MENU

Empowering Lives With Zakat: Why We Need More Transparency And Innovation

February 12, 2019 • Responsible Finance, World Development

By Namira Samir and Imad el Fadili

A recent study by Sumner (2012) suggested that approximately 960 million people from 1.3 billion poor people in the world live in Middle-Income countries1. This evidence is being referred to as the “new bottom billion”. Somehow startling that the extreme poor no longer live in the world’s poorest countries, it is even more alarming to realise that roughly one-fourth of the world’s Muslims live in these less-developed countries. Muslims are often backed by its obligatory tax required of Muslims which is also known as zakat. However, the rising criticism over the negligence of zakat on resolving poverty is seemingly becoming more intense than ever. This article argues that improving transparency and promoting innovation can help effectuate the enormous potential of zakat for poverty alleviation.

 

Ending poverty and inequality is one of the greatest challenges of the current decade until the next. Various charities and non-governmental organisations (NGOs) are encountering these challenges in our society. These organisations depend on either philanthropy or public financing to do their work. Although, the amount of charitable giving increases over the last years there is still a gap between need and funding2.  Moreover, this gap might become bigger since the distrust of people on charitable organisations are increasing3.  So, how to fill this growing gap?

The branch of Islamic finance, Islamic Social Finance, incorporates a number of tools, both mandatory and voluntary, that can be used to reduce inequality and achieve socio-economic justice.

The Sustainable Development Goals (SDGs) encourage humanity to cooperate in order to achieve the 17 SDGs. The UN World Investment Report shows that this cooperation is paramount since there is an average investment gap of $2.5 trillion for developing countries4.  This gap can only be filled when more funds are attracted from current givers and by untapping new areas of social finance.

Perhaps countries with low Muslim population are less familiar with “Islamic finance”, a new approach on how to conduct the economy with ethical and social considerations. The branch of Islamic finance, Islamic Social Finance, incorporates a number of tools, both mandatory and voluntary, that can be used to reduce inequality and achieve socio-economic justice. While it is never mandatory to help the poor, in Islam, it is required to give a portion of wealth to the needy. As a mandatory Islamic financial instrument, zakat can be viewed as a wealth tax on Muslims who have wealth that exceed a certain threshold (nisab).

Zakat should be distributed to eight types of recipients (asnaf). The most relevant types of recipients for the SDGs are the poor (fuqara) and the needy (masakin). The main purposes of zakat are poverty relief, economic empowerment, and community development. A number of researches elaborated the potential impact of zakat to several SDGs objectives, which include: no poverty (SDG1), zero hunger (SDG2), good health and well-being (SDG3), quality education (SDG4), clean water and sanitation for all (SDG6), and reduced inequalities (SDG10)5.

 
Please login or register to continue reading... Registration is simple and it is free!

About the Authors  

Namira Samir is a researcher and consultant with main interests in multidimensional poverty alleviation, regional inequality and Islamic social finance. She holds a Master’s Degree in Islamic Finance and Management from Durham University, UK.

Imad el Fadili is a consultant with main interests in Islamic social finance, sustainability and poverty alleviation. Imad is also founder of FinEthical which innovates with zakat and technology to enhance transparency and sustainability. He holds a Master’s Degree in Finance from Vrije Universiteit, Amsterdam and is currently pursuing a Master’s Degree in Islamic Finance from INCEIF, Malaysia.

References

1) Sumner, A. (2012). Global Poverty and the “New Bottom Billion” Revisited: Exploring The Paradox That Most Of The World’s Extreme Poor No Longer Live In The World’s Poorest Countries. (2012). IDS Working Paper.

2) Stirk, C. (2015). An Act of Faith: Humanitarian financing and Zakat. Global Humanitarian Assistance.

3) Trust in Charities, July 2018 (Charity Commission for England and Wales)

4) UNCTAD. (2014). World Investment Report 2014 – Investing in the SDGs: An Action Plan. United Nations Conference on Trade and Development, 2014.

5) Nurzaman et al. (2018). The Role of Zakat in Sustainable Development Goals for Achieving Maqashid Shari’ah. Centre for Strategic Studies, BAZNAS Indonesia

6) Obaidullah, M., & Shirazi, N. S. (2015). Islamic Social Finance Report 1436H.

7) Firdaus, M., Beik, I. S., Irawan, T., & Juanda, B. (2012). Economic estimation and determinations of Zakat potential in Indonesia. Jeddah: Islamic Research and Training Institute

8) BAZNAS (2011-2016), Country Economy (2011-2016), Indonesian Statistics (2011-2016), the Indonesian Ministry of Religion (2011-2016) and World Bank (2011-2016). The data is calculated by Authors.

9) Trust in Charities, July 2018 (Charity Commission for England and Wales)

10) UNDP (2015). Multidimensional Poverty Index. http://hdr.undp.org/en/content/multidimensional-poverty-index-mpi

11) Alkire et al. (2015). Multidimensional Poverty Measurement and Analysis: Chapter 5- The Alkire-Foster Counting Methodology. OPHI Working Paper, 86(1), pp. 1-53.

You might also like:

Leave a Reply

Your email address will not be published. Required fields are marked *

« »