Lying dormant

'Philanthropy seems to be taking root in Asia and there are several indications that it will boom in the next decade,' wrote the Economist Intelligence Unit in 2011. The region not only covers many countries, but also a range of cultures, religions and political systems; a number of recent reports attempt to encapsulate that within a description of both approaches to philanthropy and the practice of them.

Looking at this information, and focusing on giving by the wealthy, what are we learning about the state of Asian philanthropy? What are some of the barriers to its further development? What, if anything, are governments doing to encourage further giving? And why should private client advisers take note?

The practices of wealthy Asians

Ad hoc, informal giving is the most usual charitable practice. In some countries, 'zakat' (the Arabic term for charitable giving) also plays its part, as 60 per cent of the world's Muslim population live in South and South East Asia. Yet there is a move by wealthy individuals to put their philanthropy on a more considered footing and through more formal channels.

This might lead to the creation of a specific philanthropic vehicle and there has been a growth in the number of foundations, especially in China, where the majority of private foundations were formed over the last decade, as private fortunes have been made.

It is also the case, however, that many families or individuals feel no need for this formality and are comfortable making donations from income, or through the family business. It is always hard to distinguish corporate interest from private charitable agendas within family-owned businesses, but there is a spectrum from complete overlap between the two, and total separation. With the dominance of family business in much of Asia, this conflation of agendas is common. There are examples of philanthropists who implement charitable initiatives separate from their commercial interests, but these are probably the exception, not the rule.

Some donors have staffed their foundations and set about devising planned giving programmes. A study by Insead noted the strengthening of this trend, but there is a wide gap in practice between countries. Of the respondents, 74 per cent of Singaporean family philanthropic units are professionally managed whereas in Indonesia, China, India and Japan, most are managed by the family or the individual. Involving younger generations in the family affairs is, however, a common key ingredient.

With more than $500m collected and distributed through zakat in Malaysia and Indonesia, this is clearly a factor that cannot be ignored. Payments are directed towards traditional areas such as alms for the needy. The collection of zakat, which is based on 2.5 per cent of accumulated wealth each year, has improved. So much so in Indonesia that between 2004 and 2012, the amount of zakat collected increased 15 times in contrast to a 'mere' trebling of GDP. Fulfilment of this religious obligation is therefore an important event for wealthy Muslims, but mainly because of the prescribed conditions on it and its collection, it is not part of strategic giving.

Keeping up with economic growth

Given the experience with zakat, can it be assumed that all charitable giving has kept pace with economic growth, and that the wealthy are contributing proportionately?

There have been a few headline grabbing donations recently, from the £350m to Harvard by Hong Kong's Chan brothers, to the pledge by Sunny Varkel, the Indian entrepreneur, to donate half his $2.25bn fortune to charity. There is clearly plenty of evidence of meaningful amounts of philanthropic activity by the wealthy.

Whether this giving matches increasing prosperity is unknown, although suggestions are that total giving is lower in comparison with other geographic regions. Data is sparse and inconsistent across the region. Informal and unrecorded giving remains the convention. Where a formal structure exists, there is a lack of transparency and linked to this, few government-led policies designed to shape philanthropy.

Transparency

In the US and UK, data on assets and distributions for charitable organisations are in the public domain. This is not the case in Asia, where most foundations do not release information of donations or even of the programmes supported. Singapore has one of the more detailed laws on non-profits and yet, information on their activities is not readily accessible.

As elsewhere in the world, many families prefer to keep this aspect of their wealth private. Furthermore, there is a sentiment that confidentiality is culturally more fitting. Campaigns such as The Giving Pledge (a commitment by the world's wealthiest to dedicate the majority of their wealth to philanthropy) are consequently considered too western. But this can negatively affect philanthropy's progress.

Without disclosure on financial and operational information, scepticism can grow as to the use of the funds. Alibaba's founder, Jack Ma, founded the Hong Kong Young Entrepreneurs Foundation but there is mounting criticism that, for all the fanfare, nothing has in fact been done. Additionally, without insight into the philanthropy of others, there is no free flow of learning between philanthropists on good practice and how best to apply resources. Surveys of Asian philanthropists often cite the absence of learning opportunities as an obstacle to doing more.

Government incentives

The increased collection in zakat indicates what can be done with attention and that governments could do more to encourage philanthropy, both through incentives to donors and by raising the standards and accountability of non-profits. Governments use or have no lever to ensure that philanthropic organisations conduct their business appropriately, although many governments also remain suspicious of the whole non-profit sector; they do not differentiate between funders and operating charities, and restrict the activities of both.

With regard to tax treatment, Singapore's approach is one of the more structured with, for example, 250 per cent tax deductions on certain donations. India and Indonesia have chosen to address corporate giving and enacted laws on the amount and nature of donations. In China, a new charity law has been drafted and covers tax incentives. Philanthropy is work in progress for Asian governments.

The role of the adviser

There is a role in improving the climate of giving for those offering advice and support to wealthy clients. The entry point for a conversation on philanthropy is unlikely to be on the neutral ground of tax allowances, but through engaging in a discussion around family values and their transfer to the next generation.

This, however, is familiar territory for a practised private client adviser. Advisers should feel emboldened because they can facilitate access to support systems for learning about philanthropy, which would be welcomed by potential philanthropists. Convening events for discussion, the exchange of ideas and introducing clients to the cadre of philanthropic consultants could well be all that is initially needed. Connecting them to legal specialists to explore the establishment of philanthropic vehicles might also be a step towards a disciplined approach to giving.

Commentators bemoan the lack of strategic philanthropy and the persistence of old-style, chequebook giving, but even in the US and Europe, the hoped-for transition is incomplete and might remain so. Impact investing, for instance, is still niche. What is exciting in Asia is that the barriers are not insuperable; some prominent donors are leading from the front and more can be achieved.

Unrealised potential

It is worth remembering why the topic matters. The economic growth which bolstered the fortunes of Asia's wealthy has not extended its benefits to all. Rising inequality means that 80 per cent of people live in countries with widening income gaps and social cohesion is eroding.

Absolute poverty has declined, but 20 per cent of Asia's children are still underweight, seven million children are still out of school in East Asia, and child trafficking is more widespread. To address these and other challenges, targeted and sustained philanthropy is required to contribute to a fairer and more resilient society. 

Gillian Arthur is director of the Sanne Philanthropic Foundation