Halal Money Matters

Halal Money Matters Podcast

Episode 37 - Financial Planning for Islamic Charities and Endowments

[music]

Monem Salam:
Welcome to Halal Money Matters, presented by Saturna Capital. I'm Monem Salam. And today we have Owaiz Dadabhoy. But before I get into the bio for Owaiz, I want to talk a little bit about what the topic's going to be about today, you know, a lot of charities come to me and they talk about the fact, what is the most effective way for us to be able to create an endowment, financially manage our money, all of those different types of things. Again, I don't think there's a better person to talk about it than Owaiz Dadabhoy, because Owaiz has been at our firm for 16 years, at Saturna Capital. Before that he was that at for 15 years at Wells Fargo. And he's worked not only with a lot of charities doing financial management, but also, as you will hear in the podcast, he actually started and is running or chairman of Uplift Charities as well. So he provides a very unique perspective of not only advising other charities, but also doing it from the ground up itself. So without further ado, let's get into it.

[music]

So welcome, Owaiz. As salamu alaikum. Welcome to the show. Halal Money Matters is really excited that you can join us.

Owaiz Dadabhoy:
Wa alaikum as salam. I'm glad to be here.

Monem Salam:
A lot of our shareholders and our listeners, who are part of nonprofits, have thought about doing the nonprofit organization formations. And, you know, I hopefully the show will actually talk about all different stages. And many of our shareholders and listeners have been board members for a very long time, and they might have mature organizations or they might be thinking about starting a new one. So I m really glad you were able to join us. And one of the reasons is you come from a dual role, one role being that you actually are in the finance industry encouraging people and also nonprofits to, you know, think about their finances once it comes to charity. But on the second side of it, you've actually run a fairly successful charity as well.

Owaiz Dadabhoy:
Yes, I have, and there's so much to talk about when you talk about nonprofits. So I'm glad to get into this.

Monem Salam:
Yeah. And so we're obviously we're going to be sticking to the financial aspect of it being a Halal Money Matters show. One of the things we've actually talked about in the past, and you have basically like five pillars for charitable organizations when it comes to their finances. So you want to tell us what those five are?

Owaiz Dadabhoy:
Yeah. And I think, you know, some of them are simplistic, but they're important to know. And it just makes it easier when you have five pillars or four pillars. And the first one is obviously you need to have a bank account to be able to run the organization. You want to have an investment account, a brokerage account, endowment account and also retirement plan.

Monem Salam:
Great. And so we'll get into these a little bit later. And I mentioned also that, you know, you've been part of a successful charity in the greater Los Angeles area. And so, you know, maybe we can just spend a few minutes talking about, you know, how it started, what is done and where it's at now.

Owaiz Dadabhoy:
Sure. Yeah, we started in 2006. The idea came to us, not quite sure how it popped into our head, but, you know, the idea was that we want to do local charity work versus sending all of our money overseas. When we saw that there was a need here locally, we found that Muslims, some of them were living in on the street, were living in their cars or in motels long term. And so we wanted to start something that we could put our money to, but also do the work with our own hands, and get people, locally involved through volunteer work.

Monem Salam:
From your latest 990, which is the form that charities have to fill out. What, what what are you looking at as far as donations are concerned?

Owaiz Dadabhoy:
Yeah. So we have two different parts of Uplift now. When it started 2006, it was all zakat work. We've added refugee resettlement work in about three years ago or so now. So that skews the numbers when you're looking at overall dollars coming in. But in terms of just donations of zakat and sadaqah coming in, I would say it's about $2 million a year at this point.

Monem Salam:
That's great. Mashallah, may Allah reward you for all the stuff you're doing. Let's dig right in and let's talk about the first pillar that you mentioned, which is a bank account. Now, most people think that's an obviously it's a, it's a no brainer. But maybe there are some complications that you might come across as you're going through opening up a bank account?

Owaiz Dadabhoy:
Yeah. So you're going to need certain information when you're first getting started. The bank will help you through that. But the individuals that are going to be on the account, they'll obviously have to provide their personal information and copy of their identification, similar to opening up an investment account. And then they will ask you if it's a 501(c)(3)? Do you have an IRS determination letter? Do you have articles of incorporation? And then if you've added a new board member, do you have some kind of resolution stating that? So they'll ask for some particulars. It's not too difficult.

