Written by: Dr. Ossama Bahloul
Disclaimer: This article is the personal opinion of the author and does not necessarily represent the opinion of every member of the Fiqh Council.
Abstract
Part of the Islamic approach to building a stable society is its encouragement of charity, including the obligation to give zakah to specified categories of recipients, with the clear objective of providing assistance, ensuring social stability, and creating a safety net for those in need. Traditionally, in the early days of Islam, individuals were formally appointed to collect zakah and distribute it to the needy, operating within an organized system that ensured accountability, transparency, and proper oversight.
With the evolution of Muslim communities, particularly in minority contexts in the West, this traditional system has shifted toward nonprofit charitable organizations. These organizations play a crucial role in connecting donors to local and international beneficiaries. However, their growth has introduced challenges related to compensation, overhead, fund transfers, and accountability. Questions arise regarding reasonable salaries, the use of percentage-based payments, and whether multiple organizations serve overlapping purposes, sometimes creating inefficiencies or duplicating administrative costs. Additionally, concerns about organizations operating primarily as fundraising entities from outside the local community highlight the importance of supporting home-grown nonprofits with genuine attachment to and interest in local populations.
This paper emphasizes that effective nonprofit work requires strong oversight, clear ethical standards, transparent reporting, and responsible governance, including internal controls, board engagement, audits, and proper financial categorization. It also examines best practices such as reasonable executive compensation, separation of cash and in-kind donations, disclosure of inter-organizational fund transfers, and responsible use of donor funds for travel and operational expenses. By applying these principles within the context of Fiqh, historical precedent, and contemporary realities, the paper proposes practical measures to maximize the social impact of charitable efforts, protect the rights of the needy, and maintain the trust of donors and the broader community.
Ultimately, the goal is not to undermine nonprofit efforts but to enhance performance, foster accountability, and uphold the highest ethical standards, ensuring that charitable work fulfills its intended purpose while remaining sustainable and transparent.
Charitable Nonprofit Organizations in the US: Key Facts and Insights
Total Number of Charitable Nonprofits in the US
The United States has a vast nonprofit sector. According to the latest IRS data, about 1.97 million nonprofit organizations were operating in the U.S. in 2022. This total includes approximately 1.48 million charities registered under 501(c)(3) (the tax-exempt category for charitable, religious, and educational organizations). In other words, roughly three-quarters of all nonprofits are 501(c)(3) public charities. The number of registered charities has grown steadily over decades. For context, there were around 516,000 charities in 1991, rising above 1 million by 2004. Today’s nonprofit organizations range from large hospitals and universities to small local food pantries, reflecting the diverse roles of charities in American society.1
Muslim-Associated Charitable Nonprofits in the US
Within the overall nonprofit sector, a subset of organizations is associated with the Muslim community. These include faith-based charities, relief agencies, mosques, Islamic centers, schools, and other nonprofits serving or led by Muslim Americans. Recent data indicates there are roughly 4,300 Islamic nonprofit organizations in the United States. Combined, these Muslim-affiliated nonprofits account for only a small fraction (well under 1%) of all U.S. charities, but they play a significant role in their communities. They encompass everything from local religious congregations to national humanitarian NGOs.
The best estimate on giving comes from the Muslim Philanthropy Initiative in 2021. That estimate suggests that Muslims gave $4.3 billion in charity. Of this, $1.8 billion was zakah.2 A rough estimate for zakah giving in 2025 is $2.15 billion. This is based upon the fact that in 2021 zakah was 0.55% of total individual giving. In 2025, according to Giving USA, total individual giving was $392.45 billion. Therefore, 0.55% of that is estimated to be $2.15 billion of zakah giving. Assuming that giving patterns have largely remained the same over the past 4 years, an estimated 25.3% of this amount, or about $543.95 million, goes to international charities. This does not include in-kind donations and only includes cash donations.3
Charitable Giving in Islam
Giving occupies a central place in Islam as both a spiritual obligation and a moral responsibility. Islam mandates zakah and strongly encourages voluntary charity (ṣadaqah) as essential acts of worship that purify one’s soul and wealth. These acts of giving serve multiple social and spiritual purposes: they establish a social safety net, fulfill the needs of society’s members, protect human dignity, bring blessings (barakah) to wealth, and prevent envy and social harm.
The Obligation of Zakah: The Qur’an clearly commands the payment of zakah alongside the establishment of prayer: “And establish prayer and give zakah, and whatever good you put forward for yourselves – you will find it with Allah.” (Al-Baqarah 2:110)
The Prophet ﷺ further emphasized the obligatory nature of zakah: “There is no owner of surplus wealth except that zakat becomes obligatory upon him.” (Bukhari and Muslim)
These texts demonstrate that zakah is not merely a charitable recommendation, but a binding duty upon those who possess qualifying wealth.
