currently, about 689 million people around the world reside on less than USD 1.90 a day, representing 9.2 percent of the global population [25]. Furthermore, there are 258.4 million children in the world categorized as out of school (OOS), constituting 16.67 percent of the world population of the school-going age group [26]. If the current trend continues, then it is estimated that by 2030, the number of OOS children will be more than 800 million, which will represent half the generation of youth [27]. In society, the leading political and economic classes are least bothered about the quality of education at public schools as the learning of their kids is not influenced by that [28]. Furthermore, until the year 2022, Pakistan was ranked as the country with the second-most out-of-school children [29] with an estimated 22.8 million out-of-school children [30,31,32]. However, in the year 2023, Pakistan was declared to have the largest number of out-of-school children, with an estimated 28 million out-of-school children [33]. On the basis of the Human Development Index (HDI), Pakistan is ranked 147th out of 188 countries and has been categorized as a low human development nation [34] and the only nation in South Asia to be ranked in the low human development classification [35]. In the fiscal year 2020–21, the poverty ratio in Pakistan stood at 39.3 percent based on the lower–middle income poverty line defined by the World Bank as the point of reference [36]. Accordingly, the world’s developing countries find management and development of human capital even more difficult [25] as there is a dearth of political resolution along with the lack and mishandling of necessary and existing means, respectively [28]. Inadequate public finance is one of the main restricting factors [9,27], which proves to be a great challenge in bringing the underprivileged segment out of poverty and inequality, and this setback must be addressed through NPHDIs.

Not-for-profit human development institutes (NPHDIs): NPHDIs perform a vital role in international development [37], specifically in developing nations [7,37]. According to the World Bank’s (1999) definition, “organizations that are largely independent of government and characterized principally by humanitarian or cooperative, rather than commercial, objectives” [1]. NPDHIs can offer services both geographically (in rural/remote areas) and in various service sectors (such as health, education, etc.) that governments are occasionally unable to serve. They can help in attending to the basic needs that are not being met by the government or by the market. Their operations are being supported mostly through national and global donations from donors, which depend on the fundraising activities by these associations, with only limited access to the governmental funding [38].

As NPHDIs depend on either personal charitable or official aid, then this strategy is labeled as a high-risk strategy [20]. Dependence on donors’ funds is rather a high-risk strategy considering that there is no assurance of funding on a long-term basis. Funding cutbacks are challenging for NPHDIs as it affect all organizational aspects such as from project planning to implementation as well as everyday operations [39], which leads to the problem of Financial Sustainability. This is evident from Sindh Rescue and Medical Services, previously Aman Ambulance, Pakistan, which was taken over by the Government of Sindh to meet the operational expenses of this service to the common people [13]. For this article, the term not-for-profit organizations will be replaced by Not-for-Profit Human Development Institutes (NPHDIs), as their primary focus of these associations is Human Development [1].

Financial Sustainability of Not-for-Profit Human Development Institutes (NPHDIs). Financial sustainability is critical for the continued existence of an economic entity [40], particularly during the global pandemic—i.e., COVID-19—which has affected the entire world [41]. Economic growth has been projected to be negative along with the existence of recession since the third quarter of the year 2020 [41], so achieving financial sustainability for NPHDIs is even more difficult [13,19]. Several authors have defined financial sustainability differently. According to (1) Ponce, Rocha, and Navarro (2021), financial sustainability is a variable that shows whether an association can remain operational without funds from (external) donors [42]; according to (2) Wandera and Sang (2017), financial sustainability is the assurance that an association’s purposes are achieved by ensuring that the association produces sufficient revenue to allow it to invest for future growth [14]; according to (3) Bolívar (2016), financial sustainability is the capability of an NPO (NPHDI) to continue operations currently and in the future with the prevailing strategies without triggering the liability to increase limitlessly [40]; and according to (4) Ebenezer et al. (2020), financial sustainability is the ability of the association to assign capital on the basis of existing prospects and challenges confronted while at the same time being able to maintain a comprehensive financial balance over the long-term to produce its own income or accumulate resources locally while reducing dependency on donation from international donors and still be able to undertake the vital ventures for the period [19].

