Empowering Lives with Zakat: Why We Need More Transparency and Innovation

  by   Namira Samir and Imad el Fadili

The World Financial Review

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 countries. 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 increasing.  So, how to fill this growing gap?

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 coun.  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).

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