Monem Salam:
And that's that's for anytime you do it, whether you're small or large. But I know recently there was a study that was done with ISPU, which is the Institute for Social Policy and Understanding. And they did a study called Banking While Muslim. And I just talked about the difficulties sometimes Muslim charities have in opening up accounts. How have you dealt with that? Have you come across that maybe not in yours, but other charities as well?

Owaiz Dadabhoy:
I haven't seen the difficulty in opening the accounts. I've found the difficulty in maintaining the accounts, depending on if there's a particular country's name in the charity's name, and, you know, there's someone that flags that for some reason. I have seen that, but I haven't seen it for, like, ours is called Uplift Charity. It's, you know, there's not any there's not a religious connotation to that. And, you know, almost all of the Muslim run organizations are actually run quite well. So it just takes someone flagging it for some reason, to cause an issue.

Monem Salam:
So it's mostly having to do with international charities rather than local ones, you would say?

Owaiz Dadabhoy:
I think so, that's where I've seen it. It's the only place I've seen it is international.

Monem Salam:
Yeah. I mean I've, I've come across a when, when you're trying to send wires internationally, where they get held up for, you know, security reasons or compliance reasons from the bank's perspective and then that type of thing. And I know this is a phenomenon that's happening more so in the UK that I've come across. But there are some times when the bank has said, no, you're too risky for us. We don't want to open an account or, or we have to close your account for you. What do you do in that situation?

Owaiz Dadabhoy:
I mean, I think what you can do is you can try to go to their, you know, their regional managers, their state presidents if it's a large bank, and talk to them about what the situation is and that you believe it's an unfair scenario that you're going through here and ask them to provide something specifically so you know exactly why you're having this issue and they can't point to something. Then maybe you need to get someone else involved, like an attorney, to have them ask the question as well.

Monem Salam:
Yeah. So I know, Owaiz, sometimes what mosques will do or charities will do is they'll buy a building and then they'll occupy some of it and then they'll rent out the other portion of it. And there is a difference, even though they're nonprofit, that they do have to pay taxes, right?

Owaiz Dadabhoy:
Yeah. And that's a good reason to have a very good accountant for nonprofit organizations, because they can help you to save money, but they can also make sure that you are doing things in the right way, and you keep clean of the tax rules. So, for example, if you have a mosque and on the mosque there's a coffee shop, the income from that could be considered a business venture versus a nonprofit venture. So, you know, depending on the scenario and how it's being run and what's going on there, it could be a taxable part of the nonprofit. And so you do want to check with your accountant to make sure that you're treating it in the right way.

Monem Salam:
Yeah. And plus, I mean, that shouldn't stop you from doing it obviously, because you don't want to, you know, need that. But it still would be nice to know that you're filing your taxes properly.

Owaiz Dadabhoy:
And if you have a good accountant, they're going to spot these things. But, you know, as the leader or the treasurer or the committee or whoever is responsible for this, you want to ask those questions. You want to find out in advance when you're doing these things. So you can put that as part of your plan. Right. Is that we're going to need to charge a certain amount because we're going to be taxed on this as well. Don't take it for granted.

Monem Salam:
Okay. Now, the second pillar was an investment account.

Owaiz Dadabhoy:
Yeah, exactly. And you know, when you're first starting off, you might think that you don't need an investment account because you're struggling just to bring any money into the operations. I think most people will be surprised to know that you can start up most investment accounts for as little as $100 or $250. And as we know in the outside of the nonprofit world, that money that you save early on is going to be much more valuable than money that you save later, because the more time you have, the better it is for your overall investment portfolio. So for your nonprofit, treat it the same way. If you're putting money into your own personal retirement account every single payroll or every month, you want to do something like that for your nonprofit as well, so you can slowly on the side, build up, even if it's $50 or $100 a month and get those, charitable muscles, moving right where you're telling your donors that they're donating for a specific cause, and then you're taking a very small percentage of that and investing it for the future. You never know what you're going to need that money for.

