Americans generously donate more than $427 billion annually to charities—a powerful driver of positive impact as communities across the country, including in Michigan, respond to the COVID-19 pandemic. Charitable giving plays a vital role in supporting high-need communities, both at home and abroad. Religious faith often plays a role in charitable giving. With Ramadan, the biggest giving period of the year for Muslims beginning later this month, it’s critical to ensure everyone who is inclined to give can do so freely.

Currently, well-intentioned financial compliance regulations restrict access to financial services, including those that enable charitable giving. It’s time for policymakers to take a more inclusive and holistic approach to financial access, especially as COVID-19 creates additional need in communities.

The reasons for widespread financial exclusion are varied. Many financial institutions perceive that marginalized populations such as low-income individuals, religious minorities and migrant diaspora communities pose an undue risk to their institutions in exchange for low profitability potential; thus, they deny them services. Governments, including the global standard setters for anti-money laundering/financial crimes compliance (AML/FCC), have also highlighted the charitable sector’s potential vulnerability to terrorist financing risks. Yet the probability of such exploitation remains low. This misplaced “high perceived risk” stems from the complexity and costs banks anticipate for satisfying AML/FCC regulations. Over the past 15 years, regulators have increased scrutiny of noncompliance and levied fines totaling more than $350 billion to the top-tier global banks alone. Large and bulge bracket banks dedicate an average of more than 20 percent (and growing) of their operational costs to governance, risk and compliance activities.

These regulations adversely impact charitable giving. Without adequate financial access, individuals labeled as “high perceived risk” are forced to conduct charitable transactions through unregulated channels. This decreases transparency and undermines the intended national security goals of AML/FCC regulations, while also delaying when charities receive donated funds.

LaunchGood, a global crowdfunding platform headquartered in Detroit, presents a powerful case study. Their platform connects U.S. donors with Muslim-led causes across the world. They’ve facilitated more than $100 million in charitable giving, and they experience an annual surge during Ramadan. Despite their important role, LaunchGood continues to face scrutiny from U.S. banks and has been denied support for processing payments due to the so-called “high perceived risk” of its network users. This results in hampered daily operations and more challenging financial flows between donors and charitable beneficiaries.

In recognition of the disproportionate and unintended impact these regulations have on charities, the Treasury Department recently provided guidance to reassure financial institutions that the charitable sector presents an overall low risk. The global Financial Action Task Force (FATF) also released recent guidance related to COVID-19 and measures to combat illicit financing noting that financial institutions do not consider all nonprofit organizations to be high-risk. In fact, nonprofits were characterized to carry little or no terrorist-financing risk. Even so, charities continue to face ongoing challenges. We must do more to increase charities’ access to financial services while alleviating the risk concerns of financial institutions.

Enabling financial inclusion and protecting our financial system is not a binary choice; we have the technology and know-how to do both. We urge policymakers to implement a more holistic risk-based approach to AML/FCC regulations, thus supporting increased charitable giving and empowering charitable platforms to better serve charities, donors and communities. The good news is that we are already well-equipped to reinforce transparency and security measures while driving more inclusive finance, and charitable giving, for all. The world needs it now more than ever.

By Chris Abdur-Rahman Blauvelt and Amit Sharma

—Chris Abdur-Rahman Blauvelt is founder and CEO of LaunchGood. Amit Sharma is founder and CEO of FinClusive.