Numerous workable alternatives i.e., strategies can be utilized to achieve financial sustainability for NPDHIs. The eggs-in-multiple-baskets strategy is one of them, which is further divided into two with regards to income, one being “Diversification of Income” and other being “Generating Own Income” [7,19]. According to León (2001), diversification of income can be realized if funding from five distinct sources constitute a minimum 60% of the total funding [43]; however, according to Ebenezer et al. (2020), income diversification can be realized if funds come from fewer sources, including community funding (20%), universal donors (50%), fees from membership (20%), and other sources (10%) [19]. Generating own income incorporates various alternatives; a few crucial sources include endowment funds and social enterprises [7,19]. Generating own income results in the possible sustainability of NPHDIs when at least 75% of the NPHDI’s income is generated through its own trading revenue [11].

For this article, financial sustainability is demarcated as the association’s ability to generate its own income with the slightest dependence on funds received from donors to meet its day-to-day expenditures, measured by the donor dependency ratio for NPHDIs and calculated by dividing the donation revenue received with the total revenue of the NPHDI [19,44]. The majority of NPDHIs in Ghana, Zimbabwe, Kenya, and Ethiopia have highlighted the existence of sustainability problem, as their donor dependency ratio has been on average above 90 percent over a five-year time period [19].

Endowment Fund: These are vital assets of strategic nature and scared trust for NPHDIs with two significant features, i.e., (1) they are restricted and (2) they are an everlasting source of income [45,46], and these are well defined as “a charitable gift established in perpetuity in which the principal is invested for total return (both income and appreciation) and a small portion of the fund’s balance (usually 4 to 6%) is paid out, generally on an annual basis” [21,46]. Additionally, the Uniform Management of Institutional Funds Act (UMIFA) has defined an endowment fund as “an institutional fund, or any part thereof, not wholly expendable on a current basis under the terms of the donor’s gift agreement” [21]. Earlier research has cited that endowment funds existed centuries before—i.e., in the 2nd century, 8th century, and 9th century [21]—whereas contemporary endowment fund initiatives have been in existence since as early as the 15th century [45]. A few examples of associations where Endowment have been established are: (1) the Costa Rica United States Foundation for Cooperation (CRUSA), (2) the German Marshall Fund of the United States (GMF), and (3) the Luso-American Development Foundation (FLAD) [47].

An endowment fund is a collection of cash funds and is regarded as one of the numerous social investments that have high impact, and NPHDIs can guarantee their existence and sustainability and assure that these associations will continue their operations or a particular program, such as “affordable high-quality education”, specifically in low-income segments of society through this critical and vital financial instrument, i.e., endowment funds [20,21]. Dr. J. Campbell, an economics professor at the Faculty of Arts and Science, Harvard used “Vigorous Immortality” for endowment. He has defined Endowment as “a promise to donors that there will be vigorous immortality for their financial gifts. Vigor refers to the spending we can do now, the impact we can make now. The donors, the university community, and the public—all want to see the results from the spending today. Immortality refers to the fact that we don’t just want to see results today, we want to see a spending program that carries on indefinitely” [46].

Three types of endowment have been identified by the Financial Accounting Standards Board (FASB). They may be termed as (i) true, (ii) quasi, and (iii) term endowments. In the case of a true endowment, the donor’s gift is to be held forever in an endowment. In quasi endowments, the association’s board of directors invest organizational money as an endowment. Lastly, in case of term endowments, an endowment is created for a specific time period or until the occurrence of a future event [21,48]. Mr. D. Shore, VP Finance and CFO at Harvard University from 2008 to 2014, has mentioned that Harvard has a blend of both flexible and restricted endowments—around 30% are flexible, while 70% are restricted, i.e., a meaningful percentage is flexible, but the bigger portion of the endowment is restricted [46]. Lawrence S. Bacow, a Board Member of Harvard Corporation revealed that “endowment is the aggregation of thousands of funds that collectively constitute the Harvard endowment, each one given by a donor typically with a specific intent and a specific purpose. And the money is not fungible. We cannot say to a donor who’s given us money to endow a new program or to support the library. That we’re going to take from that program, instead, divert the resources to support something else. We’ve made commitments to those who have entrusted these funds to us” [46].