Monem Salam:
Yeah. So, like, for example, when you were starting off with your charity. I mean, I guess it does become a matter of, like, do I, you know, help the needy or do I put money away? So how do you balance that?

Owaiz Dadabhoy:
Yeah. And so with our organization, if someone gives us specifically zakat money, which is restricted funds for us, we only use that for people in need. We don't use any of it for extra, for example, we won't invest it. We won't use it for payroll or marketing or anything. 100% of it goes to people in need. What I'm talking about here is the extra dollars that you might come into. So for example, you might have a donor from a large company and they give you $5,000 in zakat, and they have a matching program with their company. So that $5,000 that gets matched, that's going to come into your coffers as general money. And so if you have enough general money, you can invest some of that. So out of that $5,000, I'm not saying put $5,000 away because you're probably going to need that at the beginning. What I'm saying is put $50 away or $100 when just getting used to investing for your nonprofit, just like you do for yourself as an individual.

Monem Salam:
Yeah, no, that's a good point. I never even thought of it that way. But you might donate, as a company match. You might donate yourself with the intention of zakat, but the company doesn't have to pay zakat, so when their dollars come in, that's just regular sadaqah, right, so you can use it for a number of different purposes. And what you're saying basically saying is use it for your purpose in the organization, but take some of that money and set it aside. And it doesn't have to be for a long term investment, could be for an emergency reserve or something along those lines as well.

Owaiz Dadabhoy:
One of the nonprofits I was a part of had invested in a mutual fund, and they had saved up about 50 to $60,000. But it was the impetus to buy a $3 million building for their endowment. And it was just 50 or 60, but it gave them enough courage to at least get started and say, you know, we've had this money in here. We've been growing it slowly over time. They haven't been putting too much aside. But the people that started this, the board members that started this initial investment, they had this idea that we would buy a building and be able to not have to rent from anyone else. So just that small amount of seed money was able to turn into something quite large.

Monem Salam:
That's really great. Do you have a rule of thumb maybe as far as, you know, what percentage of maybe sadaqah donations coming in should go for this?

Owaiz Dadabhoy:
Well, so when we started Uplift and until now, but especially in the beginning, because that's when you're really struggling just to make it. We said that once we had payroll, that we would have to have at least a year and a half worth of dollars of payroll in our bank account before we would do anything with the extra money. So if you have more than that, then you can do what you need to, right? You want to start up a side project under the same charity, and you know, now do a food distribution that's going to cost money or some other program, okay. Have at it. Do you want to invest some of the money? Sure. Because it's extra money. Because, you know, the idea is you're going to continue to raise money. You're not just going to have that year and a half worth of payroll money there. It's going to continue to grow over time.

Monem Salam:
Sure. Absolutely.

Owaiz Dadabhoy:
You know, once you save the money, Monem, the money that's in the investment account, that's still your money. So if you come into some difficulty, if you need the money back, of course you can sell what you own and bring the money back into your bank account.

Monem Salam:
Yeah. It's just like an emergency reserve that some people might have, so. And also, I mean, we're talking about, you know, that operational money, you know, now there's even halal banks that are out there you can put money into, you can put investment accounts from, you know, so there's multiple different options now that maybe weren't even available when you started Uplift or when the first masajid got started as well. So many options available. And the other thing is that I like to tell people is that, you know, it's harder to start than it is to change. Right? Initial part of it is a very difficult part of it. So start early. And even if you have to like I think you mentioned earlier, $25 a month, you can always change it. Go up, go down, whatever you want to do.

Owaiz Dadabhoy:
Absolutely. Yeah. No, I agree with that. And I think, you know, being really consistent with anything is going to be a positive thing.

Monem Salam:
Great. Okay. Now we come to the third one which is a brokerage account.

Owaiz Dadabhoy:
Right. And the brokerage account, I tell any nonprofit that I'm talking to now, whether they're, you know, just starting off or they've been around for a long time, that they really must have a brokerage account because many of the donors are becoming much more sophisticated now. They understand that if they donate their appreciated shares of stock or mutual funds, that it's going to save them on capital gains. So instead of writing a $5,000 check for zakat, as an individual, you can transfer $5,000 worth of shares that have gone up in value. Let's say you bought something that was valued at 3000 when you bought it, and now it's worth 5000 if I sell that and then I give the donation to your organization, I have to pay capital gains on $2,000. So many of the donors get that and understand it now. And they insist upon a brokerage account so they can transfer shares to you and then as a nonprofit organization, once you receive those shares, you can sell it and put it into your bank account or your investment account.

