This case was written by Muhammad Ahsan Rana for the Lahore University of Management Sciences to serve as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This material may not be reproduced in any form without the prior written consent of the Lahore University of Management Sciences. Certain identifying information may have been disguised to protect confidentiality. This research was funded by Canadian International Development Agency (CIDA).

© 2006 Lahore University of Management Sciences

A NOTE ON THE NON-PROFIT SECTOR IN PAKISTAN:

AN OVERVIEW THE NEW DEVELOPMENT PARADIGM The recent expansion of the market sector in Pakistan has significant implications for the other two sectors – the state and the civil society. As the state abdicates more space in favour of private enterprise and reduces its role in the provision of basic social services, it requires new ways to meet its obligation to ensure fair access to public goods. The new development paradigm that has emerged in Pakistan and elsewhere recognizes that although private sector activity does meet some needs, a new form of social partnership involving state, citizens and business is required to address the needs that have remained unmet by the state or business. The new development paradigm relies explicitly upon the civil society, also called the “third sector.” It facilitates the citizens to voluntarily organize themselves to address the challenges of poverty, social deprivation and ignorance. It is through their collective action that the citizens express their beliefs, values and culture, and act as pressure groups to safeguard their basic rights. At times, there is some overlap with the for-profit activity of the private sector, but usually the operating sphere pertains to areas where there are limited prospects for economic profits. With respect to the government, the civil society acts as a partner in the delivery of social services (e.g., education, health, social safety nets and community development) and as an independent auditor of public sector performance. In contemporary development discourse and academic discussions, the term civil society is used as an umbrella term for a range of non-state and non-market citizen organizations and initiatives operating in a range of social, economic and cultural fields. These include formal institutions such as political parties, trade unions, professional associations, philanthropies, non-profit organizations (NPOs), academia, research institutions, pressure groups, think tanks, and traditional formations such as faith-based organizations, shrines, seminaries, neighbourhood associations, burial societies, panchayats, jirgas1 and saving groups (NGO Resource Centre 2004). All these formal and informal institutions play an important role in complementing and supplementing the activities of the other two sectors. In particular, the NPOs, an important subset of civil society, have come to occupy a very important position because of a phenomenal rise in their numbers and size in the recent past. The scope of their activities now ranges from basic service delivery to lobbying for legal and fiscal reform. Their influence results from their ability to generate additional resources and to use the media,

1 Panchayats and jirgas are indigenous institutions for collective action and dispute resolution

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information technology, the judicial system and professional research to mobilize public opinion for social causes. The sections that follow take a closer look at the nature and dimensions of the non-profit sector as it exists in Pakistan today. HISTORY AND GROWTH OF NPOS Since time immemorial, the charitable and associational activities in areas that today comprise Pakistan were based on tradition and religion. In the second half of the nineteenth century, the British started grafting western notions of organization and civic development on this tradition of voluntary charitable action. The prime motive to institutionalize voluntary charitable activity appears to be twofold: (1) to keep a check on organized social activity so that it does not become a threat to the colonial rule; (2) to encourage philanthropists to come forward and share the burden of the government in providing basic social services (Iqbal et al, 2002). The British enacted The Societies Registration Act in 1860 to “improve the legal condition” of societies set up for literary, scientific or charitable purposes. The Trust Act, 1882 provided further legislative endorsement and became a popular instrument for charitable activities. The first notable stream of organized development activity came from the Christian Missions that established schools and hospitals in various areas of Punjab, Sindh and the North-Western Frontier Province (NWFP). Some of the earliest mission schools included: Edwards Church Mission School, Peshawar (1855); Convent of Jesus and Mary, Sialkot (1858); and Saint Joseph’s Convent, Karachi (Iqbal et al, 2002). In 1864, Sir Syed Ahmad Khan launched the first modern effort for civic reform of Muslims from the platform of The Scientific Society, an NPO registered under the new enabling legislation, The Societies Registration Act, 1860. In 1875, he established the Mohammadan Anglo Oriental College at Aligarh in India. Taking the lead from Sir Syed, several Muslim philanthropists established institutions in the late nineteenth and early twentieth century for the educational and social uplift of Muslims. Collectively, these efforts are known as the Aligarh Movement. The first Muslim organization established in Punjab was Anjuman-i-Islamiyah. It was founded in 1869 to take over and maintain the Badshahi mosque that had been used during the Sikh period as a magazine for storage of gunpowder. The Anjuman-Himayat-i-Islam was established in 1886 and represented a spontaneous desire on the part of middle class Muslims of Lahore to cooperate with each other for the common good (Bhatti 2003). It actively worked for the welfare of the Muslims by establishing many schools and orphanages. Karachi was another centre of charitable activity, where concerned citizens were engaging in similar endeavours. Mr Hasan Ali Effendi established the Sind Madrasa-tul-Islam, an educational institution of great eminence. The initiative was generously supported by Muslim philanthropists. The Madrasa2 started in a small building and quickly grew into a top class public school. Apart from being an educational institution, it had a department of handicrafts and industry. It played an important role in creating a Muslim middle class in Sindh (Iqbal et al. 2002). Other outstanding examples of this era include the Diyal Singh Majithia Trust (1895) that

