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Almsgiving for Bolstering SDGs

September 23, 2017 • FINANCE & BANKING, Responsible Finance

By Randi Swandaru and Ebi Junaidi

Almsgiving in Islam is not only encouraged but also obligatory under certain circumstances. The article aims to find answers on how the trend of philantrophy, together with Muslim traditions of almsgiving, can be a source of solution to the existence of sustainable development.

 

The latest report by the World Bank on The Atlas of Sustainable Development Goals 20171 shows that Muslim countries are those who suffer in achieving sustainable developments. In terms of poverty alleviation for instance, there are still millions of Muslims who live under poverty line in Indonesia (25 millon), Bangladesh (45 million), Nigeria (51 million) and Pakistan (62 million). In addition, South Asia and Sub-Saharan Africa where many Muslims live, are recorded as the regions that significantly suffer from malaria, tuberculosis and extreme hunger. To moderate this situation Muslim countries need to find a conceivable source of funding from their internal source since the global effort to achieving this goal faces $2.5 trillion investment gap.2

Almsgiving could be an alternative source of fund to bolster Sustainable Development Goals (SDGs) in Muslim countries. Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention. Zakat is not levied from the wealth that related to consumption or production investment but levied from idle wealth so that it creates disincentive to hoarding wealth and induces economic redistribution from the rich to the poor. Reknown Islamic Economics founder father, Umer Chapra, argues that zakat can help the poorest of the poor through economic empowerment as well as provide social safety net.3 This model is considered to be more effective than conventional finance as the Islamic social finance instrument such as zakat and waqf promote social justice and welfare inclusion whereas conventional finance may expropriate assets through perpetual debt-based operation.4

Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention.

Almsgiving and sustainable development goals in essence share a huge portion of profound commonalities. The first and foremost of zakat recipients is al fuqara wal masakin (poor and needy) which aligns with the first two goals of SDGs to eliminate poverty and achieve zero hunger. Moreover, zakat reflects the spirit of SDGs such as reducing inequality and supporting economic growth by transferring the idle wealth to the less fortunate that empower them as well as encourage them to have socio-economic opportunity to grow. Besides, zakat can be utilised to provide health service, education, access to clean water and sanitation for the poor which aligns with some other goals in SDGs.

There are several best practices in utilising zakat as a social intervention. Akhuwat in Pakistan is a prolific example of Islamic microfinance that funded by alms and charity donation with 99.9% of recovery rate.5 This institution was established in 2001 with a single donation of 10.000 Pakistani Rupee or $95 but now it serves nearly 1 million beneficiaries through 350 branches in 250 cities across the country. Akhuwat has successfully mobilised sustainable zakat and sadaqat (voluntary donation) fund from public to provide a revolving benevolent loan for the poor. It maintains the operational cost low by emphasising volunteerism and utilising places of worship for credit delivery.

 
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About the Authors

Randi Swandaru is an MIS & Reporting Manager at BAZNAS, Indonesia. He is currently pursuing his MSc degree in Islamic Finance and Management at Durham University Business School. His research areas are Zakat, Waqf, and Islamic Moral Economy. He is now the General Secretary of Islamic Economics Society-United Kingdom Representative.

Ebi Junaidi is School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are Waqf, Trust, Venture Capital, Risk Attitude and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative.

 

References

1. Atlas of Sustainable Development Goals 2017 From World Development Indicators. Source: https://openknowledge.worldbank.org/handle/10986/26306
2. There’s a $2.5 trillion development investment gap. Blended finance could plug it. Source: www.weforum.org/agenda/2016/07/blended-finance-sustainable-development-goals/
3. Chapra, M. U. (2008). The Islamic Vision of Development in the Light of Maqasid al-Shari`ah. Jeddah: IRTI-IDB.
4. Obaidullah, M., & Khan, T. (2007). Islamic Microfinance Development: Challenges and Initiatives. Jeddah: Islamic Research and Training Institute, Islamic Development Bank
5. IDB. (2016). Global Report on Islamic Finance: A Catalyst for Shared Prosperity? Jeddah: Islamic Development Bank
6. BAZNAS. (2017). Buku Statistik Zakat Nasional 2016. Jakarta: BAZNAS
7. Ahmed, H. (2011b). Waqf as Sustainable Social Entreprise: Organisational Architecture and Prospects. Global Islamic Finance: Innovative 21st Century Technology Spurring The Islamic Finance Industry Forward, 32-39.
8. Cizakca, M. (2004). Incorporated Cash Waqfs and Mudaraba, Islamic Non-Bank Financial Instruments from the Past to the Future. Munich Personal RePEc Archive No. 25336, 1- 13. doi:http://mpra.ub.uni-muenchen.de/25336/
9. Moheildin, M., Z. Iqbal, A. Rostom, and X. Fu. 2012. “The Role of Islamic Finance in Enhancing Financial Inclusion in OIC Member Countries.” Islamic Economic Studies 20 (2): 55–120.
10. Shirazi, N. S., & Amin, M. F. (2009). Poverty Elimination Through Potential Zakat Collection in the OIC-member Countries: Revisited. The Pakistan Development Review, 739-754.
11. BAZNAS. (2017). Buku Statistik Zakat Nasional 2016. Jakarta: BAZNAS.
12. Firdaus, M., Beik, I. S., Irawan, T., & Juanda, B. (2012). Economic Estimation and Determinations. IRTI Working Paper Series (WP# 1433-07)
13. Zainulbahar Noor and Francine Pickup (2017). The role of zakat in supporting the Sustainable Development Goals. Jakarta: BAZNAS & UNDP
14. http://khazanah.republika.co.id/berita/dunia-islam/islam-nusantara/17/07/26/otp7c1396-fiqih-zakat-on-sdgs-bisa-dipakai-negaranegara-islam
15. UNDP Collaborates with Baznas and Financial Institutions to Achieve the Sustainable Development Goals (SDGs). Source: www.id.undp.org/content/indonesia/en/home/presscenter/pressreleases/2017/04/20/undp-collaborates-with-baznas-and-financial-institutions-to-achieve-the-sustainable-development-goals-sdgs-.html

 

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