Monem Salam:
That's a really great benefit. And I remember very early on we used to constantly like have to tell people, look, you got to do this. You got to do this. And it took a while to do it. But now it's almost like a standard practice which is great that a lot of charities are doing it, and a lot of donors want to be able to take advantage of that opportunity. And then so the other part of it is, is that, what have you found the best practice is? So shares come in, right. And then, what have you found to be the best practice as far as keeping it, immediately selling it? What do we put it in? All those things have to be kind of worked out as well, correct?

Owaiz Dadabhoy:
Yeah. And I think it really depends on the sophistication of the team that you have. So you have a treasurer that understands investing, understands long term investing. And is not emotional in decision making. Who knows how to decide on companies, whether to keep something or sell it. You know, in some cases, I've seen that the treasurer or the investment committee will hold on to particular companies that get transferred to them, and in some cases, they're going to sell them right away because they have no expertise at all and they don't want to take a risk. And they know that they're going to act emotionally as soon as there's a market dip and there's always market dip.

Monem Salam:
So when you open up the brokerage account, is that the right time to be thinking about an investment committee?

Owaiz Dadabhoy:
I think so, I mean, initially, if you're very small and you know, you don't even know if you have a donor yet that's going to send something to you, but rest assured you will. There will be somebody that is going to want to transfer shares to you. I think initially, you may not need to, but you can certainly work towards that. When you're first starting off, you're in the first 2 or 3 years of your nonprofit, there's so many things to think about. You know, you're going to have difficulty trying to form an investment committee at that point. So it's possible in the beginning stages, you might just sell anything that comes in and invest that into a mutual fund instead, because that's going to be professionally managed. It takes a lot of risk off the table.

Monem Salam:
And then, and I don't know what you said the next one was retirement account. And that's obviously for the employees. You know, and then the last one was endowments. So if there's an order that I'll let you take the order.

Owaiz Dadabhoy:
Sure. If you're going to have employees, which many of the organizations will, because, you know, we used to really tout that, that we don't have any employees. We don't have a place to rent. And so our costs are very low. 100% of your zakat dollars are going to go to people in need. And we were very proud of that. And I remember somebody senior in the community came to me and he said, you know, that's great that you all are taking pride in that, and I applaud you for that. But you're going to see that as soon as you hire your first person, you're going to get a lot of leverage from that. And I didn't forget that. That was something I thought about until we hired somebody about a year later. And certainly it just took the organization to a whole other level, because you have someone 100% of the time committed to the work. So, you know, that's important to eventually hire somebody. And when you do, you know, the work that we're doing, we're helping people in need. And we don't want that employee once they're retired or we have to let them go because we don't know, you know, they're not performing or whatever reason. We don't want them to be in the same situation that the people were trying to help. So the way to do that is to pay them a livable wage. And secondly is to help them to save for their retirement, because in America you have to have a retirement account.

Monem Salam:
And part of this retirement account is retirement planning. And if you don't have something set up, you might end up with an executive director that never wants to leave because he or she is depending on the charity being their retirement plan.

Owaiz Dadabhoy:
That's right. Yeah, they're reliant on that income because they haven't done a good job of planning for their future, unfortunately.

Monem Salam:
Yeah. Is that something you're seeing more of a trend now is that the retirement planning part of the charity? Is that or still something a lot of work needs to be done here?

Owaiz Dadabhoy:
You know, in the beginning, when we first started talking about this with nonprofits, they really didn't understand why they needed it. Even if we told them, they're just a concept that was too far away from them. And eventually many of the larger organizations started to open up retirement accounts for their employees. And now they tell each other the same thing. So you know, when they're talking amongst each other, they're also telling them what they need to do and a retirement account is one of them, because the retirement account is going to help to retain your best people instead of going to another nonprofit that has a retirement account for them, you might as well have it for them so they don't have to leave. Then, if you're trying to some future employees from some other place, they're going to ask you what your benefits are. And if you're not going to provide what the existing company is doing, the one they're working for now, they're probably not going to come over. So in some ways you have to do it just to remain competitive.