The Encouragement of Voluntary Charity: Beyond the obligatory zakah, both the Qur’an and the Sunnah encourage voluntary charity as a means of supporting those in need and strengthening communal bonds. Allah says: “Those who spend their wealth by night and by day, secretly and publicly – they will have their reward with their Lord.” (Al-Baqarah 2:274).
The Prophet ﷺ also said: “Charity does not decrease wealth.” (Muslim)
Together, these teachings highlight that giving in Islam serves both spiritual purification and social welfare, reinforcing justice, compassion, and solidarity within the community.
Method of Fund Collection and Distribution
Islam recognizes al-ʿāmilīn ʿalayhā, those responsible for collecting and distributing zakah, as a legitimate category entitled to compensation for their service. Historically, these individuals were formally appointed by the head of the Muslim state and operated within a structured system that ensured oversight, accountability, and proper management of charitable funds. This arrangement helped maintain order in the collection and distribution of zakah while preventing unnecessary duplication of effort and uncoordinated individual initiatives.
With the growth of Muslim communities, particularly in countries where Muslims live as minorities, a different institutional structure has emerged to manage charitable giving. In many contexts, nonprofit and charitable organizations now perform the role of collecting and distributing funds. In practice, these organizations often fulfill functions comparable to those historically carried out by al-ʿāmilīn ʿalayhā. Recognizing this contemporary reality, many religious councils and scholars acknowledge such organizations as legitimate and practical mechanisms for managing charitable contributions within modern social and legal frameworks.
Islam’s approach to charitable administration is both practical and ethically balanced. It permits those engaged in charitable work to receive reasonable compensation in accordance with social norms while strictly prohibiting the taking of anything beyond what is legitimately assigned. This balance preserves the dignity of the worker while safeguarding the rights of the needy. The Prophet ﷺ strongly warned against officials taking more than their designated compensation. In a hadith reported by Buraidah, the Prophet ﷺ stated that whoever is appointed to a task and given a salary, anything taken beyond it constitutes betrayal or unlawful gain. Islam also prohibits workers from accepting gifts connected to their duties, as such practices may lead to corruption. This principle is illustrated in the well-known case of Ibn al-Lutbiyyah, a charity collector who claimed that some items given to him were personal gifts. The Prophet ﷺ rejected this claim and remarked that if he had remained in his parents’ home, he would have seen whether such “gifts” would still reach him. This incident highlights Islam’s emphasis on honesty, accountability, and the avoidance of even the appearance of misappropriation.
Islamic jurisprudence further establishes the principle that “what is recognized by custom is treated as if it were an explicit condition.” Accordingly, a worker is entitled to ujrat al-mithl, the customary wage paid to someone performing similar work. Classical scholars across the major schools of Islamic law affirmed this concept. Ibn ʿĀbidīn explained that compensation should correspond to the work performed and reflect the wage of a comparable worker. Al-Dardīr stated that a worker deserves such compensation even if he is personally wealthy, while Al-Qurṭubī emphasized that wages should reflect the extent of the work completed. Al-Nawawī noted that the majority of scholars support granting the worker the wage of his equivalent, and Ibn Qudāmah maintained that such compensation should be provided without excess. Likewise, Al-Kāsānī explained that entitlement to wages arises from the work performed, similar to any other form of hired labor. Collectively, these scholarly views establish a broad consensus that compensation should be fair, customary, and proportionate to the work undertaken.
These principles raise important questions within the context of modern nonprofit activity. In some cases, multiple organizations operate within the same field and pursue similar causes, which may result in unnecessary duplication of effort. This situation invites reflection on whether a single institution with a unified administrative structure could accomplish the same objectives more efficiently, or whether the presence of numerous organizations in the same area is genuinely necessary.
Another related consideration concerns motivation. It is important to ask whether new organizations are established primarily in response to genuine community needs or whether, in some cases, they become mechanisms for securing employment or institutional permanence for certain individuals. Addressing such questions requires thoughtful evaluation and collective responsibility within the community.
There is a clear need to encourage critical reflection, constructive reform, and continuous self-evaluation in charitable work. Such engagement helps ensure that the rights of the needy remain central, that ethical standards are consistently upheld, and that charitable initiatives remain focused, transparent, and genuinely beneficial to those they are intended to serve.
A central question in discussions about nonprofit and charitable work concerns the appropriate level of compensation for individuals engaged in such service. A balanced standard, specifically one aligned with a middle-class level of income, offers a compelling ethical framework. This principle finds support in early Islamic historical precedent, particularly in the account of Abu Bakr’s appointment to leadership of the Muslim community. When Abu Bakr initially sought to continue his trade to provide for his family, Umar ibn al-Khattab advised against it, arguing that the demands of leadership would prevent him from fulfilling both responsibilities effectively. Instead, Umar proposed that Abu Bakr receive a stipend sufficient to meet his needs at a moderate standard of living.