With decreases in the money received by these associations due to a change in landscape of donors’ funding, the significance of endowment to overcome this fund dearth has multiplied many times [7,21,46]. Dr. B. T. Long, Saris Professor of Education and Economics, Harvard Graduate School of Education said that “endowment plays a very significant role for Harvard University, primarily to meet the shortfall between the reduced research funds received, and the cost of continued research, and then to fill the gap between tuition-fee charged to the students and the high educational cost that is subsidized, as the tuition-fee covers a trivial portion of several activities done at the university” [46]. NPHDIs typically have no or very small endowment funds. Numerous boards of directors do not take into account an endowment as a remedy, although an endowment can potentially provide operational funds, income in the time of sluggish economic outlooks, and a basis of providing funds for novel ground-breaking programs during prosperous years [21].

Islamic Endowment—Waqf or Awqaf: The Arabs were unaware of the idea of waqf before Islam, and the Holy Prophet Muhammad (Sallallahu Alaihi Wasallam) introduced it to them [49] (Originally, published during the 19th Century). Sukmana (2020) defined waqf as “an endowment (donation) made by a donor under Islamic Law to a fund manager (mutawali/nazir) who is responsible for generating profits that are subsequently used to support socio-economic development” [12]. In waqf, the endowed donation is invested to keep it intact, while only the return or income generated from the endowed donation is utilized for meeting the operational expenditures of the NPDHIs [50] (originally published during the 9th century); [51] (originally published during the 10th century).

During the medieval period, the endowment instrument was so developed that “thanks to the prodigious development of the waqf institution, a person could be born in a house belonging to a waqf, sleep in a cradle of that waqf and fill up on its food, receive instruction through waqf-owned books, become a teacher in a waqf school, draw a waqf-financed salary, and, at his death, be placed in a waqf-provided coffin for burial in a waqf cemetery. In short, it was possible to meet all one’s needs through goods and services mobilized as waqf” [52]. During the initial days of Islam, a waqf was established by each companion of Prophet Muhammad (Sallallahu Alaihi Wasallam) who could afford to do so [53]. Theoretically, endowment and waqf or awqaf are considered alike [12], but they may differ considerably on the operational side [21,22,48]. Though the targeted spending from income of endowment at Harvard University has ranged from 5% to 5¼% over time [12]. This means that the current endowment practices have the potential to reach that point, where all public requirements are met through goods and services made available through endowment or waqf, as it had been developed during the earlier time mentioned above [52,54].

Nevertheless, some Western researchers are of view that awqaf cannot contribute to the socio-economic development in the contemporary era [55], but some current studies have highlighted that awqaf can potentially contribute to all 17 SDGs. Therefore, awqaf should be built-in the mainstream financing instrument aiming to achieve SDGs [12,23]. Historically, it has been obvious that “the scope, effect, magnitude, and viability of waqf has been far superior than any other charitable instruments in Islam like hibah, sadaqah, nadhr, qard, and wasiyah” [56]. The establishment of the world’s oldest universities, like, the University of Al Qarawiyyin, Fez, Morocco (857–859), and Al-Azhar University, Cairo, Egypt (in 975) have been based on waqf-based assets [57,58]. Throughout the Ottoman Empire, there existed numerous groundbreaking awqaf, like the Credit Waqf, Haramayn Waqf, Revenue Waqf, Soup Kitchen Waqf, Social Security Waqfs, Waqf founded by Women, Waqf Libraries, and Waqf Waters [59,60].

Waqfs have the potential of becoming a possible significant financial resource as an alternate for the governmental external debts [12]. The takaful industry in Pakistan applied a waqf-based business model, while the takaful firms share the return of their business with their shareholders as well as takaful policyholders [61]. However, the awqaf can create a substantial socioeconomic development impact, but it has been left behind compared to other Islamic economic sectors. There is a requirement to increase awareness level about awqaf’s potentials, which is a significant marketing aspect for awqaf establishments [12].