Monem Salam:
Yeah. No. Absolutely. That's the case. And that comes with like, for example, offering medical and retirement needs and just comes along with it. But there are different types of retirement accounts. And so are there some that are not appropriate for nonprofits?

Owaiz Dadabhoy:
We like to talk to nonprofits and other businesses about three main different types of retirement accounts. One is a 401(k). Everyone knows what a 401(k) is, and if they don't we explain it to them. Another is a simple IRA. It's a retirement plan for businesses as well. There's no cost to that one. There's no annual fee. It's a little bit more restrictive. And you must match on that one. So some employers want to do that, some don't. And then there's the SEP IRA. That one I don't think works out well for nonprofits from what I've seen so far, there might be an exception here or there, but typically it doesn't work. So the simple IRA and the four one care of the two that most of the nonprofits are engaging in.

Monem Salam:
That's great. And then the last one that we mentioned was the endowment.

Owaiz Dadabhoy:
Yes. So the endowment is going to have your organization live into the future. So we opened up Uplift in 2006. It's what, 18 years now? And I do want this to live forever. And one way that we can make that happen is to have enough money in an endowment investment account where future board members will not feel the pressure to fundraise, and the money will always be there from the investment itself. So the return will allow the organization to fund its operations. And so it takes some of the pressure off of board members that are coming in. They don't have to fundraise just for the operations, because ostensibly, you have enough money built up over 20 years to be able to run it from the endowment.

Monem Salam:
If we're talking about the endowment account itself, there's multiple different ways to look at it. But what is the difference between an investment account and an endowment account?

Owaiz Dadabhoy:
That's a good question. I think people are usually confused in the beginning, but you're going to end up having both at some point. The regular investment account is first. That one you can touch the capital you put in. So let's say for example, someone gives you a donation and it's in excess of what you need. And it's basically to build capacity or to, you know, be able to give you some flexibility. It's not for the actual project that's out there that you're working on. Right. So they give you this extra money and you say, okay, I'm going to invest this money. And as you're investing, it's growing slowly over time. If you need that money to run operations, if you need to pull all of it out for any purpose, you can do that. You can take the capital out. The endowment account is different because the 50,000, if it's earmarked for an endowment, that capital will not come out of the endowment. What you're going to take out of it eventually is the return itself. So if the endowment goes from 50,000 to 60,000. The nonprofit organization can pull out 10,000 of that and use it for operations or whatever else they need to for their entity. So the idea is, as a donor, the beauty of this word donor is that if I give to a nonprofit's endowment, that money is going to live forever. And so I'm going to have a charity that's living forever known in the Muslim community as sadaqah jariyah.

Monem Salam:
A continuous charity. Exactly. So now getting a little bit more further into this endowment, because it's a pretty important aspect of, like you said, the longevity of the organization. Is there a right time to form an endowment?

Owaiz Dadabhoy:
Yeah, I think if you have enough human capital. And what I mean by that is you're running your operations, you're putting in the commitment of hours to run the actual work of the organization and also the finances of the organization. If you're at a point where you say you can take on more and you want to build for the future and give this organization an unlimited life, that's the time to do it. In some cases, you're going to start up a separate committee or board completely like another nonprofit for the endowment, and that's going to have another set of board members. So now you've gone from, let's say, five board members of your original organization to ten, if you add five more to another nonprofit called your endowment, which is funding your initial organization. So you need the human capital, you need the time commitment, and you need to be able to fundraise, right? The human capital is there to be able to fundraise for your endowment. What I have seen, Monem, is that I remember, you know, when I was first talking to people about endowments many years ago, there was a masjid in New Jersey, and they put in something like $2,000 into an endowment. And I was telling them that, look, you're going to have to keep fundraising because that $2,000 is going to give you some yield, but it's not going to be enough to really help you to, you know, run operations from. At that time, this was probably 12, 13 years ago, they didn't have enough people nor expertise to be able to fundraise for the endowment. And so I don't know what that dollar amount is right now, but it's not significant enough where they can actually make use of the endowment. So there is a right and wrong time. I think, you know, if you have the ability to raise enough money, to be able to use the return to do something significant with, that's when you should open up an endowment.

