Ruth Shapiro, founder and chief executive of the Centre for Asian Philanthropy and Society (CAPS), says there is a 'trust deficit' in Indonesia's charity sector. (Photo courtesy of CAPS)

'Guilty Until Proven Innocent' – Trust Deficit Costs Indonesian Charities Billions of Dollars


NOVEMBER 16, 2018

Jakarta. Even though Indonesia has been named the world's most generous nation in the 2018 World Giving Index, its unsupportive regulatory environment, scandals involving  donor funds, and a lack of transparency among nongovernment organizations have contributed to little or no trust among the country's richest to donate money to charities.

Indonesia is one of the three Asian economies with double-digit growth in both high-net-worth individuals (13.7 percent) and financial wealth (14.3 percent), according to a joint report by Paris-based consultancy CapGemini and wealth management firm RBC Wealth Management.

GlobeAsia magazine recently reported that most Indonesian billionaires and the country's 100 largest business groups still enjoy good revenues, despite the current global financial turbulence, a weakening rupiah and stagnating economic growth.

The country's rising middle-income class, abundant natural resources and healthy economic fundamentals provide a strong foundation for companies to expand.

This raises questions of why their philanthropic money cannot play a bigger role in addressing some the country's most daunting problems, such as inequality, poverty and unemployment.

Ruth Shapiro, founder and chief executive of the Centre for Asian Philanthropy and Society (CAPS), said, "from the middle class to the super-rich" there is more disposable income, which should contribute to "making philanthropy much more possible."

From a regional perspective, Asia is also home to most of the world's dollar billionaires with a new success story written every two days.

Hong Kong-based CAPS is a research and advisory organization active in 17 economies in Asia. Founded five years ago, the nonprofit produces policy research on philanthropy, analyzes government policies in the selected economies and conducts research. It also looks at how companies can better spend their charity money.

Trust Deficit

"When I ask a lot of philanthropists, 'why don't you give more in your home country?' they say: 'I don't trust the organizations, so I'm going to give to nonprofits abroad instead. It is because I can trust those places that the money is going to be spent the right way. Here, it's more difficult,'­" said Shapiro, who was in Jakarta for the three-day Indonesia Philanthropy Festival (FIFest), which showcased innovations in the country's philanthropic activities.

Shapiro said there is a "trust deficit" in the entire charity sector, adding that the "lack of trust is debilitating." The charity sector includes stakeholders such as nongovernmental organizations, businessmen, companies and the government.

Guilty 'Till Proven Innocent

Shapiro, who also founded the Asia Business Council and served as its executive director from its inception in 1997 until 2007, said one important reason for this trust deficit is confusing, or constantly changing laws in a country like Indonesia.

The Asia Business Council is a Hong Kong-based organization focused on creating sustainable economic growth in Asia.

"In this country, there is a law on foundations, on social organizations, national laws, local laws and they are not aligned. So the message is what you have to do is different. Plus, they are not always enforced, even if you follow any. So it's very difficult to navigate, or even do things right because it's confusing what the laws are," she said.

Shapiro also highlighted the many scandals in the social and charity sectors. "Then people say, 'oh they're all corrupt, all fraudulent,'­" she said.

"If you think about it, it doesn't happen in the private sector. If a company engages in fraud, you won't have people saying things like 'oh now the entire private sector is bad,' but it does happen in the charitable sector; so, it's now guilty till proven innocent," she said.

Shapiro also touched on the lack of transparency in many nonprofit organizations.

"It's very difficult to look at nonprofit organizations in this country and know where they get their money from, what they do with the money and the impact they're having. It's not like they're bad people, it's just that often, they don't have the skills to tell you," she said.

"A lot of the time if you ask a nonprofit, 'where does your money come from, what are you spending it on?' – they're going to be like, 'why do you want to know?'­" Shapiro said.

Money for Advocacy or Social Delivery?

To Shapiro, the term "nongovernmental organization" means many things and these different definitions play roles in both issue advocacy and social causes.

She said most companies are happy to give to nonprofit organizations engaged in social causes, such as helping children, or eradicating malnutrition.

"But you don't know what they are doing, so you get nervous because you don't want to be caught funding an organization that's going to turn around and criticize the government... In some countries, including the US, there are legal differences between these two different types of organizations," she said.

Shapiro said one of the things Indonesia must therefore do to unleash the potential is to develop "more accountability and transparency that will make people feel that they can trust the sector and work on things."

Dr. Ruth Shapiro obtained a doctorate from Stanford University and master's degrees from Harvard University and George Washington University. She is the primary author of "Pragmatic Philanthropy: Asian Charity Explained," published by Palgrave Macmillan in January this year. She currently resides in Hong Kong.