2 Madrassa means school in Urdu

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furthered the cause of education and established libraries and colleges. Nadirshaw, Edulji Dinshaw invested in education and established the NED college (1924) and Lady Dufferin Hospital; and Sir Ganga Ram built schools and hospitals and supported destitute widows (PCP 2002). A slightly different stream of voluntary citizen action could be seen in the growth of cooperative societies. In 1904, the British introduced the concept of cooperative societies through the passage of The Credit Societies Act, 1904. The German model of rural development inspired the British to introduce the cooperative societies. Credit and saving components were important features of this movement. By 1929, there were 101,150 cooperative societies in India, of which 21,000 (with over 650,000 members) were in the then Punjab (Darling 1947). After the creation of Pakistan in 1947, the nascent citizen sector focused on apolitical service delivery until the late 1960s. The creation of a new country and the consequent dislocation of millions of refugees prompted a focus on relief work and humanitarian assistance. The sixties saw a major government sponsored push for community mobilization. The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 was promulgated to create agents in the Non-Profit sector to work with the government for a welfare state. The government funded hundreds of voluntary agencies across the country to deliver social services to the underprivileged. These decades also saw many business leaders actively engaged in philanthropic activities from the platform of their family foundations. The emerging Non-Profit sector received a considerable setback in the seventies when the government nationalized large and medium industrial units and various service providers. Educational institutions owned by voluntary organizations, including the well-managed Sind Madrasa-tul-Islam and Anjuman-Himayat-i-Islam, were taken over. The state acquisition of basic industries also diminished the funding sources for many charitable organizations. The Islamic institution of zakat3, a great source of individual giving, was also brought under state control thus harming a major source of philanthropic funding for NPOs. Fortunately, the setback suffered in the 1970s proved an aberration in the continuous growth of the sector. The 1980s and the nineties witnessed a tremendous growth of the Non-Profit sector. The reasons were many. The US and its client military regime in Pakistan vigorously patronized religious parties, who set up thousands of religious seminaries across the country, especially in the NWFP and Balochistan. The rapid growth of madaris that provided free education, lodging and boarding to the poor had as much to do with the failure of the state in providing these services as with the inflow of foreign aid to religious organizations. Iran, Saudi Arabia and other Middle Eastern states also poured in funds to various groups to wage their proxy war on Pakistani soil. The Islamization policies of the military government led to apolitical (but organized) resistance by human rights and women rights groups. Dozens of rights-based advocacy organizations germinated in the protests led by, for example, the Women’s Action Forum. These organizations have since evolved from their role as the voice of the people (in the absence of political parties in the 1980s) into community mobilizers and critics of the government and various vested interests (Bhatti 2003).

3 An obligatory form of charity for well-to-do Muslims

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Furthermore, there was a paradigm shift in the international aid delivery model, which increasingly emphasized delivery of services through NPOs. Funds poured in from international development agencies to support the large influx of Afghan refugees and for other social services. This contributed to the mushroom growth of citizen organizations in the 1980s (Rehmatullah 2002). Where previously the impetus for their growth was the absence of publicly available services, the NPOs had now been reinforced by a reassessment by the donors (Khan and Bari 2005). The huge inflow of funds sent by Pakistani communities proved another important source of funding for NPOs, and their consequent growth. More importantly, the state reversed the nationalization policies of the seventies. The state realized that it could not go alone; it needed others to shoulder the burden of providing basic social services. Especially significant was the opening up of the education sector to private organizations. Over the last 58 years of post-colonial existence, we have travelled a long way from the patron-client relationship envisaged by The Social Welfare Agencies (Registration and Control) Ordinance, 1961 to recent legislation like The Local Government Ordinance (LGO), 2001 which creates and recognizes institutional mechanisms for direct interaction between the state and NPOs through the latter’s statutory participation in numerous policy and development processes. ESTIMATING SIZE AND SCOPE OF ACTIVITIES OF NPOS In contemporary development literature, NPOs have been variously called Private Voluntary Organizations (PVOs), Social Welfare Agencies (SWAs), Community Organizations (COs) and Non-government Organizations (NGOs). Despite the changing nomenclature and the enormous diversity in their organizational structure and nature/scope of activities, they share some common features (Ferraro 2001). In particular, they:

1. Have an institutional presence and structure 2. Are institutionally separate from the state 3. Do not distribute profits (more appropriately called surplus) to their members,

managers or directors 4. Are fundamentally in control of their own affairs 5. Attract some level of voluntary contribution (of time or money) 6. Do not require mandatory membership (i.e., membership is purely voluntary)

In 1968, a study undertaken by the University of Punjab showed that there were 159 national and provincial level organizations registered with the government (Rehmatullah 2002). Of these, 64 were based in Lahore and 66 in Karachi. Assuming an equal number of local and district level organizations, one can safely assume that the total number of NPOs in 1968 was not more than 300. Since then, the number of public-benefit, non-government, non-profit organizations has grown exponentially, but reliable data is not available about them. The only study that attempts a scientific estimation of the present number of NPOs in Pakistan was conducted in 2000-2001 by the Center for Civil Society, Johns Hopkins University, USA (under its comparative non-profit sector research project) in collaboration with the Social Policy and Development Centre (SPDC), Pakistan. The study (Ghaus-Pasha et al, 2002a) estimates that there are about 65,000 registered NPOs in Pakistan with more than six million members and a quarter of a million staff.

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Another 38 percent are unregistered4, taking the total number of registered and unregistered organizations close to a hundred thousand. Although the study reports the number of active organizations to be around 45,000, it is hard to estimate with any degree of reliability the number of “active” organizations because of the definitional issues involved. After all, what level of “activity” would qualify an organization to be active is a matter of opinion more than anything else. Nevertheless, the study estimates that NPOs mobilize large sums of money with operating cash revenue of Rs 16 billion per year (0.5 percent of GDP in that year), while 37 percent of the funding is from domestic philanthropy. International development agencies contribute only seven percent of total non-profit revenues; only six percent comes from the government (Ghaus-Pasha et al, 2002a). The NPOs are mainly registered under four major registration laws5: The Societies Registration Act, 1860; The Trust Act, 1882; The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961; and The Companies Ordinance, 1984. The following tables describe the registration status of NPOs:

Table 1: Registration Status of NPOs (2000)

Registration Law Percentage The Societies Registration Act, 1860 40.5 The Voluntary Social Welfare Agencies Ordinance, 19616 15.2 The Trust Act, 1882 5.8 The Companies Ordinance, 1984 0.3 Registered under other Acts 0.1 Unregistered, applied for registration 4.0 Unregistered, not interested in registration 34.1 Total 100.0

Source: (Ghaus-Pasha et al, 2002a)

Table 2: Province-wise Estimated Number of NPOs Registered Under Major Laws (Cumulative Numbers, June 2000)

Province Social Welfare

Agencies Ordinance, 1961

Societies Registration Act, 1860

Companies Ordinance, 1984

Total

Punjab 5,421 27,702 45 33,168 Sindh 4,572 11,877 442 16,891 NWFP 1,675 1,343 15 3,033 Balochistan 1,035 2,085 7 3,127 Pakistan 12,703 43,007 509 56,219

