Erie Sudewo

Corruption and poor stewardship have severely limited what reaches the poor in Indonesia. Erie Sudewo has revived the custom of giving, a religious duty in Islam known as zakat, by creating a conglomerate of intermediary institutions, both for-profit and not-for-profit, that are honest, trustworthy, effective, and innovative.

Erie has transformed the religious tradition of charity, called zakat (a mandatory charitable contribution based on income), to help the poor by forming new zakat management institutions, which offer high-quality and affordable health, education, and savings/loan services. Most of the organizations develop financial independence and sustainability. Simultaneously, this umbrella structure has also allowed zakat payers to make independent decisions as to how and where to donate. In 2010 the zakat collected was more than 1 trillion rupiah (from 612 billion in 2007).

Erie has created a new wealth redistribution system based on an ancient one with tenets set in Islam. He is the first and strongest advocate for citizen sector control of zakat management, operated by staying true to the values of transparency and accountability. Through the establishment of an earlier charity, he modeled what citizens could do and do better than the government by setting up a citizen organization (CO), Dompet Dhuafa (Wallet for the Poor) in 1993.

Erie realized early on that everyone has something to give to others but would not give it, at least through the government system, if they believed the system was corrupt or the process was too complicated. In 1997 Dompet Dhuafa launched Forum Zakat (FOZ) to create greater awareness about and improved management of zakat organizations throughout Indonesia. The forum encourages coordination and partnership at the national and regional levels and assures a high- quality standard of zakat management. Erie set up the Institute of Zakat Management in 1999 to raise the number of citizen sector zakat collection and distribution institutions and supervise the quality of operations. Now, fourteen years after its establishment, 400 to 500 citizen-based zakat management organizations have emerged across the country with millions of beneficiaries.

Currently, 14 percent of Indonesia’s population lives in poverty. Even though this number has decreased since the economic crisis of 1998, the government’s poverty alleviation programs have not been able to end poverty, but are more remedial. Donors provide funding for COs, however, it has created dependency on foreign funding. Foreign support received during the dictatorship also brought with it political suspicion.

Indigenous philanthropy, however, has long been practiced in Indonesia. For Muslims there are different giving mechanisms. Charitable giving in the form of zakat is one of the five pillars of the Islamic faith. The donation equals 2.5 percent (the rate mentioned in the Quran varies from 2.5 percent to 20 percent, but the widely-accepted rate is 2.5 percent) of a person’s annual income, and is required of all Muslims who have resources remaining after meeting the basic requirements of their families. Beyond an expression of gratitude zakat represents a significant social redistribution of wealth. While zakat is the only required form of charity, additional voluntary giving is strongly encouraged and takes various forms, such as infak (a voluntary gift for a restricted purpose), sadaqah (voluntary charity for unrestricted purposes) and waqf (an Islamic endowment, typically created by an individual). As a country with the greatest number of Muslims in the world, who represent 90 percent of the country’s population, there is a huge opportunity for people to utilize zakat to eradicate poverty.

However, the government has calculated that the amount collected today is less than 10 percent of the potential US$100 billion per year that could be collected. Under the Soeharto regime, the state took control of zakat policy, including the management of collection and distribution of funds. In the 1990s a zakat bill under the Ministry of Religion was issued to regulate the zakat usage and the organization that manages it. Even though semi-government organizations (Badan Amil Zakat-BAZ) have been set up to collect and distribute zakat, the government’s accountability and effectiveness in serving the poor has been questioned. Alternatively, under current government regulation of zakat, community-based organizations (Lembaga Amil Zakat-LAZ) are given permission by the government only to collect zakat and then submit the funds to BAZ.

Corruption in zakat management at BAZ and LAZ has resulted in people having no trust in zakat institutions and no longer willing to pay it. For others, zakat has been forgotten despite its huge potential as an alternative social safety net for the poor. As far as policy and regulation are concerned, confusion, inefficiency, and competition for the funds have continued for decades. The Ministry of Religion has proposed a draft addendum of zakat management, which is still to be controlled by the Ministry of Religion. Multiple ministries have tried to control zakat. Various reasons are given for this tug of war to control the money; some say it should be under the Ministry of Social Welfare due to its purpose, the Ministry of Finance due to the amount of wealth mobilized, or the Ministry of Religion due to religious motivations for the practice. All these ministries continue to have a stake in the new Act.

To recreate the tradition of giving in Indonesia, Erie has developed three related strategies: (i) marketing the act and method of giving, including fundraising by each intermediary organization (ii) developing accountable, transparent and sustainable pro-poor programs, and (iii) advocating for policy change. He encourages people to appropriately help others as they can—money or in-kind donations. Dompet Dhuafa (DD) has established community development programs that are impact-driven based on his three strategies.

As funds accumulated Erie began setting up different accounts for different social purposes and, over time, these became separate entities—intermediaries under the umbrella of DD. To distribute the zakat in a sustainable way, and improve access to capital for the poor, DD developed the Islamic Microfinance Institution (Baitul Maal Wa Tamwil/BMT). After realizing that many more BMTs were needed to have the level of impact necessary, Erie set up the BMT Training Centre, which has resulted in over sixty microfinance institutions, including BMTs successfully spread across Java and Sumatra.

