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The Institution of Zakat and its Economic impact on Society

The institution of Zakat is the cornerstone of the Islamic Economic system. The Quran emphasises ‘Zakat’ as a critical component of society economic justice. The institution works to ensure an equitable distribution of wealth and establishes a safety net for needy members of society. Both the sources and disbursement categories of Zakat are specified in Islamic doctrine. The Quran identifies eight categories of disbursement, each of which carries clear social benefit.

One positive economic effect of Zakat is an increase in the money supply and a consequent increase in the demand
for goods and services. Zakat also provides debt relief and enhances price stability. If accumulated in times of prosperity. Zakat funds can aid society through times of depression. Though Zakat has widely fallen out of use in modem times (excepts a ritual) it can have great economic impact if properly re established. Like freedom from interest, Zakat is also an integral part of Islamic economic systems since Zakat is derived from the Shari’ah. I intend giving some brief features of the economic impact of Zakat on society within the framework of the Quranic perspective of economic justice. God has made it obligatory upon the rich to pay out of their wealth whatever is sufficient for the poor. If the poor starve, or go unclad, or suffer difficulties, it is because the rich have deprived them. Hence it is proper for God, the Almighty and the Exalted, to bring them to account and to punish them” Because the known economic resources at a given point in time are relatively limited, establishing the Quranic perspective of economic justice and providing general well being for all members of the society requires a focus on
three critical economic factors:
– Earning Halal (permissible) income;
– Ensuring an equitable distribution of wealth; and
– Creating an economic safety net to assure need fulfillment of those who, for no fault of their own, cannot afford the basic necessities of life.

Since zakat primarily relates to the second and third factors, let us first briefly define zakat. Zakat is one of the five pillars of faith. It is a unique, spiritually charged filtering device primarily designed to cleanse one’s possession or wealth necessary to protect the owners of wealth against spiritual poverty. While protecting the rights of “haves” and “have not”, its main objective as an act of worship are: (1) the promotion of stable economic growth through
investments, employment and balance consumption, and (2) the achievement of greater income equality through an equitable distribution of wealth, thereby eliminating poverty and extreme disparities of wealth between the rich and the poor.

Zakat is a cornerstone of the values that govern Islamic economics. Being directional and normative, zakat defines
the norms of economical activity and, through its effects on economic variables, determines the direction along which the economy should move. On the revenue side, it specifies the manner in which revenue (zakat) is to be raised and who pays it. and on the expenditure side, it sets forth the uses (recipients) of the revenue. Like any modern budget, it describes the economic order that it attempts to establish and express the ideals and aspirations of society.
Finally, as a fiscal mechanism, zakat performs some of the major functions of modern public finance. which deals with social security entitlements, social assistance grants for childcare, food subsidy, education. health care, housing
and public transportation in a welfare state. It separates public welfare expenditures from other budgetary items and
puts the burden of meeting the economic welfare needs of the society where it belongs. Unlike tax levied by the government for the services provided to tax payers on a quid pro quo basis, the Quran and Sunna, irrespective of the economic conditions of the society, determine zakat and its heads of expenditure. That zakat is distinct from taxes can be seen from a saying of the Prophet Muhammad that,

“in your wealth there is also obligations beyond zakat”

By paying zakat, a zakat-payer fulfils his/her fard, (religious obligation) whereas a taxpayer by paying his her taxes only enables the state to perform its functions effectively. To better understand the institution of zakat as an economic safety net for the society, I will now look at the sources of Zakat and its Disbursemnent categories.

Disbursement Categories of Zakat

Just as it outlines the source of zakat, the Quran also defines its disbursement categories in the following verse,
The offerings (zakat) given for the sake of God are (meant) only for fuqara (poor) and the masakeen (needy), and ameleen-a-alaiha (those who are in charge thereof), and muallafat-ulquloob (those whose hearts are to be won over), and for fir-riqaab (the freeing of human beings from bondage), and (for al-gharimun those (who are overburdened with debts), and fee-sabeelillah (for every struggle) in God’s cause, and ibn as-sabil (for) the wayfarer: (this is) an ordinance from God- and God is all knowing, wise.” (Quran 9:60).
The eight categories mentioned in this verse clearly defines the disbursement of zakat as an economic safety net to assure fulfillment of those who, for no fault of their own, cannot afford the basic necessities of life.

The first two categories, namely fuqura (the indigent/the poor) and masakeen (the needy) includes those people who, being underemployed or unemployed, have no means of support or insufficient income to meet their basic necessities of life and therefore are indigent or live below the poverty level. This may be because they are incapacitated, disabled, orphans, sick, homeless. or of similar status.