Source: (Ghaus-Pasha et al, 2002a)

4 Either not interested in registration (34 percent) or registration in progress (4 percent) 5 The Local Government Ordinance (LGO) 2001 had not been promulgated at the time, and data was being collected. Hence, the report does not take into account the organizations registered under LGO, 2001. In any case, since the Ordinance is recent, the number of organizations registered under it is not expected to be large 6 Many organizations registered under The Societies Registration Act, 1860 or The Trust Act, 1882 are also registered under The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961

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NPOs in Pakistan engage in a diverse set of activities. These range from religious education to sports activities; from performing religious rites to lobbying for civic amenities; and from running small vocational centres to nation-wide human rights advocacy organizations. The size also varies from small informal neighbourhood graveyard management committees to multi-billion rupee hospitals. Table 3 shows that the single largest block of NPOs (29.5 percent of all active organizations) is engaged in religious education while another 2,000 is dedicated to organizing religious events. Religion is also the overwhelming reason for individual charity. Although most of the giving is faith based, it goes to social causes (mainly education and health). The following table illustrates the diverse range of activities NPOs undertake. It also highlights the fact that most of the NPO activity is concentrated in urban and peri-urban areas.

Table 3: Estimated Composition of the Non-profit Sector by Activities (2000)

Type of Activity Share of Organizations

(%)

Urban Share (%)

Religious education 29.5 68.6 Lobbying for civic amenities 14.6 81.0 Primary education 8.5 92.3 Religion 4.9 75.8 Secondary education 4.8 77.8 Resident welfare associations 4.8 81.8 Material assistance to the needy 4.5 79.8 Health treatment, primarily outpatient 4.4 90.0 Sports 4.2 83.5 Shopkeepers/traders associations 3.6 85.3 Vocational/technical/special education 2.5 63.0 Community and neighbourhood improvement 2.2 67.1 Civil rights promotion 2.1 84.1 Income support and maintenance 1.9 87.9 Hospital care – inpatient 1.1 100.0 Burial and funeral services 1.1 95.2 Other organizations (less than 1% share) 5.3 76.3 Total 100.0 78.1

Source:(Ghaus-Pasha et al, 2002a) NPOs have also emerged as a significant economic force. The study estimates that with an estimated wage bill of Rs 13 billion, they employ about 260,000 persons. The full-time equivalent paid employment is approximately 10 percent of the total public sector employment.

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Table 4: The Non-profit Sector as an Economic Force (2000)

Full-time equivalent paid employment as a proportion of total non-agricultural employment

2.3 %

Full-time equivalent paid employment as a percentage of public sector employment

10 %

Full-time equivalent voluntarism as a proportion of non-agricultural employment

1.9 %

Operating expenditure as a percentage of GDP 0.41 % Cash revenue as a percentage of GDP 0.52 %

Source: (Ghaus-Pasha et al, 2002a) Consequent to this phenomenal growth in size and scope of non-profit activity in Pakistan, clear structural changes are happening in the sector. Significant umbrella bodies have evolved to coordinate and represent elements of the sector according to the nature of the work. Most significant have been the emergence and growth of various NPO networks, e.g., Pakistan NGO Forum (PNF). Religious organizations had long organized themselves into well-knit hierarchical bodies based on party or sectarian lines, but through these networks non-religious organizations have also started to coordinate their actions to create synergies, especially when it comes to lobbying for civil rights. The growth of advocacy and rights-based organizations has significantly influenced the dynamics of state-citizen sector relationship. These groups have impacted policy by leading criticism against the government, political parties, and customary social practices. On the other hand, the thousands of students trained in a large number of madaris are the muscle behind the power wielded by the religious right. Electoral successes of religio-political parties in the 2002 national elections can also be partly attributed to the cadres trained in the seminaries. Growing size and increased organization have meant increased recognition and influence. Almost all official social sector planning documents emphasize the desire of the government to partner with the non-profit sector for alleviating poverty and for providing basic social services. The poverty reduction strategy paper (PRSP), for example, comprehensively articulates the policy shift as under (para 5.190 and 191:

The non-profit voluntary sector in Pakistan has emerged as a significant force in promoting social and human development. It complements the government in many ways. …The government appreciates the contribution that the NGO sector can make in social development [and] providing help to the vulnerable. This is reflected in the institutional support to NGOs through a range of government ministries including the Ministry of Women Development, Social Welfare and Special Education that is the focal point for NGOs and various projects under execution in different provinces. [The government] also provides financial support through the National Council for Social Welfare and the National Zakat Foundation and similar bodies in provincial governments. The poverty reduction strategy recognizes the significant role that NGOs can play in social service delivery, advocacy and empowerment (Government of Pakistan 2003).

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The resolve of PRSP, however, needs to be followed up through more inclusive implementation frameworks. The policy enunciations need to be translated into planning and execution of development projects at the national, provincial and local level. While the commitment from higher echelons in the government as being more inclusive towards local communities in general and NPOs in particular is unequivocal, the more functional tiers remain ambivalent and reluctant to develop meaningful partnerships with NPOs. This ambivalence is rooted in the long-standing distrust between the government and NPOs as much as in the state’s reluctance to share its power of benevolence. THE REGULATORY REGIME The following list7 contains all major laws (in chronological order) that regulate some distinct aspect of the sector:

1. The Societies Registration Act, 1860 2. The Religious Societies Act, 1880 3. The Trust Act, 1882 4. The Charitable Endowments Act, 1890 5. The Code of Civil Procedure (Section 92), 1908 6. The Mussalman Wakf Validating Act, 1913 7. The Charitable and Religious Trust Act, 1920 8. The Mussalman Wakf Act, 1923 9. The Cooperative Societies Act, 1925 10. The Mussalman Wakf Validating Act, 1930 11. Charitable Funds (Regulation of Collections) Act, 1953 12. The Voluntary Social Welfare Agencies (Registration and Control) Ordinance,

1961 13. (Punjab, Sindh, NWFP, Balochistan) Wakf Properties Ordinance, 1979 14. The Companies Ordinance, 1984 15. (Punjab, Sindh, NWFP, Balochistan) Local Government Ordinance, 2001 16. Income Tax Ordinance, 20018

All laws listed above concern some aspect of non-profit work, but their relative importance varies considerably. As can be calculated from Table 1, about 88 percent of all registered NPOs function under The Societies Registration Act, 1860 or the Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961. Another 10 percent are registered as public trusts under The Trust Act, 1882. Detailed examination has been, therefore, limited to only these laws9. Although a mere 2 percent of all registered NPOs are non-profit companies, and the number of organizations registered under the Local Government Ordinance, 2001 (as Citizen Community Boards) is small, these have been included in the analysis as being the most modern instruments of establishing and managing an NPO.