In 1994, together with existing syariah (pertaining to Sharia, or Islamic law) microfinance institutions, DD set up a “holding BMT” to improve collaboration and intra-lending services. In 2008, with a membership of more than 200 BMTs, with each serving about 20,000 small businesses or approximately one million people, they established the Indonesia BMT Association (BMT Centre) which now manages financial assets of IDR 266 billion (US$25.9 million) from members and IDR 233 billion (US$23 million) from external investors. Various other BMT-based services have also been developed, such as syariah audit services, fund pooling and replacement, training, syndications payment, clearing activities, and fund guarantees. One of its businesses, a venture capital company called BMT Ventura, currently serves 55,000 members.

Other examples of intermediary organizations under the DD network are Independent Community (Masyarakat Mandiri) a self-reliant organizational development that facilitates poor communities to develop collective businesses; Free Health Care, which operates health clinics serving the urban poor, Vocational and Entrepreneurship Institution; Healthy Farming Institution, and Livestock Village. Millions of dollars have been mobilized through these programs benefiting thousands of people. DD has set a positive precedent which demonstrates that civil society is able to creatively mobilize and manage zakat donations leading to sustainable impacts.

Erie makes the zakat payment mechanism simple and straightforward, setting it at 2.5 percent of the annual wealth of the individual, compared to the complicated calculation applied by government institutions. He built trust and gained public credibility and thus success in zakat mobilization by delivering program impact and ensuring organizational quality. For this, program and finance standard operating procedures were developed and applied not only to the DD network, but also for local zakat management organizations. The practice has been integrated through a zakat management quality standard called “Zakat Criteria for Performance Excellence” amongst the Forum of Zakat members. The principles are driven by the zakat characteristics in accordance to the syariah and include carefulness, transparency, accountability, and professionalism.

DD creatively promotes zakat by reaching out to zakat payers through advertisements in the mass media (e.g. television, radio, newspaper, and billboards), unlike the semi-government zakat organizations that passively wait for the zakat to be paid. In order to create incentives, DD created discount vouchers that were offered at bookstores and restaurants. For easy payments, in partnership with commercial banks, online, direct debit, or ATM payment services all accept zakat. Erie has shifted the tradition of zakat to annual giving.

Maintaining a habit which Erie formed during his initial days running a fund, he continues to post donation amounts received and distributed on the web, daily and weekly, in the Republika Daily newspaper. Not only does DD apply programmatic and financial audits, but it also provides these reports to the public. DD is now the role model for the government and the citizen sector in accountability standards. Today, such practices have become common among zakat management organizations.

After the economic crisis of 1998 and the following ethnic and religious conflicts, Erie felt that the DD model should be accessible to everyone in Indonesia. Therefore in 1999 he set up the Zakat Management Institute and invited participants from different islands to learn how to set up and develop a zakat management institution in their own communities. Topics such as fund raising, community development, management and self-reliance are part of the teachings and thousands of graduates have set up their own zakat management organizations in their own cities.

Zakat management is currently under the coordination of the Ministry of Religion and the Indonesia Islamic Council. A new draft addendum to zakat law has been proposed by the Ministry of Religion and is being discussed at the House of Representatives. However, the proposed legal draft does not guarantee that the usage of potential zakat will address poverty. With the current zakat distribution mechanisms, it leads to an increase in begging. Erie and his colleagues are therefore working on an alternative scheme utilizing the banking system. Erie proposes that the government become the regulator and policy setter, the Central Bank the supervisor and citizen zakat management organizations, like DD, the operators. With this scheme, any zakat payment could also become tax-deductable and increase further incentives for giving.

Erie, the fourth of twelve children, was born and raised in Cimahi, Bandung. His father was in the military, but suddenly passed away at the age of 44, when Erie was in junior high school. The loss hit Erie hard as the family went from middle-class to very poor virtually overnight. At the age of 16, Erie sold baby pins and t-shirts to earn a living and continue his schooling. His mother ran a small catering business to feed the family. Even though his family was poor, he was determined to survive without begging. Following high school, he chose archeology as his major at the state university, since it cost less than architecture at the private university, to ease the monetary burden on his mother.

One of Erie’s passions was writing, and he became a journalist during university to fund his tuition. He was hired by several newspapers and ended up at the Republika Daily where he assumed the position of journalist and later secretary of editors. When Erie was given the task to also head the corporate social responsibility division, he, along with other journalists, collected money and donated shoes, school bags, and clothes to the street newsboys in Jogya in response to a severe famine in Central Java. Since then, Erie has questioned what is the best way to end poverty for all Indonesians and how can that model serve the rest of the world’s poor. He set up DD in 1993 with two colleagues and at first led DD part-time while continuing at the paper to offset the costs.

Erie worked to engage citizens in giving by writing human interest stories that touched readers’ hearts. This led to many private donations to his growing fund and DD received all kinds of charity including zakat, although it did so quietly then, as zakat was officially still exclusively under the government’s control. The donations grew rapidly from Rp. 88 million in 1993 to Rp. 6 billion in 1999. In 1998 Erie, wearing his “journalist’s hat” attended a talk by a well-known and respected Muslim scholar from Egypt who had been invited to Indonesia by the Central Bank. Erie pointedly asked him whether citizens could collect and distribute zakat under Islamic law. The scholar replied in the affirmative. The answer to Erie’s question: We can create systems to manage zakat. And with this seal of approval in front of hundreds of people, Erie began organizing zakat.

It was the right moment for change, with a democratic government in place and a president garnering Muslim votes. But 1998 was a year of financial turmoil. The government oversaw dwindling funds and growing suffering among the people. Erie seized this opening to leave the newspaper and dedicate himself full-time to Dompet Dhuafa—a CO using Islamic giving to benefit all Indonesians.