Monem Salam:
There's a couple of things that I talk about, and I think these are some best practices that I've read about. The number one is, you mentioned a lot of them, but I think one of them you have to think about is also is you've had multiple board changeovers. So the organization does exist for longer than, you know, the life of maybe one member or, or those type of things that then that to me was a fairly common one because there has been a charity that I was involved with, and we decided at that point not to do the endowment because there hadn't been that that turnover in the board.

Owaiz Dadabhoy:
Yeah. And I think the turnover that you're talking about here is because, let's say, you know, the original founders no longer can do the work. Is there anyone that will come in and replace them? Is there anyone passionate enough about it? And if you don't have that bench of people, then if you start up an endowment, it's going to sit there and not do enough for you. Yes, you're absolutely right.

Monem Salam:
And then the second one that I that kind of kind of comes to my mind is, is that I think you mentioned it right when you said you have to have the human capital or your resources to do it. And the reason why I think about that is, you know, you don't want to get caught in a situation where the money that they were giving for your operational donations, they end up giving to your endowment, and then you run short of your operations and you can't survive.

Owaiz Dadabhoy:
Yeah, you have to be sustaining yourself on the donation to the, you know, the actual entity that's doing the work, versus the endowment. And that's why some of the organizations, they don't start right away. They do wait. But if there's organizations that have financial wherewithal, they have board members that really know how to raise funds and they know that their charity is going to be long living and that the need is definitely there. They could start it at the same time. This is something that any nonprofit can talk to us about as well, because we can talk through it one on one. And just try to figure out, you know, is it the right time for them? And there's been times where I've told organizations that you should wait, this is not the right time for you, open up an investment account. Let that grow, and you could use some of that as your seed money for your endowment account.

Monem Salam:
And do you have a dollar amount in mind when you when you talk about having a separate organization to have the endowment, versus having an endowment within your current organization?

Owaiz Dadabhoy:
It's not necessarily a dollar amount. It's really about the ability of the original organization to be able to pull additional people in that are passionate enough about the organization.

Monem Salam:
Let's give an example of Uplift. So you have an existing organization, and now you're thinking about, you know, you want to open up an endowment account. So walk me through what's on your board's mind.

Owaiz Dadabhoy:
Yeah. So what we had was we had original founders on that board, those four of us, and then some other board members as well that joined along the way. And eventually, we replaced many of them because, you know, they had to go do something with their business or whatever. They had given five, ten years of their time to the nonprofit. And so they were there and they're cheerleaders and they're donors, and they're passionate about it still. So when the time came to open up an endowment, the first people that we went to were those people that used to be on the board and we said, can you help us to start up the endowment? And they did. They did it themselves. They got it started. And it's a slightly different name, but only supporting the original organization that it's meant to support.

Monem Salam:
So just to be clear, so the organization which is Uplift, right, already had I would want to assume a very sizable investment account. And then you went to these previous board members or people that were very passionate about Uplift, and you said, please join this organization. And then what did you did you transfer money from the investment into the endowment as a seed capital?

Owaiz Dadabhoy:
No, I mean, what we did was we kept the money that we already have that Uplift, we kept it as is for now. And the mandate that they have is to go out and get additional money. Right? They don't necessarily need to have, the money from Uplift Charity in there yet to get started because it's not going to earn anything extra if it's in the endowment versus if it's an investment account that's already invested, if you know what I mean. Yeah. So at this point, the mandate is you go out and raise money and, you know, we want to get to 2 or 3 million is the first goal. And then after that, it's probably going to be about 5 million, because, you know, if you get a 7% return, that's about $350,000 worth of return each year. And we can do a lot with that money in terms of payroll and marketing.

Monem Salam:
Yeah, absolutely. And you know, I actually, Owaiz, I'll be honest with you, I think this is a time for another Halal Money Matters podcast just on endowments. I mean, out of all of the ones that we've mentioned, this is the one we were talking about the most. And so, you know, we'll do another podcast, specifically on endowments. But you mentioned something about a supporting organization. You mentioned that briefly.