7 The Religious Endowments Act, 1863 was never made applicable to areas that constitute Pakistan today and has, therefore, not been included in the list 8 Also, the Income Tax Rules, 2002 (211 – 220A), which specify the conditions and procedure for grant of tax exempt status to an NPO 9 There are around 61,000 registered cooperatives in Pakistan, but few exist on ground. More importantly, cooperatives established under The Cooperative Societies Act, 1925 are membership-based for-profit organizations that allow distribution of profit, if any, amongst the members. As such cooperatives are not NPOs as understood in this paper

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THE SOCIETIES REGISTRATION ACT, 1860 This is the oldest of the registration laws. It was created largely to promote professional, scientific and fine arts activities and diffusion of useful knowledge and political education10. It was extended later to encompass charitable and social organizations as well. Registration under this law is also open to organizations for mutual benefit, such as clubs and residents’ associations. It has historically remained the most popular instrument of voluntary association for charitable activities mainly because of the very lenient registration, auditing, accounting and reporting requirements (Ismail 2002), and the very broad range of permissible activities11. Under the Act, seven or more persons may establish a Society. At least three of the members would comprise the Governing Body. To establish a Society, a Memorandum of Rules and Regulations of Association must be printed. These documents should contain clauses that state the objectives for which the society is being established and set out the modus operandi. If an existing society or association, which may not be registered already, wishes to register itself under this Act, an assent of its being so registered has to be given by three-fifth of the members present at a General Body meeting convened by the Governing Body for this purpose. No inquiry is provided for before registration. In addition to the Memorandum of Association, the Rules and Regulations for governing the Society must be set out and filed with the Registrar of Societies12. The Rules and Regulations, certified by not less than three members of the Governing Body, must contain obligatory clauses relating to membership in the General Body and Governing Body; meetings and quorums; meeting notices; election and removal of officers; and procedures relating to accounting and audits (Ismail 2002). Once the society receives its certificate of registration, its legal status is that of an artificial juridical person13, which means it can enforce its rules against its members, sue and be sued in its own name, own property and open/operate bank accounts in its own name. The control of property, however, vests in the Governing Body and not the members. Further, if a judgment is passed against a person acting on behalf of the society, the judgment can only be enforced against the property of the society, and not against the person. A society may be dissolved when at least three-fifth of the members in a general meeting agree on and specify the time of dissolution. Any property remaining after satisfaction of liabilities must be transferred to another society with similar aims and objectives. A society, however, cannot be dissolved without the consent of the registering authority, if the government is a member of, or a contributor to, or otherwise interested in such a society. 10 Diffusion of political education was added as a legitimate purpose in 1927 11 It is interesting to note that organizations as divergent as the defunct Sipah-i-Sihaba on one end and the Human Rights Commission of Pakistan (HRCP) on the other are registered under this Act 12 Until recently, the Registrar of Societies in the Industries Department of Provincial Governments used to perform this function. The Local Government Ordinance, 2001 has, however, devolved this function to the Executive District Officer, Finance and Planning in a district 13 Admittedly, there is some disagreement on this in the legal circles. For example, see Shah, S A H (2003). Regulation of Civil Society Organizations: A Pakistan Case Study. Rome, International Development Law Organization: 43. He has argued that the Act does not confer the status of an “artificial juridical person” on the societies registered under it. But then there are numerous others (e.g., Bhatti 2003) who have opined that it does.

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The Provincial Government may suspend (for a maximum period of one year) or dissolve the Governing Body if the society is unable to or fails to discharge its duties, is unable to administer its affairs or meet its financial obligations, or acts in a manner contrary to public interest or the interests of the members. In case of suspension, the Governing Body may again be reconstituted after the specified period according to the Memorandum of Association and Rules of the Society. In case of dissolution, the government shall reconstitute the Governing Body and assign it the management of the society. Registration is voluntary under the Act. However, a recent amendment has made it mandatory for all religious seminaries to be registered under the Act. The exact text is reproduced below. Registration of Deeni Madrassah

1. A Deeni Madrassah by whatsoever name called shall not be established or operated without being registered as a society under this Act

2. The Deeni Madrassah shall, in addition to the other provisions of this Act, be

subject to the following conditions:

a) To submit annual reports of its activities and performance to the Registrar; b) To maintain accounts of its expenses and receipts and annually submit the

report to the Registrar; and c) To cause to be carried out audit of its accounts by an Auditor and annually

submit its audited accounts to the Registrar.

3. No Deeni Madrassah shall teach or publish any literature which promotes militancy or spreads sectarian hatred and religious hostility.

Explanation: In this section, Deeni Madrassah means a religious institution established or operated primarily for the purpose of imparting religious education whether providing lodging and boarding facilities or not and includes a Jamia, Dar-ul-Uloom, School, College, University, or any other religious institution, called by whatsoever name, set up for the aforesaid purpose.