This account is preserved in multiple classical sources. In Musnad Ahmad, it is narrated that Abu Bakr, upon assuming the caliphate, went to the marketplace carrying goods, only to be stopped by Umar, who questioned how he could manage trade while overseeing the affairs of the Muslims. Umar then assured him that a stipend would be allocated for his support. Similarly, Tarikh al-Tabari reports that although Abu Bakr initially continued to earn his livelihood, the Companions insisted he accept financial support, which was subsequently fixed at a level comparable to that of an average member of the community. In Tabaqat Ibn Sa’d, it is further noted that Abu Bakr’s stipend was modest, and that before his death he instructed that any surplus be returned to the treasury, demonstrating a strong commitment to accountability and restraint.
These historical reports establish an important ethical principle: individuals dedicated to full-time service of the community are entitled to financial support, but such support should remain moderate and proportionate. The aim is neither wealth accumulation nor ascetic deprivation, but rather the maintenance of dignity and sufficiency. Expecting individuals in nonprofit roles to forgo compensation entirely is neither practical nor equitable, just as justifying excessive earnings through comparisons with corporate executives or celebrities is inconsistent with the ethical foundations of charitable work.
Within the Islamic moral tradition, particular emphasis is placed on balance, integrity, and accountability in the stewardship of communal resources. These values serve to safeguard both the proper use of charitable funds and the well-being of those entrusted with managing them. A middle-class standard of living thus emerges as a principled benchmark, ensuring that compensation remains fair without undermining the spirit of service.
Overhead Ratios in Charities (General vs. Muslim Community)
The overhead ratio refers to the portion of a nonprofit’s spending used for administration and fundraising rather than direct programs. In the United States, nonprofits typically spend about 20% on overhead and 80% on programs, with watchdog groups considering 15–25% a reasonable range. Within the Muslim charitable sector, donors often expect lower overhead, partly due to the desire that zakah donations reach beneficiaries fully. As a result, some Muslim charities promote lean operations or even “100% donation” policies for certain funds. Although reported overhead among Muslim charities varies widely, from about 5% to over 30%, most operate within ranges similar to those of other nonprofits, usually in the teens or low twenties, while trying to keep administrative costs as low as possible.
Overhead alone should not be used as the primary measure of an organization’s effectiveness. Likewise, organizations that report low overhead are not automatically superior. It is important to adopt a more comprehensive and thoughtful approach when evaluating an organization.
Overhead ratios are an inadequate measure of nonprofit performance, as they can misrepresent effectiveness and discourage necessary investment in staff, technology, and infrastructure. A narrow focus on minimizing overhead often leads organizations to underfund critical operations, ultimately reducing their impact. More robust, data-driven methods, such as Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), offer a better evaluation by comparing resources used to outcomes achieved. Evidence from organizations like Habitat for Humanity shows that higher-overhead affiliates can outperform lower-overhead ones in delivering results. Therefore, assessing nonprofits based on impact rather than cost efficiency provides a more accurate and meaningful standard of performance.4
Concerns and the Recommended Solution for Muslim Charitable Organizations
Use of In-Kind Donations to Reduce Overhead
Charities often reduce their overhead ratio by relying on in-kind support, such as donated goods, services, and volunteer labor, which lowers cash expenses. Many U.S. nonprofits use volunteers or pro bono services for fundraising and administration; one study found that 37% reported no fundraising costs and 13% reported no management expenses for this reason. Donated supplies, such as food, medicine, or equipment, are counted as program support rather than operating costs, making overhead appear lower. For example, one Muslim charity reported about 5.9% overhead largely because most donations were in-kind goods distributed to beneficiaries, while limited cash income covered administrative costs. If only cash donations were considered, the overhead would be much higher than the reported number. Overall, while in-kind contributions help charities operate efficiently, they can also make overhead appear unusually low and obscure the true administrative cost of operations.
In-kind donations, while valuable, present significant legal, logistical, and ethical challenges for nonprofits. Organizations must comply with regulations set by the Internal Revenue Service and the Financial Accounting Standards Board, including proper reporting under GAAP and disclosure on required forms. Effective management requires strong documentation, tracking systems, and sometimes professional expertise to handle complex gifts such as real estate. Additionally, nonprofits must ensure that donated goods align with their mission and are used appropriately, as unsuitable or poorly managed donations can create inefficiencies and ethical concerns. To mitigate these risks, organizations should implement clear governance policies, such as gift acceptance guidelines and conflict-of-interest rules, to ensure transparency, compliance, and responsible use of in-kind contributions.5
One challenge with in-kind donations is that an organization may use them to lower its reported overhead while transferring those same donations to another organization, sometimes for a fee. This allows the receiving organization to also report the in-kind contribution, meaning the same donation may appear in the records of two or more organizations as it moves between them. Such practices can create confusion about the true value and origin of the donations.