FinTech-enabled Endowment and FinTech-enabled Waqf: FinTech [62], being a disrupted technology, has revolutionized the financial sector. It has not only automated numerous procedures from simple repetitive and manual tasks to non-repetitive and cognitive decision-making but has also eliminated or reduced the costs of conducting financial transactions. FinTech has renovated the three main areas in finance—the technique of raising, apportioning, and transferring money [63], especially for charitable associations [64,65,66]. Earlier micro-donation checks were considered unfeasible because of high check collection and processing [66]. The check collection and processing costs for checks valued between USD 1 and USD 50 ranged from 3% to 285% [66], but FinTech innovative payment technologies have made them economically feasible [10]. Digital Charity Box (DCB) is one of the creative applications of FinTech, and through the DCB small scaled NPHDIs can swiftly raise a huge amount of funds for their charitable activities [67].

FinTech for NPHDIs can be defined as “any technology that eliminates or reduces the costs of financial transactions [63], with enhanced transparency [17,68,69] and efficiency for the NPHDIs [10]”. Endowment can be defined as “a perpetual charitable gift with the principal being invested for return, both income and appreciation in value, while a minor percentage of the fund’s balance is utilized to meet the operational expenses of NPHDIs” [21,46]. According to non-profits sources, a majority (54 percent) of universal donors favor online donation [65], and many donations worth millions of USD have been collected by integrating charitable donations into everyday business transactions through FinTech [10], so FinTech-enabled endowment or waqf has the potential to revolutionized the operations of NPHDIs [70]. This integration of technology [69] and social finance instruments [71] can augment transparency, operational efficiency, and financial sustainability for NPHDIs [69]. Sukmana (2020) emphasized that future research should be conducted in the area of an Islamic contract underlying waqf financing to cater to the needs of elementary sectors, i.e., agriculture, education, etc. [12]; furthermore, there are many possible gains for the masses through the amalgamation of FinTech and Islamic finance [17,71].

3. Methodology

Method: The research has been conducted with the approval of the Institutional Ethical Review Board. The study has utilized a two-fold research approach, with population of this study comprises of NPHDIs operating in Pakistan, a country facing numerous challenges on the socio-economic frontiers. During the initial phase, financial sustainability via ratio analysis has been evaluated for NPHDIs operating in Pakistan [72], and during the subsequent phase, using constructive grounded theory—“a FinTech integrated Financial Sustainability Model for NPHDIs”—has been proposed [73,74,75].

Sampling and Data Collection: The population data considered in the first phase are from the Pakistan Centre for Philanthropy (the Federal Board of Revenue (FBR), a Government-of-Pakistan-nominated Agency to certify charitable associations [76]) (PCP)’s “NPO Directory”, available via its website [77]. The population comprised of 893 PCP listed NPHDIs as on 6th November 2021, and only 47 listed NPHDIs have their audited annual reports for at least recent last five years available through their respective websites (refer to

Table 1. The PCP’s list of certified charitable associations.

Number of Charitable Associations Listed by PCP
Population	Charitable Associations with Availability of Accounts Audited in Last 5 Years Relevant Population	Randomly Selected Sample
893	47	10
Source: [78]	Authors’ Computation

below). Therefore, for this research, this forty-seven (47) NPHDIs subset is considered to be relevant NPHDIs population for this research, and a random sample of ten (10) NPHDIs has been drawn, which represents around 20 percent of the selected population.