Owaiz Dadabhoy:
Okay. Sure. So like for example we've been talking about Uplift. So we'll continue. So Uplift Charity is the organization that was started in 2006. And we could have set up an endowment within Uplift Charity. We could have come up with a board resolution that states that any money that we collect for this endowment within Uplift Charity, the capital is not going to be used, only the proceeds of the profit is going to be used. That's one way to do it. That's just a regular endowment within your existing organization. There are reasons to have a true endowment. A true endowment, in this case, we started something called Uplift Foundation. And Uplift Foundation is there to support Uplift Charity. So once it has enough money in its investment account and it has a return… So let's say we get to 5 million and we have a 7% average rate of return. Like I said, you'll have about 350,000 that's coming off every year from that 5 million. So that 350 can get transferred to Uplift Charity, which is doing the charitable work. So now Uplift Foundation is a supporting organization of the original entity or nonprofit Uplift Charity. And we've doubled the number of board members that way, because now we have a separate board for Uplift Foundation versus Uplift Charity. We have people solely looking for endowment dollars versus doing the actual charity work.

Monem Salam:
We talked about this a little earlier in regards to, you know, when is the right time to start taking money out to benefit from whatever you've been raising so far. Right? And that could come in the form of investment account or in the form of charity, or do you take your brokerage and take all of it for operational purposes? So any best practices you can kind of shed light on here?

Owaiz Dadabhoy:
Yeah. And I think what's going to drive a lot of this is the donor themselves. So the donor is going to tell you, look, I have $5,000 or $500,000 to give you, and some of them are going to tell you where they want it used. Some of them are going to tell you that they want this to go to an endowment. I remember somebody came to us years ago and said, I want to give you $2,000, and I want you to start up an endowment, right? Like, I want to be the one that is giving you that starting money and propel you to do that. Others will say, I want this, solely for, to help people. Right? And so when that investment money comes in, if they don't tell you what it's specifically that you need to use it for, then it is up to you and you're going to use it according to what is needed the most.

Monem Salam:
But let's supposing we have an investment account. We're basically as a charity, we've been running it for a little while. And we say, okay, we want to create an endowment. Okay. So we create the endowment. Is there a best practice to say, you know what, let the amount grow to this much before you start taking the money out for operational needs or what do you do at Uplift for that perspective?

Owaiz Dadabhoy:
Yeah, yeah, I see your question there. I think that's a really good question. So the way I look at it is how much of your operational expenses do you want to take away from your donors. So for example, if your operational expenses each year just to make this easy is $100,000 and you no longer want your donors to have to spend that much money on the operational part of your organization, how much would you need to have an endowment to fully take that away? And most organizations don't need to fully take that away because again, there's going to be matching funds are going to be donors that are going to give you money. There might be corporations that want to support you as well. And they're going to help you with the operational money. So you might say, I just need 50% of my operational money to come from outside of donors. So you would figure out what dollar amount do I need to have in my endowment at, 7 or 8 or whatever percentage investment return you're calculating and you can figure out how much you need to have in that announcement. So, for example, if you need $50,000, let's do the math on that. Right. So if you have $500,000 endowment invested in mutual funds, and just to make the numbers easy was not a guarantee of performance. But let's say you had a 10% average rate of return, you would get $50,000, for that 500,000 every year. So in this case, the organization wanted $50,000 a year, and they need to save up $500,000 to get there, using their assumptions.

Monem Salam:
So the two things that I think about whenever I think about this area, number one is, hopefully, you know, unless you're really, really big, it's going to take a long time to be able to fully fund your operations through endowment. And maybe you never want to get there because, remember, part of the obligation is for charities to be there, but the part of the obligation in Islam is to give the money. And giving from my perspective, is a muscle. You have to keep doing it over and over again. When I was on the board of a mosque, you know, they always talked about, well, if we had this much, an endowment, we'd never have to raise money ever again. And I kept telling them, no, no, no, we have to raise money because it's a muscle that we need our community to be able to continuously be able to do. And then the question was naturally was, well, why are we creating the endowment in the first place? And that's for multiple reasons. One is to be able to expand services when maybe you're expanding faster than the community is growing. So there's a little bit of cushion there you have to fund. But the other one which I found really important was like social ventures, meaning that, you know, like for example, mosque or Uplift, you have this idea that you want to try to implement. You don't want to use donor money for it because you don't know what that's going to succeed or not. So why don't we use some of the endowment money, the return of it, to start it, and if it succeeds and does well, then obviously then donations will come in because it's doing very well. So it's like social venture capital if you want to call it social ventures.