A useful solution is to require clear reporting of the source of in-kind donations, to separate in-kind contributions from general overhead calculations, and to disclose any fees charged when transferring these donations to another organization.
Cash Donations
One challenge in evaluating Muslim charitable organizations relates to the continued preference among some donors for cash contributions. While often driven by sincere intentions, cash donations can complicate accurate documentation, hinder financial reporting, and increase reliance on individual handling. Sound governance, however, requires structured systems that ensure accountability is embedded within the process, rather than dependent solely on personal trust.
Islam places strong emphasis on responsible financial conduct and the preservation of rights through clarity and proper recordkeeping. This is reflected in the Prophet’s ﷺ warning regarding negligence in financial matters, including the failure to document transactions or safeguard one’s wealth appropriately. Although the majority of scholars consider documentation to be recommended rather than obligatory, the Qur’anic guidance underscores its critical role in maintaining justice and preventing disputes. Allah instructs believers not to neglect recording financial dealings, regardless of their size (Al-Baqarah 2:282), and describes such writing as more just, more upright for testimony, and less likely to cause doubt: “That is more just in the sight of Allah, more suitable as evidence, and more likely to prevent doubt.” (Al-Baqarah 2:282)
In this light, practices that strengthen transparency and protect the integrity of charitable funds carry significant weight and, in certain contexts, may rise to the level of necessity. Encouraging the use of traceable donation methods, such as checks or electronic payments, offers a practical solution. These approaches facilitate accurate recordkeeping, enhance financial oversight, and reinforce trust between donors and organizations, ensuring that charitable efforts are conducted with the highest standards of accountability and care.
Donations Between Organizations
Islam encourages cooperation in all that is righteous, as Allah says: “And cooperate in righteousness and piety” (Al-Mā’idah 5:2). However, such cooperation must be grounded in clarity, accountability, and integrity, particularly within nonprofit financial practices.
A significant concern arises when charitable organizations transfer donated funds from one entity to another. While such transfers may reflect cooperation, they can compromise transparency and accurate financial reporting. Repeated transfers may result in multiple organizations applying overhead deductions to the same original donation. For instance, an initial contribution of $100,000 might first be reduced by 20% for overhead, with the remaining $80,000 then passed to another organization that applies an additional deduction. The cumulative effect of these deductions can substantially reduce the amount ultimately reaching the intended beneficiaries.
This issue aligns with the Sharīʿah principle prohibiting deceptive practices and legal stratagems (ḥiyal). As Ibn Qudāmah notes in Al-Mughnī (4/43), such practices involve presenting an outwardly lawful arrangement while intending an impermissible outcome: circumventing obligations, misappropriating rights, or disguising prohibited actions under the appearance of legitimacy. Even when a financial arrangement meets legal or administrative requirements, it may still be ethically and religiously deficient if it undermines justice and trust.
Thus, as the religious maxim cited in Al-Ashbāh wa al-Naẓāʾir by Al-Suyuti reminds us, an action or contract may be legally valid in court, yet still prohibited under Sharīʿah, highlighting the essential distinction between formal legality and true compliance with Islamic principles.
To address these concerns, organizations should implement strict reporting standards and full disclosure for all fund transfers. A responsible approach distinguishes between funds raised directly and those received from other organizations. Donations that have already been subject to overhead deductions should ideally be passed onward without additional charges, preserving the donor’s original intent and minimizing administrative layering.
One practical solution is to prohibit multiple overhead claims on the same funds. Transferred donations should be recorded in a separate account and excluded from overhead calculations. This measure enhances transparency, prevents misleading reporting to donors, and safeguards the interests of the intended beneficiaries, ensuring that a larger portion of charitable contributions reaches those in need.
Speakers Charging a Percentage
The prohibition of charging a percentage in charitable fundraising is grounded in fundamental ethical and legal principles within Islamic teachings. The Prophet ﷺ stated, “The wealth of a Muslim is not lawful except with their willing consent,” and instructed that “whoever hires a worker should inform him of his wages.” These principles establish the necessity of clarity, transparency, and mutual understanding in all financial arrangements. Percentage-based compensation, however, introduces inherent ambiguity, as the exact amount remains unknown at the outset, particularly when it is not explicitly disclosed during public appeals or online campaigns.