During the next phase, using mainly purposive sampling [79] along with occasional use of snowball sampling [80], 10 participants representing industry professionals (like financial professionals with sharia knowledge, sharia advisors working at Islamic banks and consultancy firms, and professionals serving the social sector) were first interviewed in-depth [74] to develop a proposed sustainable financial model for NPHDIs. Lastly, two in-depth interviews [74] were also conducted with two FinTech professionals with an aim of integrating the formerly proposed financial sustainable model for NPHDIs and FinTech to provide a solution for the investigated research question. In snowball sampling [80], the participants suggested other Financial Industry, and/or FinTech Professionals. Informed consent to participate in the study was obtained from the interviewees. Charmaz (2006) [73] and Marshall (1996) [81]’s guidelines for sample size have been adopted. On reaching the saturation point, the data collection was stopped as gathering new data no longer highlighted new insights or reveals new properties [73] due to the categories (or themes) becoming saturated. According to Marshall (1996), if the research-investigated question is satisfactorily answered, then in a qualitative study, the sample size is not an issue [81]. Even for very detailed studies, it could be in the single figures.

Data Analysis: During the initial phase, data analysis is conducted based on ratio analysis [72], i.e., through donor dependency ratio (DDR) [19,44]. Then, during the next phase, based on the transcription of the participants’ interviews, the transcripts are firstly “open coded”, and afterward “refocused coded” to develop categories and finally evolve the grounded theory [75]. The data analysis being conducted during the later phase through constant comparison [82,83]. NVivo 12 [84,85], qualitative data analysis software, has been used to recognize codes and themes based on the original responses from the participants. The coding process has been implemented with the sentences being the unit of analysis, by utilizing the aforementioned software [86].

Quality of the Research Design: The issues of reliability and validity of the data collected during the first phase have been addressed from using the audited annual accounts of the NPHDIs. During the next phase, data triangulation through diverse participants [87], i.e., financial professionals with Islamic knowledge, sharia advisors at Islamic banks and consultancy firms, and professionals from the social sector was employed to accomplish the validity of the sources utilized to generate data [88] and to develop a deeper understanding of the researched phenomenon [89].

4. Results

The results of data analysis conducted through ratio analysis, i.e., donor dependency ratio (DDR) are presented in

Table 2. Donor dependency ratios for NPHDIs based on average of the last 5 years.

S #	Not-for-Profit Human Development Institutes	In PKR Million		Donor Dependency Ratio (DDR)
		Aggregate Income	Funds from Donor(s)
1	Awaz Foundation	147.547	147.547	91.73%
2	Care Foundation	57.153	56.976	93.51%
3	Jamiyat Punjabi Saudagran-e-Delhi	50.894	50.732	94.10%
4	Trust for Democratic Education and Accountability	5532.685	5502.683	95.33%
5	Family Education Services Foundation (FESF)	302.229	297.368	96.29%
6	Developments in Literacy	279.322	268.950	98.39%
7	The Indus Hospital	886.970	845.554	99.46%
8	Orange Tree Foundation	149.076	140.274	99.68%
9	Helping Hand for Relief and Development (HHRD)	1166.308	1090.579	99.69%
10	Afzaal Memorial Thalassemia Foundation	54,593.583	50,076.004	100.00%

Source: Authors’ computation.

:

Table 2 displays aggregate income, funds from donor(s), and donor dependency ratio, while the calculated donor dependency ratio shows that there exists heavy reliance on donors’ funds for the selected sample of NPHDIs operating in Pakistan, as the range of DDR is from 91.73% to 100%.

Participants Profile: The participants of this research are financial professionals with sharia knowledge and diverse exposure, as they have been working as sharia-compliant financial practitioners (professional Islamic bankers, including CEOs of two Islamic banks operating in Pakistan), sharia advisors at Islamic banks and consultancy firms, and social sector workers. The diversified experience has enabled the researchers to get enriched input for the proposed model development. Subsequent to the development of the proposed model, FinTech professionals have been interviewed to amalgamate FinTech with the proposed financially sustainable model. These two interviews were conducted online, as one of the experts resided out of Pakistan, and the other experts also desired to have it online due to his time constraints.

Overview of the Constructivist Grounded Theory: To propose a sustainable financing model, the research focuses on endowment, specifically on Islamic endowment recognized as waqf. The waqf-based funding model has great potential to provide financial and self-sustainability to the NPHDIs from the very beginning, but currently, its utilization in the social sector is very limited; however, takaful industry in Pakistan utilizes a waqf-based model at a very innovative level. Four key themes have been identified through the in-depth interviews conducted, which are: smart waqf pool creation; Wakalah Nama; smart donation collection; and smart waqf income utilization (refer to Figure 1 below).