This insertion (Section 21) has compromised the liberal and voluntary character of the Act. The amendment is clearly discriminatory as it does not require mandatory registration for organizations other than the seminaries, nor does it ask them to submit annual reports, or audited financial statements. Setting aside the merits or the need for regular audits and submission of periodic reports, the simple fact that a large segment of societies has been exempted from doing so makes this a bad legislation, to say the least. THE TRUST ACT, 1882 The Trust Act was enacted in the late nineteenth century to “define and amend the law relating to private trusts and trustees.” As such, it was primarily designed to govern the establishment and operation of private trusts. A private trust is a trust established to benefit a certain group of people, which is not a changing population. Whereas, a public trust is a trust that is established for the benefit of society at large or a section of society or a group of people, which is a changing population. But since there are no particular laws relating to public trusts, the rules and principles enunciated in The Trust Act, 1882 are also applied

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to public trusts14. A number of laws implicitly recognize the phenomenon for example, that registration under The Societies Registration Act, 1860 vests the property of the Society in its governing body as de facto trustees (implicitly equivalent to a public trust). The fact that registration under the Act of 1860 allows for what is in effect a public trust regulated by statute is a valuable benefit resulting from the act of registration. For a trust, the existence of a creator (author of the trust), and specification of trustee(s) and beneficiaries are essential requirements. For establishing a public trust, there must be some property (whether in cash or in kind and whatever its value may be) to be vested in “trust”, and the objectives of the trust must be charitable or for the benefit of society. A trust may be created for any lawful purpose. The author, having once created the trust, has no privileged position, in any manner whatsoever, in respect to other trustee(s). The procedure for the creation of a trust is simple. A public and charitable trust can be created merely through a declaration to that effect on a non-judicial stamp paper of a value (different across provinces) stated in the Stamp Act. Registration is optional. The legal status of a trust is that of a property pledged for the benefit of its specified beneficiaries. A trust is brought to an end when: its purpose is fulfilled; when the trust becomes unlawful; when the fulfilment of its purposes becomes impossible due to the destruction of trust property; or when a revocable trust is expressly revoked. However, a change of trustee, which is a lengthy and time-consuming process, is the prerogative of the civil court. Section 92 of the Civil Procedure Code, 1908 requires institution of a suit in the civil court of competent jurisdiction by the Advocate General (or an officer to whom the authority is delegated by the provincial government) or two or more persons having an interest in the trust for removing a trustee, appointing a new trustee, vesting any property in a trustee, or authorizing the whole or any part of the trust property to be let, sold, mortgaged or exchanged.

Table 5: Provincial Fee Structure for Registration (2000)

Province Societies Registration Act Trust Act

Punjab Rs 500 1.0 % ad valorem Sindh Rs 15,000 4.5 % ad valorem NWFP Rs 7,500 2.5 % ad valorem Balochistan Rs 200 1.0 % ad valorem

Source: (Baig, Q and Ismail, Z H, 2004) The Trust Act provides legal cover for private acts of public charity15, and allows its creators tremendous flexibility in their operations. There are no reporting or auditing requirements at all, except for maintaining proper records and making these available for

14 Courts have also tended to apply The Trust Act, 1882 in adjudicating matters relating to public trusts (Ismail 2002) 15 Trusts take two forms, the commonly understood trust and the waqf in the Muslim law. For the creation of a trust, as defined in secular law, no religious motive is necessary. However, a waqf under the Muslim law is generally made with a pious, charitable or religious purpose. While the secular trust has no restriction as to its intent and purpose, except that it be for lawful purpose, the waqf is created for the ultimate benefit of mankind. A trust property vests in trustees, but a waqf property vests in God. The trustees have wider powers than the mutawalli (manager or superintendent) of a waqf. A trust need not be perpetual and irrevocable. A waqf once created, cannot be altered or rescinded (Ismail 2002)

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inspection by the beneficiaries. THE VOLUNTARY SOCIAL WELFARE AGENCIES (REGISTRATION AND CONTROL) ORDINANCE, 1961 The Ordinance is an important addition to the non-profit law in Pakistan. The then military Government seems to have had two objectives: a welfare state, responsible for delivery of all social services, and agents needed to mobilize the local communities to deliver social services. The scope of activities that the Ordinance enumerates underlines this focus on provision of basic social services, formalization and development of social safety nets, and on promotion of certain state sponsored programs. The Government also wanted to bring all organizations that were active in social welfare and dependent on public subscriptions, donations or government aid under one umbrella law. These could, then be supported through grants, aid and training. For this patronage, the government would regulate them rigorously and also perhaps keep them on a tight leash (Bhatti 2003). Though a Federal Statute, the Ordinance is administered independently by the provincial governments through the Directorates of Social Welfare. Under the new local government set up, registration under the Ordinance is carried out at the district level by the Executive District Officer, Community Development, (EDO, CD). The application for registration must be accompanied by the Constitution of the Agency. The registration authority may make enquiries, as deemed proper, before deciding the application. Amendment in the Constitution can be effected only after the approval of the registration authority. The Ordinance requires that all organizations engaged in charitable work must be registered with the Social Welfare Department. Registration is mandatory for organizations working in one of the twelve specified areas and seeking funds from the public or the government. Registration, however, does not confer the status of an artificial juridical person16. Even though it can sue and be sued in its own name and institute other legal proceedings, it cannot own property. Further, it is protected from litigation and prosecution for anything done in good faith. The Ministry and Departments of Social Welfare can provide funding to the Social Welfare Councils, autonomous government institutions at the Federal and Provincial levels, for making grants to Agencies. Without registration, access to this body of funds is denied. Every Agency registered under the Ordinance must submit its annual report to the registration authority and maintain audited accounts, which must be made public. The Ordinance empowers the registration authority to inspect the books of accounts and other records of securities, cash and properties held by the Agency. The minimum operating requirements are that it should make public its annual reports and audited accounts, and pay all funds received into a separate account with a scheduled bank. The main role of the registration authority vis-à-vis registered NPOs is that it can act as arbitrator in case of disputes or winding up. The government has the discretionary right to dissolve an agency through due process or replace the governing body arbitrarily. If the registration authority believes that a registered Agency is acting against its constitution or rules, or in a manner that is contrary to the interests of its members, it may, after giving the 16 Many organizations, however, are simultaneously registered under The Societies Registration Act, 1860 and the Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961. This subjects them to dual regulation. A Society, which is also an Agency, would be an artificial juridical person by virtue of its registration as a Society

