The evolution of zakat

Zakat is not just a means of alleviating poverty, says Azim Kidwai. Used creatively, it can be a tool to deliver real change among needy communities through impactful investment

The GCC is no stranger to charity. Philanthropy is embedded in the social fabric of the region, with billions of dollars pledged to good causes each year. Much of this giving comes from a distinct source: zakat. This obligatory form of alms giving is a pillar of the Islamic faith, and requires each Muslim to give 2.5 per cent of their net wealth to benefit the needy. Giving is often directed towards relief projects in developing nations, and funnelled through established charities.

This philanthropy is admirable. But it could go further. I believe there is scope for those with an interest in sustainable progress to use their zakat as a means of impact investment, to help drive social change in communities around the world.

At issue is the definition of ‘needy’, and its expansion beyond the regular meaning of those in absolute or relative poverty. The Quran says: “Zakah expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveller – an obligation [imposed] by Allah. And Allah is knowing and wise.” (Quran, 9:60)

By this definition, zakat is not simply a means to manage poverty, but rather is inherently focused on building honour, dignity and self-sufficiency in the wider community. This is clearly shown by the diversity of the categories of genuine zakat recipients. ‘Needy’ refers to more than just the poor and destitute and includes those facing circumstances, which if unresolved, will lead them to poverty and destitution. This may include those struggling with debt, for example, or refugees fleeing conflict.

We have an obligation to give zakat and an opportunity to be creative in how we use it for good. Let’s not waste it

There are eight categories of giving. Too much charitable work looks to the first and second categories of zakat – “the poor and for the needy” – and too little attention is given to the others. There is no doubt that poverty is a pressing global concern, but that would also have been the case when zakat was legislated. And yet six other considerations were made by God when establishing the Islamic tradition and the pillars of faith.

With this in mind, we can be more creative in our giving. There is a real opportunity to explore the role zakat can have by redefining the ‘needy’ that we seek to serve. Viewing our contributions through the prism of social impact investment could have a dramatic impact in the way we give.

A standard approach to investing is to create a diverse and balanced portfolio. Why not apply the same principles to the way we give our money away? Zakat has eight clearly defined categories that need attention. Taking care to give across the board to each would help maximise the impact of the substantial contributions made by the GCC – particularly at a time when the region is in bloom, with strong economic growth helping to generate greater zakat liabilities.

Zakat is identified as something to purify wealth and inculcate selflessness, and gratitude to God for the blessings of wealth. However, zakat also means growth. The payment of zakat is intended to bring growth to the wealth of those that give, not only to those that receive it. As the Quran says: “The parable of those who spend their substances in the way of God is that of grain of corn: it groweth seven ears, and each ear hath a hundred grains. God giveth manifold increase to whom He pleaseth: and God careth for all and He knoweth all things.” (Quran 2:261)

We should ask; does our zakat actually do this? Does our zakat feed someone for a day, or does it help to liberate them from the shackles of poverty?

Furthermore, when we consider need, why stop at material need for those living in absolute or relative poverty? Zakat has eight legitimate areas, and we can see all of them could have a major social impact. Consider for a moment just one other category: ‘‘those in debt’’. In the wake of the global economic crisis, both individuals and whole nations lost their financial footing. This was particularly the case for those in the developing world, where local economies were often unduly affected by the decisions of national governments.

I believe there is a role for philanthropists to engage local and national communities with zakat-funded entrepreneurship and development programmes, designed to help uplift whole regional and national economies. For the poor – who lack security and represent high-risk lending – zakat could provide a source of funding with the potential for enormous impact and an ability to absorb default risks like no other finance in the world.

This is just one example of how zakat could be deployed as a form of impact investment, but there are many more inspiring examples to be found. Research and progressive scholarship must lead the way in exploring how all the divinely prescribed categories of zakat can find their correct place in the modern world. Brave philanthropists working with smart, social entrepreneurs are ideally placed to give rise to a civil renaissance, with zakat at its very heart. We have an obligation to give zakat and an opportunity to be creative in how we use it for good. Let’s not waste it.

About the writer

Azim Kidwai is founder and chairman of the National Zakat Foundation UK, and the CEO of Ramadan TV. He is a board advisor to the National Zakat Foundation and chairman of the UK-based organisation Charity Right.

Photo credit: National Zakat Foundation UK