Zakat: How Third Pillar Of Islam Helps Alleviate Inequality

Zakat or 2.5% of savings Muslims mandatorily give to charity has transformed lives in nations such as Indonesia and has the potential to alleviate global poverty and contribute to the UN Sustainable Development Goals if utilized professionally

For years, Usman, a fisherman in Indonesia’s Sumatra, could barely make ends meet. He did not have the resources to augment his income. Usman’s rickety fishing boat only took him to the point of a river where it merged into the sea. The catch was never enough for him to fetch enough income to properly feed his five-member family. Usman’s life changed when funding generated through zakat (charity), the third of Islam’s five foundational pillars, helped him buy a new boat equipped to venture deeper into the sea.

The new boat helped Usman catch more fish, boost his income, fund his children’s education, and give them pocket money. Zainulbahar Noor of Indonesia’s National Zakat Agency (BAZNAS) and UN Development Programme’s Francine Pickup cited Usman’s story in a 2017 Guardian article about Zakat’s untapped potential. They argued zakat (literally something that purifies) could boost livelihoods by reducing poverty globally.

Wealth Transfer

Muslims, who account for the world’s 22% population, are believed to have paid almost $2 trillion in charity in 2015. By 2020, this was projected to surpass $3 trillion and equal the French economy. A Muslim is obliged to pay at least 2.5% of savings, investments, and the value of valuables such as gold and silver, as zakat. This wealth transfer to the poor is believed to help purify the donors. Shia Muslims set aside khums, or one-fifth of their annual earnings, for charitable purposes.

Testament of faith in monotheism, namaz (five daily prayers), zakat, month-long Ramadan fasting, and the Hajj pilgrimage to Mecca are Islam’s foundational pillars. Hajj, fasting, and namaz are the most visible symbols of Muslim piety. Zakat is the least talked about due to the importance of secrecy related to charity for protecting the dignity of the recipients. The Prophet Muhammad is quoted to have said God loves those who offer charity but remain anonymous and uncelebrated.

Ramadan is important in the context of charity. Muslims prefer offering the mandatory zakat, one of many forms of charity in Islam, during the fasting month. They believe good deeds bring bigger rewards during the blessed month of Ramadan which is much more than abstaining from food, water, and worldly pleasures. Ramadan is a month of sacrifice, reflection, and charity.

Florida International University Religious Studies Associate Professor Iqbal Akhtar wrote in The Conversation the Quran urges individuals to share their wealth and income with those of lesser means. He noted Islam requires all adults to give what they have in abundance to others and that Muslims see wealth as a gift and a divine dispensation:

The ultimate earthly goal of Islam is the establishment of justice for all. Charity, then, is about more than just giving money. Giving one’s time to help others – such as volunteering, caregiving or an act of kindness – can also be a form of charity. The Quran describes charity as a ‘beautiful loan’ and likens making a donation ‘to a grain (of corn); it grows seven ears, and each ear has a hundred grains.’ Muslims believe that charity benefits the giver, receiver and the public. Above all, it honors the divine commandment to help those in need.

Iqbal Akhtar, Associate Professor, Religious Studies, Florida International University

Akhtar wrote charitable gifts can be invested for the community’s long-term benefit and most of the Muslim world’s major mosques are funded by centuries-old endowments, known as awqaf, which established education and social services long before the creation of modern nation-states.

Forms Of Charity

The Quran mentions zakat and sadaqah (general charity alms) over 80 times. It underlines the importance of charitable giving. Every adult Muslim possessing disposable wealth is obliged to offer charity, which is not limited to money. The Prophet said that even smiling is an act of charity. He is quoted to have said those who have nothing to give should work, benefit themselves, and do charity from what they earn, or help the needy who appeal for help.

The prophet regarded good deeds, staying away from evil, helping the indebted repay their debt, showing mercy and giving debtors more time to pay back loans, cancelling debt, and removing stones, and thorns as acts of charity.

Sadaqat-ul-Fitr, one of the subcategories of sadaqah, is also mandatory. It is paid on behalf of children as well and is equal to the rate of 1.6 kg of wheat or 3.2 kg of barley. Sadaqat-ul-Fitr has to be distributed before the Eid prayers to ensure the participation of the poor in the festivities.  Other forms of charity include nadhr, which is paid to express gratitude, fidyah, and kaffarah to compensate for the inability to pray or fast, keep an oath, etc. An unbinding charity can be offered to hospitals, schools, orphanages, etc, under sadaqah nafilah. Spending on long-term causes comes under sadaqah jaariyah.