Smart Waqf Pool Creation: The foremost step to create a sustainable financing model for NPHDI is to create a waqf pool (refer to Number 1 in Figure 1 above). With an initial waqf donation by the promoters of NPHDIs, this waqf pool is established with a formal written waqf deed signed by the waqf establishers, and witnesses. Original waqf donation can be in form of either cash or property. SMART means are utilized to establish this waqf pool—usually bank accounts for cash waqf, while for property or business waqf, the SMART means are utilized to initiate the process of property or business transfer to Waqf Pool—and they are later materialized accordingly through proper documentation in due course. The waqf donations need to be kept intact and invested for revenue generation purposes, and only revenue generated will be utilized. Hence, the income received from these invested amounts can only be expended on the beneficiaries of the waqf (refer to Step 1 in Figure 1 above).

The participants discussed the limited application of waqfs in the social sector, although it has the potential of contributing to all 17 SDGs. “Waqf has a lot of potential; it can be used in many things (Participant 1)”. “Nowadays, Waqf is only practiced in mosques—as no one do Waqf, as you can see in the society that many people go and do Sadqa-e-Jariah, which is to give mosque, and this for Madarrasah. We don’t have other options. No options and no practice (Participant 1)”. “The biggest issue with Waqf in Pakistan is we don’t have any laws i.e., no Legal Framework for Waqf. If you make a section 42 company, you will go to the Securities & Exchange Commission of Pakistan (SECP), take approval from them, and make a company. However, when you will go to make it a Waqf, there will be a list of questions, which arises, as we have no framework. Since, there is no framework, then, with whom you will register it?—One of the biggest questions. When this question comes in front of us, then our organization didn’t go towards Property Awqaf. If you are going to go towards Property Waqf, then you can make a document and keep it—“a waqf deed”. You and I will know but it doesn’t fall into any framework. You make NPHDI as a trust, or a society, or a section 42 company—there are frameworks for these but there is no framework for waqf (Participant 5)”.

Wakalah Nama: Wakalah Nama means receiving authorization to act as an agent. Currently, waqf donations are usually limited to donations made for Mosques and Madrassas (religious schools) in Pakistan. Therefore, its use in the social sector is very limited despite having considerable potential for socio-economic development, especially for the indigent population of the society. Presently, donors prefer donating zakat in large amounts, but the zakat and certain sadaqat can only be given to a zakat-deserving person (ZDP)—a person who lacks the wealth threshold of possessing 52 tolas of silver or equivalent value. Therefore, to serve the indigent population with the utilization of Zakat and Sadaqat received, the waqf needs to receive Wakalah Nama (authorization) from the zakat-deserving person to receive zakat and certain sadaqat on their behalf and spend it on them and other ZDPs’ needs (refer to Number 2 or Step 2 in Figure 1 above).

Smart Donation Collection: After the creation of the Smart Waqf Pool and subsequently receiving Wakalah Nama (authorization letter) signed by the zakat-deserving customers (ZDC), zakat and sadaqat can also be collected along with other donations, like pure donation and waqf donation (refer to Number 3 or Step 3 in Figure 1 above). Smart zakat donation collected through various bank accounts needs to be transferred to the waqf bank account (Refer to Number 3A in Figure 1 above), ideally as the standing order by the particular bank at the day’s end, to ensure the wealth balance of the ZDCs is reduced to zero. This process is needed to ensure that the wealth of the ZDCs is maintained below the zakat-receiving threshold level, as discussed earlier.

The waqf donation can be invested in the following (refer to Figure 2 and Figure 3 below): the cash fund can be invested in sharia-compliant investments. Movable and immovable properties can be leased out to receive rental income, while the corpus of the movable and immovable properties is maintained. Finally, the waqf business investment needs to be kept secure, while the profit earned can be used to serve the beneficiaries.