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Agency an opportunity to defend itself, make a report to the provincial government for dissolution. The governing body or members cannot dissolve a registered Agency. However, if more than three-fifth of the members of the Agency make a dissolution application, it may be considered by the authority. Property and assets of the Agency which are held in the name of the Governing Body, upon dissolution, are transferable only to another Agency with similar objectives with prior approval of the registration authority. While in its own terms, the scope of the Ordinance is restricted to organizations working under one or more of the twelve fields listed in the schedule to the Ordinance, section 16 empowers the government to include or exclude any field of social service from the schedule by issuing a notification. Given the vast area of its applicability and the mandatory registration stipulated, the Ordinance is a serious negation of fundamental rights to associate guaranteed by Article 17 of the Constitution of Pakistan. In practice, however, the Ordinance has rarely been implemented with any degree of vigour. This underscores the impossibility of implementing laws that seek intrusive degrees of control17. It is this lack of implementation that has, in all probability, saved the Ordinance from constitutional challenge (Bhatti 2003). THE COMPANIES ORDINANCE, 1984 At the other end of the scale in terms of both choice and complexity is The Companies Ordinance, 1984. Registration through this instrument requires a substantial amount of documentation. The documentation includes information on the antecedents of sponsors, memorandum and articles of association, and then after registration, the filing of annual returns and other reports including an audit report, audited accounts and an activity report by the directors every year. A non-profit company is registered under Section 42 of The Companies Ordinance, 1984 as a public18 company with limited liability, provided it directs or intends to direct its profits (if any) or any other form of income, toward advancing its objectives, prohibits payment of any return to its members and does not distribute its assets among its members on dissolution. The liability of the directors is limited by guarantee, though organizations registered under Section 42 cannot write ‘Ltd’ with their titles. The biggest advantage of registration under the Ordinance is the conferment of the status of an artificial juridical person. A non-profit company can sue and be sued in its own name and can acquire/hold property in its name. Registration is achieved through an application for a license to the Securities and Exchange Commission (SECP) of Pakistan, which is based in Islamabad. At the provincial level, the applications for registration are processed by the SECP provincial offices and by the Registrar Joint Stock Companies, Department of Industries. Registration can also be done at the district level by Executive Development Officer (F&P), if the company is situated and operates wholly within a district. No appeal is provided if an application for registration is rejected. The license specifies the terms under which the company may be registered. Once the license has been granted, the memorandum and articles of association cannot be changed without prior permission from

17 A case in point is the continued existence and operation of a large number of organizations not registered under the Ordinance, though the same have been established for purposes enumerated in the schedule to the Ordinance and raise funds from the public or receive government donations 18 Some confusion has been created in this regard by the recent amendments in The Companies Ordinance, 1984 introducing the concept of single member companies. The amendment, read with Section 42, implies that an NPO can also be established under the Ordinance with only one director, and can, therefore, practically become a private NPO. The confusion will be clarified in due course through judicial process

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the SECP or the registration authority at the provincial/district level. NPOs registered as a non-profit company function in a regulatory environment that is primarily meant to protect the investment expectations of corporate shareholders. This results in a degree of regulation and compliance with regulatory procedures that is not feasible for most charitable organizations. Hence, not many NPOs have opted to register under The Companies Ordinance, 1984 during the last two decades of intense non-profit activity in Pakistan. On the other hand, the high level of regulatory control to which charitable companies are subjected to enhances the credibility of such organizations. This signalling effect is of value to the best-organized and funded NPOs that can afford compliance costs of the Ordinance. THE LOCAL GOVERNMENT ORDINANCE, 2001 The provincial Local Government Ordinances (LGOs) of 2001 envisage a new kind of non-profit organization, the Citizen Community Board (CCB) for mobilizing participation of local communities in the development process. The mechanism specified for registration of CCBs is simple. A group of citizens may set up a CCB in a local area and get it registered with the Executive District Officer (Community Development). There can be more CCBs than one in the same area and existing NPOs can also register themselves as CCBs. The Ordinance requires all CCBs to have a general body of members who shall elect a Chairperson, Executive Committee (EC) and a Secretary to carry out its functions. The term of office of the Chairperson, EC Members and Secretary is two years. Re-election is permissible for any number of terms. It is mandatory for the EC members to hold at least one meeting in each quarter, minutes of which are to be kept by the Secretary. The CCBs are required to get their accounts audited and present a statement of accounts before the registration authority annually. The registration authority can appoint an administrator, take over the assets and dissolve a CCB if it is not functioning in accordance with the Ordinance. The Ordinance envisions a wide range of permissible activities for the CCBs. These include: organizing the community for development; improving service delivery by a public facility; developing and managing a new public facility; welfare of the handicapped, widows and destitute families; establishing farming, marketing and consumer cooperatives; and forming stakeholders’ associations for community involvement in improving and maintaining specific facilities. Despite this very broad range of permissible activities and the ease of registration, LGO has not so far become a popular instrument for registration of citizen organizations having long-term commitment and programs. For the most part local community-based initiatives, limited to a couple of specific projects, have generally been the activities that have attracted citizen groups to organize themselves as CCBs. Although the scope of activities as enumerated in Section 98 of the Ordinance is vast and the Ordinance declares CCBs as non-profit organizations (Section 101), the “local” dimension of the initiatives and approval mechanisms render the Ordinance unattractive as a medium of registration for NPOs aiming to work at a national/provincial level or on national/provincial issues. Since most policy making continues to remain with the provincial/federal government, it requires provincial/national level NPOs to articulate public interest at these forums. For this reason, apparently no NPO with a long-term mission has opted to register as a CCB;

