The future of zakat: beyond poverty

Zakat has the potential to plug growing economic inequality, writes Azim Kidwai; if we could just unlock its potential

Globally, income inequality is on the rise, gnawing at developed and developing economies alike. Of the 20 worst-ranked nations for income inequality, five are Muslim majority countries, according to statistics published by the University of California, Berkley.

This is a huge challenge. But this gap between rich and poor also poses a great opportunity, and one in which local norms and traditions can be cultivated to help offset the emergence of great wealth in the hands of a few.

In Muslim majority countries there is a financial institution that can easily be called upon to profound effect on economic inequalities. The tradition of zakat – an obligatory form of alms giving – has enormous potential to revolutionise the welfare of those living in poverty, and empower the underprivileged.

The Quran says: “Zakat expenditures are only for the poor and for the needy and for those employed to collect [zakat] 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 God. And God is knowing and wise.” [Quran, 9:60]

This vehicle is a platform for the redistribution of wealth. Firstly, it encourages the rich to invest back into the community. Secondly – if we interpret it to tackle present-day challenges – the diversity of the categories of zakat recipients provides a number of opportunities to channel investment towards the most vulnerable, and to ensure an exponential benefit emerges.

Zakat deals with those in poverty and those struggling to meet their daily needs by guaranteeing them access to some of the wealth collected. If used well, this can manifest as small grants and financial assistance that creates a degree of financial independence and supports entrepreneurship or employment. It can also reach those at the very bottom of the social spectrum; those who find themselves trafficked or enslaved. Engaging in programmes and lobbying activities that challenge slavery networks, or – more controversially – help people to purchase their freedom, can have a transformational impact on local communities.

"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" We also need to examine the category of ‘traveller’ and how best to interpret this recipient of zakat in the modern age. In today’s context, I believe refugees should be the chief beneficiaries. Wars in Syria and Iraq have made millions of people homeless, fleeing to neighbouring countries and across Europe. Host countries carry a huge financial burden.

If Muslim-majority countries could pool their zakat funds it is very plausible that refugees could be resettled without the level of indignity visible today. Data collected by the think tank Global Humanitarian Assistance found Indonesia, Malaysia, Qatar, Saudi Arabia and Yemen – which make up 17 per cent of the world’s estimated Muslim population – together collect at least $5.7bn in zakat each year. That is a huge sum towards tackling what is today one of the world’s greatest humanitarian crises.

The beauty of the zakat system means the cost of this redistribution could even be covered by the fund itself. Zakat collectors are allowed to take 12.5 per cent of net funds for fund collection and administration.

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. ‘Needy’ refers to more than just the poor and destitute; it includes those facing circumstances that – if left unresolved – will lead them to poverty and destitution. This may include those struggling with debt, for example, or refugees fleeing conflict.

Policy makers and external influencers have a key role to play in ensuring the better collection and distribution of zakat in Muslim majority countries. Leading philanthropists and global charities have the ability to drive this dialogue with leaders of Muslim countries, and to support their economies in getting a better return on wealth they already hold, or even hoard.

The time has come to bring together modern banking, the access provided by digital economies and faith traditions to unlock the true potential of zakat.

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