This concern becomes more acute in the context of charitable work, where an implicit moral contract exists between fundraisers and donors. Contributors give with the expectation that their donations will directly benefit those in need, not serve as a means for personal enrichment. The issue is especially sensitive in Muslim charities handling zakah, which is a designated fund restricted to specific eligible recipients. Allocating a percentage of such funds to speakers or fundraisers risks reducing the amount that reaches those entitled to it and raises serious ethical and Sharīʿah-related concerns.
Additionally, compensating speakers with a percentage may create problematic incentives, encouraging the use of excessive emotional or religious appeals to increase donations and, by extension, personal earnings. This dynamic not only compromises the integrity of the fundraising process but may also affect the dignity of the speaker. The Prophet ﷺ warned of such dangers, stating, “Indeed, every nation has a trial, and the trial of my nation is wealth,” highlighting the risk of allowing financial motives to overshadow ethical and spiritual responsibilities.
Importantly, this practice finds no precedent in the early history of the Muslim community. Those entrusted with collecting zakah during the time of the Prophet ﷺ did not take a percentage of what they gathered. Rather, they were considered trusted agents and were provided with defined compensation when appropriate. Islamic law treats the collector as an amīn (trustee), not a partner in the funds. Any unauthorized excess falls under the category of ghulūl (misappropriation), which the Prophet ﷺ strongly condemned: “Whomever we appoint to a task and provide with a provision (salary), then whatever he takes beyond that is ghulūl.”
Furthermore, Islamic teachings consistently seek to prevent financial practices that lead to exploitation, uncertainty, or social harm. Just as ribā was prohibited due to its unjust consequences and its potential to destabilize society, any emerging practice that undermines fairness and trust must be carefully scrutinized. Percentage-based fundraising introduces similar risks, particularly when it shifts charitable efforts toward personal gain.
The broader impact on the community must also be considered. If respected religious figures are perceived to derive significant financial benefit from charitable fundraising, this may erode trust, diminish credibility, and weaken communal bonds over time. Such outcomes are detrimental to the spirit of giving and the long-term integrity of charitable institutions.
For these reasons, percentage-based compensation should be avoided. A more appropriate and ethically sound approach is to establish a reasonable, fixed fee in advance. This compensation should be clearly defined, publicly disclosed, and properly documented to ensure full transparency. Such measures preserve trust, uphold accountability, and ensure that the maximum possible benefit reaches those in need, in accordance with both the ethical principles and legal objectives of Sharīʿah.
In the US, commission-based fundraising is regarded as unethical by the Association of Fundraising Professionals
The foregoing discussion reinforces the Islamic position that percentage-based fundraising should be prohibited due to its lack of clear evidence, absence of precedent, and the ambiguity it introduces. It is also important to note that, in the United States, commission-based fundraising is widely regarded as unethical by the Association of Fundraising Professionals and the broader nonprofit sector.6 Accordingly, this practice is not only inconsistent with Sharīʿah principles but is also rejected by established professional ethical standards.
Recognizing that the broader community already rejects such practices, and given that Islamic teachings call for adherence to even higher ethical standards, there is a compelling case for decisive action. Percentage-based fundraising should therefore be discontinued and formally recognized by religious organizations as an impermissible practice, to uphold integrity, protect donor trust, and align charitable work with both ethical and religious principles.
Online Campaigns and High Fees for Speakers in Advertisements
The evolution of global markets and financial transactions has significantly transformed fundraising practices. What was once a largely personal effort, relying on direct, face-to-face appeals, has shifted toward digital platforms, enabling individuals and organizations to reach wider audiences through online campaigns. With many people now having access to the internet, these campaigns have become a common and effective means of collecting charitable funds.
Within this context, it has become increasingly common to engage public figures, community leaders, or individuals with large followings to promote charitable causes. When carried out with sincere intention and proper oversight, this approach is both permissible and beneficial. Islam encourages supporting and advocating for good causes, as reflected in the Qur’anic principle: “Whoever intercedes with a good intercession will have a share of it” (An-Nisā’ 4:85). This establishes that those who promote good share in its reward.
However, a concerning development has emerged in recent years: some individuals involved in fundraising, particularly in online campaigns, have begun to charge a percentage of the funds raised as compensation. This practice represents a departure from established norms within the Muslim charitable tradition and lacks clear ethical and Sharīʿah justification. While scholars have permitted reasonable compensation for services rendered, such compensation has traditionally been defined within clear ethical boundaries, not as a proportion of charitable donations, especially when those funds include zakah.
The issue becomes more serious when charitable efforts begin to resemble commercial ventures, with fundraising campaigns structured in a way that prioritizes financial gain over service. In some instances, individuals have reportedly received substantial percentages, sometimes as high as 25% or more of the total funds raised. This shifts the focus away from supporting the needy and introduces ambiguity regarding the proper use of zakah, which must be handled with strict adherence to its designated purposes.