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neither has a CCB grown into such an NPO. Even in the case of small physical infrastructure projects, lack of awareness about the functions and responsibilities of CCBs has led to the capture of these institutions by the political elite, most notably the elected Nazims. Many people in the elected councils feel that they, being elected representatives of the people, alone have the right to articulate people’s interest in development schemes and elsewhere. The overall tone and tenor of the Ordinance, however, envisages grassroots public participation by individuals as well as organized groups at every level and in all development and policy initiatives. In this sense, it is a loud enunciation of the recognition by the government of the important role citizen groups can play as a partner for social development. It opens many vistas for government-community dialogue and cooperation. The greatest contribution of the Ordinance, perhaps, is the creation of statutory space for direct institutional interaction between citizens and the state. RECENT REFORM EFFORTS The regulatory regime is perhaps the most important of the public governance elements in the non-profit sector. The laws and institutions governing non-profits have clearly failed to do the job in Pakistan. The legal framework is both archaic and confusing (Ismail 2002). There are too many laws that invariably cause duplication and confusion. There are considerable variations in the prescribed governance standards and reporting and audit requirements. Multiplicity of registration authorities not only creates confusion, it also makes data collection difficult. The practice of laws also radically differs from what is stated in the statute. To complicate matters further, compliance with the existing laws is extremely poor. A survey of documents filed by organizations registered in Islamabad under The Societies Registration Act, 1860 and The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 conducted by Pakistan Centre for Philanthropy (PCP)19 in 2003 revealed that less than 5 percent organizations comply with their legally mandated reporting requirements (PCP 2003). Compliance is likely to be far lower in other districts. The diversity in laws has also been a contributory factor in creating an environment of friction and hostility between the government and NPOs. The government alleges that non-profits are following a “donor agenda”; are largely opaque and non-accountable; and that a large number have the sole agenda of siphoning off charitable contributions, government grants and foreign assistance. At the other end of the spectrum, NPOs have been alleging that the government is bent upon destroying the sector because it considers the sector a threat to government agencies (Yamamoto 2003). There is merit to both sides. Dissatisfaction with the situation, has resulted in numerous attempts to rationalize and consolidate the regulatory regime concerning NPOs. The following paragraphs discuss two such initiatives from the government and two from the sector itself. The first initiative was in 1994, when the government tabled The Social Welfare Agencies (Registration and Regulation) Act in the parliament. The government had two main

19 PCP is an NPO registered under Section 42 of The Companies Ordinance, 1984. It is the first government authorized NPO Evaluation and Certification Agency

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objectives. It wanted to liquidate inactive and fraudulent NPOs to ensure transparency in the sector. Second, it wanted to monitor foreign funding to NPOs for security reasons. Clearly the proposed enactment was control oriented. Quite expectedly, it met fierce resistance from NPOs at home, and from international aid agencies, which by that time had developed significant partnerships in the sector. The bill was not pursued. The second attempt was made in 1996 through a much more stringent law, which was presented before the Senate. It proposed to repeal the 1961 Ordinance and to bring in its purview all social welfare organizations using public funds, regardless of the law they were registered under. It also proposed to give the government discretionary powers to dissolve an NPO and take over its assets (Ghaus-Pasha et al, 2002b). Once again, the civil society put up a strong (and this time coordinated20) reaction and succeeded in thwarting the control effort. The criticism from the NPOs of the government bills mentioned above has put the sector under immense pressure to come up with an alternate version that is facilitative in nature and yet rationalizes the existing legislation. The first response to this challenge came from the Pakistan NGO Forum in the form of a draft enactment, commonly known as the PNF bill. The bill was placed before the Senate in 1999. The draft encapsulates the liberal civil society view of regulation, accountability and transparency. Registration was proposed to be voluntary for all organizations irrespective of the source or amount of funding. An NPO could dissolve itself, amalgamate with another organization and amend its charter on its own without seeking permission or approval from the government. In the same vein, no minimum standards for internal governance were prescribed. The bill envisaged minimum government intervention or oversight in the non-profit activity. The government was not to start any investigation against any organization on its own on any grounds, whatsoever. Only defined donors, members and governing bodies had a right to lodge a complaint against an organization and demand investigation/inquiry. The bill aimed to replace the Ordinance of 1961, without disturbing in any manner the existence or operation of The Societies Registration Act, 1860. While the government-sponsored draft enactments of 1994 and 1996 were too control oriented, the PNF sponsored bill went to the other extreme. It envisioned an enabling regime without proposing a solution to the issues of multiplicity of laws, harmonizing the reporting and auditing requirements or ensuring more transparency and improved governance in the sector. It contained nothing that could attract greater confidence and trust for the sector from the public at large. Having oscillated between the two extremes, both the government and the non-profit sector started to think of a via media. The Enabling Environment Initiative of 2001 launched by the Federal Government envisaged the development of a set of proposals for legal reform through a participatory process involving all major stakeholders, most notably the government and the NPOs. The task of coordinating and spearheading the dialogue was assigned to PCP. The then Minister of Social Welfare and Women Development, Government of Pakistan, Dr Attiya Inayatullah enunciated the vision by saying that the government was “seeking to build confidence and understanding between government and civil society organizations” and “hoping to put the unnecessary battle between civil society and government to rest” (PCP 2002).

20 In fact, the Pakistan NGO Forum (PNF), the largest NGO network in Pakistan, came into being to put up a concerted response to the 1996 bill

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PCP submitted its draft recommendations to the government in 2002. It was proposed to consolidate The Societies Registration Act, 1860 and The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 into one law, the Non-profit Public Benefit Organizations (Governance and Support) Act of 2002. The new law would ease registration standards, reduce official discretion, increase judicial oversight and remove wasteful duplication. It also proposed setting up of autonomous national and provincial non-profit commissions that could take over administration of the new law from the government. The proposed law21 was essentially facilitative in content and aimed at creating an enabling legal and regulatory framework. At the same time, it provided for judicial oversight and superintendence by independent commissions. It also called for regular audits and presentation of major financial statements. These were important recommendations to inspire confidence from the general public in the working of the non-profit sector. Most importantly, despite continued differences on some provisions, both major stakeholders (i.e., the government and NPOs) agreed on the broad framework being proposed. This effort too, however, did not succeed and the bill is still pending with the Ministry of Social Welfare. With the change of government and rise to power of right wing parties in two provinces, it became increasingly difficult to push forward any reform effort that could potentially effect the organizations registered under The Societies Registration Act, 1860 under which most of the religious seminaries are registered. Also, there was a lot of power play between PCP on one hand and the government and the PNF on the other. Each of them considered that it was their sole and legitimate right to formulate recommendations concerning the regulatory regime for the non-profit sector. PCP draft recommendations might ultimately die in the government files, but the need to consolidate and rationalize the regulatory framework persists and will eventually provide the necessary impetus for a new enabling law to appear in the statute book. ISSUES AND CHALLENGES There are a number of governance and transparency issues that the non-profit sector must respond to. Perhaps the fundamental issue the sector faces is the lack of a uniform, authentic and verifiable source of information on its size and scope. Without adequately refined and updated empirical data about the sector, it is not possible to assess its outreach and potential as a social development partner. Second, governance is a major issue in the non-profit sector. Internal governance structures are weak and personalized. Too often, the governing body is either nonexistent or fails to perform its policy-setting and supervisory role. The governing bodies (Boards) are often ceremonial at best, and in most cases ineffective or uninterested in playing their due role as the custodian of public trust and as a bridge between the organizations and the community at large. Policy decisions are left to the chief executive officers, who then work without clear accountability to the governing body (Rehmatullah 2002). This leads to erosion of credibility and wastage of scarce development funds. The sector’s ability to deliver services innovatively and to sustain development advocacy is also hampered.