Smart Waqf Income Utilization: While waqf investments are kept secured, the incomes generated from the different waqf investments are utilized for serving the beneficiaries of waqf (refer to Number 4 or Step 4 in Figure 1 above).

5. Discussion

The donor dependency datio (DDR), which is a measure of donor-dependent funding, ranges from 100 percent to 91.73 percent for the randomly selected sample of 10 NPHDIs operating in Pakistan. The range of this calculated ratio based over a five-year time period shows that there is more than 90 percent reliance on donors’ funding, which reflects that majority of the NPHDIs cannot be operated without donors’ funding [19]. Higher donor dependency ratios suggest that these NPHDIs are not financially sustainable [44], as donors’ funding withdrawal would result in their collapse [13]. The DDR for potentially sustainable NPHDIs should be less than 25% [11].

The initial findings suggest that these NPHDIs are heavily reliant on donors’ funding, and this makes them follow a “Relatively High-Risk Strategy”, as mentioned by Hailey and Salway (2016) in their study titled “New routes to CSO sustainability: The strategic shift to social enterprise and social investment” [20]. The takeover of the Sindh Rescue and Medical Services, formerly Aman Ambulance, Pakistan, by the Sindh Government to continue its operations while meeting its expenditures is a classic example of donor fund dependency, as its patrons encountered financial difficulties [13]. Various feasible options, i.e., strategies, exist to attain the financial sustainability of NPDHIs with a focus on their own income generation strategies, which may include many options. A few important sources may include social enterprises and endowment funds, which include waqf funds. [7,19].

Waqf funds have the potential to contribute to all 17 SDGs, so they should be included in the mainstream financing instrument targeting to achieve SDGs [12,23]. In waqf, the corpus of the endowed donation is kept intact, while usufruct or profit derived from this endowed donation/investment is utilized to run the operation of waqf [71], which has been defined by Sukmana (2020) as “an endowment (donation) made by a donor under Islamic Law to a fund manager (mutawali/nazir) who is responsible for generating profits that are subsequently used to support socio-economic development [12]”. Waqf can be a possible significant financial resource alternative for governmental external borrowings [12]. Despite awqaf having the potential to create a significant socio-economic development impact, they have been left behind compared to other Islamic economic sectors. There is a need to increase awareness level about awqaf’s possibilities, which is an important marketing factor for awqaf institutions [12].

Limitations and Future Research: The paper is an initial study that provides a general overview of the sector and emphasizes the need for digitalization and waqf integration with the NPHDIs. However, some questions require further research as the use of technology is a very broad area, like: What technology is suitable as a solution for the problems faced by the NPHDIs in Pakistan? How is that technology implemented? What are the expectations after the implementation of such technology? What is the cost–benefit analysis of such a step? The same questions are valid for waqf integration—What is a SMART waqf? Why is it called SMART? Where will the automation and digitalization part be?

6. Conclusions

Based on the above findings and discussion, despite Islamic endowment (awqaf) having the potential to create a significant socioeconomic development impact by contributing to all 17 Sustainable Development Goals (SDGs), they have been left behind compared to other Islamic economic sectors because currently, people prefer to give zakat or sadaqat as part of donation owing to their usual unawareness regarding the benefits and the operations procedures of waqf donations. The proposed FinTech integration with Islamic endowment will help a vast majority of educational institutions aiming to promote education for underprivileged children to attain financial sustainability through processes of FinTech-based endowment (waqf). Hence, the reliance on donors’ funds will be reduced or eliminated.

The study has the following implications:

• There is a need for regularity framework for endowment-based NPOs’ registration and reporting. This will encourage endowment-based NGOs’ tactical evolution, for sustainable socio-economic development of out-of-school children, especially within the indigent populations of developing nations.
• The property waqf model and the composite waqf model can provide the highest level of financial sustainability for the NPHDIs, so they need to be promoted through waqf-conducive regulations.
• Digitalization of transactions can facilitate the process’s sharia compliance, such as standing orders carried out by the banks at the day’s end.
• There is a need to increase awareness level about awqaf’s possibilities, which is an important marketing factor for awqaf institutions.