Fundraising efforts, including speeches and online promotions, should function solely as means of directing resources to those in need, not as opportunities for profit. Even if such arrangements are formally structured, their ethical implications remain deeply problematic, particularly when they involve religious obligations like zakah.
A more appropriate and ethically sound approach is to provide speakers or public figures with a reasonable, fixed fee for their services, rather than a percentage of the funds raised. This fee should be clearly defined and publicly disclosed to ensure transparency, preserve trust, and maintain the integrity of charitable work within the community.
Islamic Centers and Organizations Charging a Percentage
The practice of some Islamic centers and religious organizations charging a percentage, often around 20%, for facilitating fundraising has become increasingly common. This raises significant ethical concerns, particularly when the funds collected are intended for zakah and a portion is retained for operational expenses without clear disclosure. Such lack of transparency undermines donor trust and calls into question the integrity of the process.
A more ethical approach would involve Islamic centers focusing on carefully vetting and supporting legitimate charitable causes while ensuring that donated funds are directed fully toward those in need. Although some justify these fees by citing the use of organizational resources such as space, staff, and administrative support, the practice remains problematic, especially when donors are not explicitly informed.
If an organization deems it necessary to charge, it should not charge a percentage of funds raised, as this practice introduces uncertainty, particularly regarding the final amount deducted and the potential impact on zakah contributions. Instead, it may charge a reasonable, fixed fee for the use of their facilities and resources. This fee must be clearly defined, publicly disclosed, and communicated to donors in advance.
A fixed, upfront fee is more appropriate because it can be allocated from the administrative portion of the fundraising effort without affecting the integrity of the donated funds. In contrast, percentage-based charges create ambiguity and raise concerns about how much is ultimately taken, especially when zakah is involved.
Transparency is essential in all such matters. Donors must be fully informed of any charges, ensuring trust and allowing them to make conscious, informed decisions. In summary, while fixed fees may be permissible when clearly disclosed and reasonable, charging a percentage of donations should not be allowed.
More broadly, this practice raises concerns about the evolving nature of nonprofit work within some Islamic institutions. In certain cases, fundraising activities risk resembling business ventures rather than acts of service. This shift is troubling, as assisting vulnerable populations, whether locally or globally, should never become a means for financial gain or institutional accumulation of wealth. Rather, such efforts should remain grounded in sincerity and viewed as a source of spiritual reward.
An additional and critical issue relates to the use and classification of zakah funds. This is not only an ethical matter but a religious obligation. Zakah must be distributed strictly among the eight categories defined in Islamic law, and diverting it beyond these categories is impermissible.
Furthermore, there is growing concern that some centers treat zakah funds as a means of increasing their financial reserves rather than distributing them promptly. Zakah accounts are not intended to function as savings mechanisms, and the prolonged holding of such funds, sometimes for years, contradicts the very purpose of zakah, which is to provide timely relief to those in need.
Historically, zakah collectors distributed funds as soon as they were received, often immediately. At most, a one-year timeframe may be considered a reasonable period for distribution. Any unnecessary delay beyond this undermines the purpose and obligation of zakah.
In conclusion, charging a percentage of funds raised is a relatively recent practice that lacks clear justification in Sharīʿah and finds no precedent in the early Islamic tradition. Accordingly, it should not be permitted. Instead, a reasonable fixed fee may be allowed within established ethical guidelines, if it is clearly defined and fully disclosed. Transparency in such arrangements is essential, particularly when dealing with charitable funds, to preserve trust and uphold the integrity of the giving process.
Charitable Organizations Operating from Outside the Country
Over the past few decades, charitable nonprofit work has undergone a noticeable transformation, with some organizations increasingly adopting a business-oriented approach. In certain cases, organizations establish a presence in countries where fundraising potential is higher, even if their primary operations lie elsewhere. This trend raises important concerns about whether such organizations fully understand the local context, including the specific challenges, needs, and priorities of the communities in which they operate.
In the United States, for example, some nonprofits are established primarily to access greater fundraising opportunities. While the movement of charitable funds across borders to support vulnerable populations is both necessary and commendable, it is equally important to recognize the value of local organizations. These institutions are often more attuned to the realities of their communities and better equipped to address their specific needs.
Classical Islamic scholarship has long engaged with the question of transferring zakah and charity from one region to another. While scholars generally permitted such transfers when local needs were met, their discussions underscore the importance of understanding the context in which funds are raised. This principle remains highly relevant today.
Accordingly, Muslim communities should prioritize empowering and supporting local organizations, given their direct connection to and familiarity with community needs. At the same time, international charitable efforts should not be dismissed but rather approached with careful consideration.