21 Non-profit Public Benefit Organizations (Governance and Support) Act, 2003 is available in PCP publication Creating an Enabling Legal Framework for Non-profit Organizations in Pakistan as well as on PCP website (www.pcp.org.pk)

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An important challenge, therefore, for the non-profit sector in Pakistan is to ensure democratic internal governance and self-regulation. One key actor in this regard can be the governing bodies, which should establish a competent and accountable structure of internal self-governance, and above all exercise fiduciary responsibility to ensure transparent use of organizational resources in accordance with its mission (Ferraro 2001). Third, the sector does not enjoy the legitimacy that it deserves. This is due to several reasons, the primary one being the lack of transparency in making and documenting financial transactions. The sector must realize that legitimacy is not a function of being registered under law; rather it emanates from public recognition of the service being provided. The fourth issue is that of information sharing and disclosure. To ensure credibility, NPOs have to improve the practice of informing their constituencies and other members of the public fully and accurately about their work, especially program outcomes, benefits to communities and most importantly matters of finance and accounts. Most NPOs are extremely tight lipped about their sources of funding and executive expense (including salaries). NPOs need to move beyond simply publishing annual reports consisting mostly anecdotal evidence to try new and non-conventional methods and instruments of communication, such as the internet for public disclosure of important organizational, program and financial information. Fifth, a major challenge for the non-profit sector is to build a public image commensurate with the work it is doing. It is a question of positively marketing itself and its contributions. The layperson is by and large unaware of the positive role being played by scores of NPOs, small and large, across the country. An example is the content analysis of two major English and one Urdu newspapers conducted by the NGO Resource Centre (NGORC) in 2003. The research found “a sharp dichotomy between the English and Urdu press with the latter being generally negative towards CSOs” (NGO Resource Centre 2004). The challenge lies not only in wider dissemination of the voluntary activity, but also in taking the development concerns to the common citizens. One way to do this is to involve them in the development process. This would automatically ensure greater responsiveness and accountability of organizations within the sector. Greater reliance on local resource generation will also increase public accountability and local participation in the work of NPOs (Rana 2004a). Finally, as the role of the sector in social development increases, its capacities must be augmented to increase its efficiency and effectiveness. Several capacity-building organizations are working towards this end. However, there are no clear standards and benchmarks for performance. Because the sector is semiformal, the NPOs do not adhere to sector-wide standards in governance, financial management and program delivery. There is a clear need to develop such benchmarks, and to incentivize adoption of and adherence to these standards by linking it with a range of benefits22 (Rana 2004b).

22 PCP’s Certification program is an interesting and valuable initiative towards developing such sector-wide standards. The incentives offered through tax exemptions and increased access to national and international donors effectively incentivize voluntary adoption of these standards of governance, transparency and effectiveness. Further details of certification experience can be seen on PCP web site (www.pcp.org.pk)

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REFERENCES Baig, Q. and Ismail, Z. H. (2004). Pakistan, Philanthropy and Law in South Asia, Manila, Asia Pacific Philanthropy Consortium Bhatti, Z. K. (2003). Pakistan Case Study, Governance, Organizational Effectiveness and the Nonprofit Sector, Manila, Asia Pacific Philanthropy Consortium Darling, S. M. (1947). The Punjab Peasant Lahore, Vanguard Books Ltd Ferraro, P. (2001). Legal and Organizational Practices in Non-profit Management, The Hague, Kluwer Law International Ghaus-Pasha, A., H. Jamal, et al. (2002a). Dimensions of the Nonprofit Sector in Pakistan. Karachi, Social Policy and Development Centre: 26 Ghaus-Pasha, A., H. A. Pasha, et al. (2002b). Nonprofit Sector in Pakistan: Government Policy and Future Issues. Karachi, Social Policy and Development Centre: 46 Government of Pakistan (2003). Poverty Reduction Strategy Paper. Islamabad, Government of Pakistan; Ministry of Finance Iqbal, M. A., H. Khan, et al. (2002). Nonprofit Sector in Pakistan: Historical Background. Karachi, Social Policy and Development Centre: 47 Ismail, Z. H. (2002). Law and the Nonprofit Sector in Pakistan. Karachi, Social Policy and Development Centre: 45 Khan, B. A. and F. Bari (2005). Introduction. Managing NGOs in Developing Countries: Concepts, Frameworks and Cases. Z. I. Qureshi. Karachi, Oxford University Press. 1: 271 NGO Resource Centre (2004). Civil Society in Pakistan. Karachi, NGO Resource Centre: 53 PCP (2002). Creating an Enabling Legal Framework for Nonprofit Organizations in Pakistan. Islamabad, Pakistan Centre for Philanthropy: 156 PCP (2003). Resources. 2005 Rana, M. A. (2004a). “The Resource Generation Challenge: Can Accountability Help?” Alliance 9(4) Rana, M. A. (2004b). “Setting Standards in the Nonprofit Sector: The Certification Experience in Pakistan.” International Journal for Civil Society Law II(IV): 5 Rehmatullah, S. (2002). Social Welfare in Pakistan. Karachi, Oxford University Press Shah, S. A. H. (2003). Regulation of Civil Society Organizations: A Pakistan Case Study. Rome, International Development Law Organization: 43 Yamamoto, T. (2003). Overview of 11 Country/Region Studies. Governance, Organizational Effectiveness and the Nonprofit Sector, Manila, Asia Pacific Philanthropy Consortium

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