To maintain the integrity and the independence of collection and disbursement of zakat, the third category ameleen- a-alaiha refers to those expenses that are necessary to administer the zakat fund, including personnel salaries. Muallafat-ul-quloob, the fourth category, includes those people whose hearts are to he won over.

According to some scholars this apparently means such non-Muslims who are to close to understanding and perhaps accepting Islam, and for whose conversion every effort should be made, either directly or indirectly (for example by means of the widest possible I teaching of Islam). The fifth category fir-riqaab relates to both ransoming prisoners of war and freeing slaves. The sixth category, al-gharimun, includes those people who are overburdened with debts contracted in good faith, which- through no fault of their own- they subsequently are unable to redeem. The seventh category fee-sabeelillah embraces every kind of struggle for arighteous cause, both in war and in peace, including expenditures for the propagation and defense of Islam and for all charitable purposes. This may include education. medical care, and social welfare work.

Finally the eight category ibn as-sabil (son of the road) denotes any person who is far from his/her home who, because of circumstances beyond his/her control, does not have sufficient means-of a livelihood. disposal.

In its wider sense it describes a person who, for any reason whatsoever, is unable to return home temporarily or permanently for example, a political exile or refugee

To provide for such contingencies where debtors who contracted debts in good faith but due to conditions beyond their control, such as sudden sickness, natural or economic catastrophes, cannot redeem them, expenditure of zakat for redeeming the debts of al-gharimun not only help maintain price stability, it eliminates one of the important factors which contributes to inflationary cycle

To sutisty the seventh category, fee-sabeelillah (in the cause of God), zakat funds when spent for education, medical care, and social welfare of those who otherwise cannot afford them or are oppressed, provide moral stability and human dignity to the recipients, essential elements in maintaining economic harmony. Likewise, by providing financial assistance to ibn-as-sabil who may be refugees or political exiles, the expenditure of zakat, while maintaining the human dignity and general well being of the recipients, contributes toward their economic sell-sufficiency Over a period of time they no longer will be a burden on the society

That zakat is universal in its scope can be seen in the manner in which it is collected and distributed. After providing for the needs of eligible kin, the zakat fund is designed to cover the needs of those who live in the community where zakat is collected and then to those eligible recipients living in the county, state, country, and finally the world at large.

Can the institution of zakat achieve its objectives of establishing economic justice and general ‘well being of all members of society through equitable distribution of wealth in today’s economic environment? Since there is no contemporary empirical data, this question can be answered only through simulation or extrapolation of the curnulative economic impact of a redistribution of wealth. To test if it is as valid as it was fourteen centuries ago, let’s go through a simple accounting exercise. It is a known fact that the collective wealth of 1% population of the Middle East lying in the Western Banks is conservatively estimated to be in the region of over 800 Billion dollars, and earns $80 Billion annually in net profits (10 % rate of return of equity) a 2.5% Zakat on this wealth would produce an annual Zakat of approximately 20 Billion dollars. Mind well this is only 1% population of the Middle East. If some one estimates the total wealth of the 1.25 Billion Muslims and measures the Zakat we can well imagine what an economic impact it can have on the lives of the Muslims alone. If we were to distribute this money among various categories of recipients of zakat as prescribed in the Quran over, say, every year for the next ten years, the cumulative result of this annual redistribution of wealth will substantially reduce unemployment, expand investment base, eliminate poverty and extreme disparity of wealth between rich and poor by the end of the tenth year. This projection is however based on the premise, that this goal is achievable in a reasonahble length of time provided the system of collection and distribution of zakat is credible, cost-effective, loophole-free and supported by strong accountability mechanisms to assure its integrity

Let me tell you today with great pain, my own personnel experience of the past 15 years with various Muslim communities around the world shows a dismal picture of Zakat. 80% of Muslims do not remove Zakat and among those who do, the majority of them have an ad-hoc basis and almost all of them do not take care in disbursement, contravening and violating the Quranic Edict of Disbursement.

In this context, we may recall that in Madinah and Basra during the caliphates ol Umaribn Al-Khattab and Umar ibn Abdul Aziz (717-720 CE.), respectively, there were years when there was a surplus in the zakat fund but no eligible recipients to receive it. We may not attain this ideal condition within a projected ten-year period as suggested in this example, but we would certainly be on the road for reaching contentment. The institution of zakat when fully operational would become a fountain of economic harmony and contentment.

Zafar Sareshwala @ 2021