To maintain trust and integrity, it is essential to clearly distinguish between local and external organizations and to ensure full transparency before granting any organization access to the community. Providing clear, accessible information about their operations, intentions, and use of funds is critical. Ultimately, the goal is to promote transparency, deepen contextual awareness, and ensure that local needs are adequately addressed before allocating resources beyond the community.
Donors’ Responsibility
While charitable giving is a central pillar of Islamic ethics, it is sometimes approached superficially. Some individuals may treat obligatory or voluntary charity as a means of disposing of unwanted possessions, or as a routine obligation to be fulfilled without reflection. In doing so, they overlook a fundamental reality: wealth is an Amanah (trust), and its use will be subject to accountability before Allah.
From an Islamic legal and ethical perspective, donating wealth is not merely a symbolic or procedural act. It entails responsibility. A donor is required to make a reasonable and sincere effort to ensure that their contribution reaches a deserving and qualified recipient. When giving directly to individuals, this involves exercising discernment in identifying genuine need. When donating through charitable organizations, it requires due diligence: examining the organization’s credibility, transparency, ethical standards, administrative practices, and the nature and effectiveness of its programs.
This responsibility is grounded in a well-established juristic principle: financial disposition must be conducted in a manner that realizes benefit (maslahah). This principle is not abstract; it is firmly rooted in the primary sources of Islam. Allah says: “Do not entrust the incapable with your wealth” (Qur’an 4:5), which underscores the obligation to manage and allocate wealth responsibly. Similarly, the Prophet ﷺ said: “Indeed, Allah has disliked for you… the wasting of wealth” (agreed upon), clearly prohibiting negligent or ineffective use of financial resources.
These texts teach that simply transferring money, whether by handing it to someone or donating through an organization, does not, in itself, fulfill one’s full ethical responsibility. Rather, donors are expected to consider how their contributions will be used. This includes assessing the integrity of those managing the funds, the proportion of resources allocated to overhead versus direct aid, and the tangible impact of the projects being supported.
In this regard, entrusting an organization with charitable funds can be likened to granting someone power of attorney or appointing them as a trustee over one’s estate. It is a serious act of delegation that requires a high level of trust and careful evaluation. Donors should feel justified in asking questions, seeking transparency, and holding organizations accountable.
Ultimately, when donors take this responsibility seriously, they contribute not only to the welfare of recipients but also to the improvement of charitable institutions themselves. Increased awareness, scrutiny, and ethical commitment can help shape better organizational practices and reduce the risk of mismanagement or corruption. Responsible giving, therefore, is not only an act of charity; it is also an exercise in ethical stewardship.
Key Concerns in the Charitable Sector and Data-Driven Solutions
The U.S. charitable sector faces several persistent challenges:
Financial Strain and Sustainability: Donations are under pressure: individual giving fell about 3.4% from 2022 to 2023, donor retention is declining, and inflation is reducing the value of contributions. With fewer donors giving less, many nonprofits face budget shortfalls, especially those reliant on small donations. Solutions: Innovate fundraising, diversify funding, collaborate, and expand tax incentives to encourage broader participation in giving.
Workforce and Volunteer Challenges: Nearly half of nonprofit employees earn below a living wage, leading to burnout and high turnover, worsened by the pandemic. Volunteerism has also declined. Solutions: Invest in fair compensation, educate donors about necessary overhead, and introduce incentives like loan forgiveness. Nonprofits are also offering flexible and better-recognized volunteer opportunities.
Public Trust and Transparency: Trust remains relatively high (57% in 2024) but is declining due to scandals and concerns about transparency, governance, and proper use of funds (including zakah in Muslim charities). Solutions: Strengthen transparency (audited reports, clear impact reporting), improve governance, pursue accountability certifications, and increase community representation.
The “Overhead Myth” and Donor Education: Many donors wrongly equate low overhead with effectiveness, which pressures nonprofits to underinvest in operations and harms long-term impact. Solutions: Educate donors to focus on outcomes, not just overhead. Promote the view of overhead (15–25%) as a necessary investment, supported by initiatives like the Overhead Myth campaign.
Fraud and Abuse Cases: Though rare, fraud and misuse of funds damage trust across the sector. Solutions: Enforce stronger oversight, adopt best practices (audits, controls), and encourage donor due diligence through available transparency tools.7
Best Practices for Oversight and Governance
Effective oversight of charitable nonprofits relies on governance, transparency, and accountability. Experts emphasize several best practices that help organizations maintain strong oversight:
- Active and Engaged Board of Directors: Boards should be proactive, meeting more frequently than the legal minimum (quarterly or monthly is recommended) to review finances, program progress, and compliance. Members must understand their responsibilities and approach decisions with accountability and transparency. Training in financial reports and nonprofit compliance, including Form 990, strengthens the board’s oversight role.