Better Utilisation

Muslims mostly pay charity through non-banking channels, leaving its real potential untapped. The estimated zakat paid is believed to be a fraction of the actual money given. In Indonesia, BAZNAS has tapped into the potential of Muslim charity and utilised it better. It has tied up with UNICEF to mobilise zakat funding to help protect and empower children caught in humanitarian crises and ensure their access to education, healthcare, nutrition, and clean water.

Zakat is estimated to contribute up to 3% of Indonesia’s Gross Domestic Product of $1.11 trillion. Indonesia, the world’s most populous Muslim country, was rated as the most generous country in the 2018 CAF World Giving Index. A bulk of charity there is transferred through non-banking channels.

Zakat and UN SDGs

In their 2017 article, Noor and Pickup referred to ‘striking commonalities’ between zakat and the UN sustainable development goals (SDGs)’, the global action plan adopted in September 2015 for alleviating poverty, hunger, and inequality by 2030. Noor and Pickup referred to Maqasid al-Sharia, the five foundational Islamic goals, and said much of the SDGs are reflected in these values.

Zakat is one of the largest forms of wealth transfer to the poor. Noor and Pickup wrote developmental organisations overlooked zakat’s importance as a source of finance despite its tremendous potential for contributing to the SDGs. As much as $3 trillion to $5 trillion were projected to be needed annually to achieve the goals. The investment for it in 2017 fell short at around $1.4 trillion. Noor and Pickup emphasised by working together with religious organisations, development bodies can fill the $2.5 trillion gap and promote peace and development.  

Addressing Challenges

Noor and Pickup called for seeing zakat as more than just charity, changing the mindset and realising zakat needs professional management for positive change. They added this would enhance zakat’s development impact in poorer countries. Zakat is mostly channelled informally between individuals and paid in cash to needy acquaintances.

Noor and Pickup wrote just a quarter of contributions were thought to be channelled through certified organisations. They underlined a growing recognition among Islamic organisations for addressing challenges such as poverty by routing zakat contributions to more people for a sustainable solution.

According to Development Initiatives data, at least US$5.7 billion was collected in zakat annually from Indonesia, Malaysia, Qatar, Saudi Arabia, and Yemen alone. There has been no reliable value of zakat. Its estimates have varied from $200 billion to $1 trillion annually while the international humanitarian assistance was $22 billion in 2013.

The actual zakat paid is believed to be significantly higher as much of it is paid informally. Development Initiatives research found that 23% to 57% of zakat was used for humanitarian assistance. It cited evidence and added zakat in Indonesia and Pakistan could potentially meet all ‘current requirements to respond to domestic humanitarian emergencies, with significant amounts remaining to cover other areas of zakat spending.’  

In 2017, Islamic Relief USA charity alone received $19.3 million in zakat contributions in the United States (US), where Muslims (3.5 million) account for just 1% of the population. The charity receives $25 to $1 million in zakat and spends it on food programmes for the poor, disaster relief, and medical clinics globally. The average income of American Muslims is generally lower than non-Muslims but they donate more to charity.

In a 2019 report, the Institute for Social Policy and Understanding said Muslims were just as likely to support causes for solving hunger and poverty as a religious duty. An ICM Research poll in 2013 found Muslims in 2012 gave an average of $567 in charity in the UK, which was more than Jews ($412), Protestants ($308), Roman Catholics (around $272), and Atheists ($177). A global 2012 Pew Research Center survey found a bulk of Muslims paid zakat in 36 of the 39 countries surveyed.

The charity component as a share of money spent on religious activities was the largest among Muslims in India, according to research based on the 72nd round of the National Sample Survey. A higher level of charity among Muslims was seen among the reasons behind the lower inequality of consumption among India’s Muslims.

The Association of Muslim Professionals (AMP) has been among the organisations routing the zakat donations for education and employment. In 2016, it estimated Zakat collections to be around $1 million to over $5 million annually in India, which has the second-biggest Muslim population globally.