Owaiz Dadabhoy:
I fully agree with what you're saying. There's another piece of it that people think of it as well. So one idea here is, let's say you have an earthquake in some country, or you have a fire in another, or you have a flood, or people are affected by war. And you know, the question that comes up when we have at our mosque, when we have different organizations come and table and raise money for those causes, there's donors in the community that say, well, what percentage are they using for other than helping the people? And so imagine a time where our nonprofits, especially our international and local relief organizations, imagine a time when their operational costs are handled by their return on their investment account. And every dollar that you give actually reaches the person in need. And that's what I'm talking about. Right? And then if you get a different kind of donation, you can use it in any way you want. But the operational cost would be gone. And, you know, maybe that's just a fantasy at this point, but at some point it's going to become reality because you and I both know, Monem, that there's many organizations that we have worked with that are in that position now, where they have large enough endowments to be able to make a real big difference in their operational cost.

Monem Salam:
Absolutely. Absolutely. So great, Owaiz. Thank you so much. This has been very, very, informative. Any final thoughts as we kind of close off this podcast?

Owaiz Dadabhoy:
There's one final thought. We talked a lot about the nitty gritty and getting to some of the details, I would say for nonprofit organizations or for any business as well, start off with a strategic planning session and come up with a document that you could work from. When we first started our organization, we had to come up with a budget. That was something we had to do. It was told to us to do it, right? It wasn't an idea we had. We just wanted to go out and do the work. And at some point after a few years, maybe 4 or 5 years, we came up with a strategic plan. Looking back on it, I would say we should have had the strategic plan in the beginning, but we just didn't know to do that. And so once we came up with the strategic plan, we figured out what work we needed to do outside of the charitable work, right, to strengthen the organization. And also, what numbers would we like to get to? Because if we get to a higher level of donations, how many more people are we going to be able to help? And it's remarkable that we were able to put these things on a board and everything came to fruition. And I just don't know that that would happen unless we had a strategic plan and everyone is working towards it. And then once you have the plan, it's incumbent on the leader to continue to follow up with the board members that are supposed to be responsible for each piece of the strategic plan. And I would say, you know, I've had that experience not only with Uplift, but also other organizations that I've been a part of. And I would say it's, it's 100% necessary part of, the nonprofit business.

Monem Salam:
Yeah, absolutely. And I think a big part of that is the financial strategic plan as well. Okay. Or looking at the plan from that idea of when to basically graduate into an endowment, but then also, I mean, financial is always integrated to then only because the only way you'll be able to fund your strategic plan is to the finances.

Owaiz Dadabhoy:
It was interesting because we were not talking about how much do we want to raise just for the sake of raising it. When we were having those discussions at Uplift, we were talking about how many more people would we like to assist. And so we said, well, how much more money would we need to do that? We put certain numbers on the board not only to help people, but also how can we grow the organization and make this something that can live into the future?

Monem Salam:
Well, thank you so much. I really appreciate your time and maybe we'll have you on another podcast.

Owaiz Dadabhoy:
It's always my pleasure to contribute.

Monem Salam:
Thank you, Owaiz.

[music]

Monem Salam:
Thank you for listening to Halal Money Matters. If you like what you hear, please do rate us on the app stores and also leave us a review. It helps other people find us a lot easier.

Disclosures read by narrator:
The thoughts and opinions expressed on Halal Money Matters do not necessarily reflect the views of Saturna Capital, Amana Mutual Funds, or their affiliates. This podcast is prepared based on information Saturna Capital deems reliable; however, Saturna Capital does not warrant the accuracy or completeness of the information. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. Investors should consult with a financial adviser prior to making an investment decision. The views and information discussed in this commentary are at a specific point in time, are subject to change, and may not reflect the views of the firm as a whole. All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna Capital.