- Clear Policies and Ethical Standards: Formal policies set the tone for governance. Key policies include Conflict of Interest (to prevent personal gain from organizational decisions) and Whistleblower protections (to encourage reporting of misconduct). Other recommended policies cover document retention, fundraising ethics, and financial transparency. Making financial statements, Form 990, and program results publicly available further enhances trust.
- Financial Oversight and Audits: Boards should review financial statements and IRS filings in detail and engage independent auditors annually. Implementing auditor recommendations and providing regular internal financial reports (monthly or quarterly) help detect issues early, ensure compliance, and maintain financial health.
- Transparency and Stakeholder Communication: Accountability extends to donors, beneficiaries, and the public. Publishing annual reports, detailing program vs. administrative spending, and regularly updating stakeholders on outcomes or challenges maintain trust. Involving community members in advisory roles or welcoming questions can further strengthen oversight.
- Oversight of Executive Leadership and Compensation: Boards must oversee executive leadership, including setting and reviewing compensation relative to comparable organizations and documenting it to meet IRS guidelines. Periodic evaluations of performance ensure that leadership is effective and accountable to the organization’s mission.
In summary, active board engagement, clear policies, diligent financial review, transparent reporting, and oversight of leadership form the foundation of nonprofit governance. Organizations that adhere to these practices are better equipped to prevent mismanagement and maintain public and regulatory confidence.8
Conclusion
Ethical charitable practice within the Muslim community requires more than sincere intention; it demands a disciplined commitment to transparency, accountability, and the proper stewardship of wealth as a trust (amanah). The issues examined in this paper, ranging from compensation standards and the impermissibility of percentage-based charges to donor responsibility and organizational conduct, demonstrate that reform must occur at both the institutional and individual levels.
Charitable organizations must operate within clear ethical boundaries, ensuring that compensation remains reasonable, financial practices are transparent, and reporting accurately reflects both monetary and in-kind contributions. At the same time, commonly used indicators such as overhead ratios, while relevant, cannot alone serve as a sufficient measure of performance; true evaluation must consider impact, integrity, and effectiveness. Cooperation between organizations, careful handling of fund transfers, and the avoidance of cash-based systems further contribute to a more accountable and trustworthy charitable ecosystem.
Equally important is the role of the donor. Entrusting funds to an organization carries a responsibility similar to appointing a trustee or granting power of attorney. It requires due diligence, thoughtful evaluation, and an active concern for how contributions are ultimately used. Simply giving is not enough; ensuring that giving achieves its intended benefit is part of the ethical and religious obligation.
Ultimately, charitable work must never become a vehicle for personal enrichment or the exploitation of humanitarian crises. Whether operating locally or internationally, organizations should prioritize genuine need, contextual understanding, and ethical integrity, while remaining open to learning from effective models within the broader society.
A renewed commitment to these principles can strengthen trust, reduce misuse, and elevate the impact of charitable efforts. By aligning intention with responsible action, the Muslim charitable sector can more fully realize its purpose: serving those in need while upholding the trust placed in it by both donors and Allah.
- USAFacts, “How many nonprofits are there in the US?” https://usafacts.org/articles/how-many-nonprofits-are-there-in-the-us/ ↩︎
- https://hdl.handle.net/1805/26703 ↩︎
- Indiana University Lilly Family School of Philanthropy, Muslim Americans’ charitable giving (2021 study). https://hdl.handle.net/1805/28468 ↩︎
- https://givingcompass.org/article/why-donors-need-to-stop-using-overhead-ratios-to-evaluate-nonprofits and https://theconversation.com/nonprofits-that-scrimp-on-overhead-arent-necessarily-better-than-those-spending-more-111700 ↩︎
- https://www.netsuite.com/portal/resource/articles/accounting/in-kind-donations.shtml ↩︎
- National Council of Nonprofits, “Ethical Fundraising.” https://www.councilofnonprofits.org/running-nonprofit/fundraising-and-resource-development/ethical-fundraising ↩︎
- https://theconversation.com/nonprofits-that-scrimp-on-overhead-arent-necessarily-better-than-those-spending-more-111700; Urban Institute, Nonprofit Overhead Cost Project Brief (2004); National Council of Nonprofits, Internal Controls for Nonprofits; BoardEffect, Best Practices for Nonprofit Board Oversight; Independent Sector, Health of the U.S. Nonprofit Sector (2024). ↩︎
- Independent Sector, Trust in Civil Society Report (2024); Madinah/MuslimGive, Transparency in Muslim charities (overhead up to 32%); BoardEffect, Best Practices for Nonprofit Board Oversight; Ahmed Shaikh, Working Towards Ehsan newsletter, analysis of Muslim charities’ overhead (2023); Indiana University Lilly Family School of Philanthropy, Muslim Americans’ charitable giving (2021 study). ↩︎