Zakat Zakat is one of the five pillars of Islam. It has been mentioned, along with daily Prayers (Salaat / Namaz), over o ver seventy times in the Quran. Allah's word commanding ".....and establish regular Salaat and give regular Zakat....." are referred to in many parts of o f the Quran. From this we can conclude that after Salaat, Zakat is the most important act in Islam. Just as Salaat is the most important act of worship which has to be performed bodily, so is Zakat the main act of worship which has to be performed monetarily. Those who fulfill this duty have been promised abundant abunda nt reward in this world and hereafter. Whoever evades Zakat has been sternly warned in the Qur'an and Hadith of the consequences. Linguistically, Zakat has two meanings: purification and growth. Technically, it means to purify one's possession of wealth by distributing a prescribed amount to the poor, the indigent, the slaves or captives, capt ives, and the wayfarer. There are many major benefits bene fits of giving Zakat: y
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It reminds Muslims of the fact that whatever wealth they may possess is due to the blessings of Allah and as such su ch it is to be spent according to the His commands. Zakat functions as a social security for all. Those who have enough money today pay for what they have. If they need money tomorrow they will get what is necessary to help them live decently. Zakat payer pays his dues to Allah as an act of worship, a token of submission submission and a nd an acknowledgment of o f gratitude. The receiver of Zakat receives it as a grant from Allah out of His bounty, a favor for which he is thankful to Allah. Economically, Zakat is the best check against hoarding. Those who do not invest their wealth but prefer to save or hoard it would see their wealth dwindling year after year at the t he rate of the payable Zakat. This Th is helps increase production and stimulates supply because it is a redistribution of income that enhances the demand by putting more real purchasing power in the hands of poor.
Zakat is obligatory upon a person if : y y
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He or she is an adult, sane, free and Muslim. He/she must possess wealth in excess of specified minimum (Nisaab) excluding his or her personal p ersonal needs (clothing, household furniture, utensils, cars etc. are termed article of personal needs). It should be possessed for a complete lunar year. It should be of productive nature from which one can derive profit or benefit such as merchandise for business, gold, go ld, silver, livestock etc.
The amount of o f wealth which makes one liable for Zakat is called Nisaab. The Nisaab as fixed by Prophet Muhammad (P.B.U.H) is as follows: Grams
Tolas
Grains
Troy Oz.
87.48
7.50
1350
2.8125
SILVER 612.36
52.50
9450
19.6875
GOLD
Nisaab of cash, stock or bonds, other cash assets is the equivalent amount of Gold or Silver. Nisaab is calculated by adding up the cash value of all the assets such as gold, silver, currency etc. and if it is equal to or in excess of the minimum Nisaab as specified in the above table, the Zakat is due at the rate of 2.5%. The payment of Zakat is compulsory on the excess wealth or effects which is equal to or exceeds the value of Nisaab, and which is possessed for a full Islamic year. If such wealth decreases during the course of the year and increases again to the value of Nisaab before the end of the year, the Zakat then must be calculated on the full amount that is possessed at the end of the year. TYPES OF WEALTH ON WHICH ZAKAT IS IMPOSED: 1. 2. 3. 4. 5.
Gold and silver, in any form. Cash, bank notes, stocks, bonds etc. Merchandise for business, equal to the value o f Nisaab. Live stock. On income derived from rental business.
CALCULATION OF ZAKAT:
1. To calculate Zakat on jewelry etc. one must first determine the gold or silver content and then calculate the Zakat according to current market price. 2. If the Gold possessed is less than 87.48 grams or if silver possessed is less then 612.36 grams, but the value of both combined is equal to or exceeds the Nisaab of either Gold or Silver, the Zakat will be due. 3. In the event of an article not being of pure gold or pure silver, but containing a mixture of other metals and the gold or silver content is more than the other metal, it will be regarded as gold or silver and Zakat will be due. But in the case where other metal/s is of greater quantity than either gold or silver, Zakat will not be due on this article. 4. For stocks (shares held in a company), Zakat is calculated based upon the current market value. As machinery, land, fixtures and fittings, furniture, buildings etc. are exempt from Zakat, one is allowed to subtract these from the total asset. This could be obtained from annual reports. For example, if one has shares worth $1000 and machinery, land etc., are worth 5% of the total asset, then deduct $50 for these assets, afterwards deduct the liabilities of the company proportionately to the percentage of shares held. Zakat must be calculated on the balance. DISTRIBUTION OF ZAKAT:
1. Zakat should be given as soon as possible after it becomes due. 2. All of the Zakat can be given to one person or to several persons.
3. A poor man cannot be paid for his work from Zakat nor can Zakat be given in payment of services, except to the people appointed by the Islamic government to collect Zakat. 4. Zakat will only be valid if the recipient is made the owner of that amount. If, for example, a few needy persons are fed a meal from Zakat money, then Zakat will not be fulfilled as they were not made owners of the food. 5. Zakat cannot be given for the construction of Masjid, Madrasah, Hospital, a well, a bridge or any other public amenity. 6. Zakat can be paid in kind from the same merchandise on which it is due, or alternatively, it could be paid in cash. TYPES OF WEALTH ON WHICH ZAKAT IS NOT IMPOSED:
1. On any metals other than gold or silver. 2. Fixtures and fittings of a shop, car, trucks or any delivery vehicle etc., which is used in running business. 3. Diamonds, pearls, other precious or semi precious stones which are for personal use. 4. There is no Zakat on personal residence, household furniture, pots and pan, personal clothing, whether they are in use or not. 5. There is no Zakat on a person whose liabilities exceed or equal his assets. (Home Mortgage in this country is not to be counted as personal liability for the Zakat purpose). RECIPIENTS OF ZAKAT: The recipients of Zakat, according to Quran are as follows: "Alms are for the poor and the needy, and those employed to administer (the funds); for those whose hearts have been (recently) reconciled (to truth); for those in bondage and in debt; and for the wayfarer: (Thus is it) ordained by Allah, and Allah is full of Knowledge and Wisdom." (Quran 9:60)
1. FUQARA: people who are poor and who possess more than their basic needs but do not possess wealth equal to Nisaab. 2. MASAKEEN: people who are destitute and extremely needy to the extent they are forced to beg for their daily food rations. 3. AL-AMILEEN: people appointed by an Islamic Government to collect Zakat. 4. MU-ALLAFATUL-QULUB: persons who have recently accepted Islam and are in need of basic necessities who would benefit from encouragement by Muslims which would help strengthen their faith. 5. AR-RIQAAB: slaves who are permitted to work for remuneration and have an agreement from their masters to purchase their freedom on payment of fixed amounts. 6. AL-GHAARIMEEN: persons who have a debt and do not possess any other wealth or goods with which they could repay that which they owe. It is conditional that this debt was not created for any un-Islamic purpose.
7. FI-SABILILLAH: persons who have to carry out an obligatory deed which has become obligatory on them and subsequently (due to loss of wealth) are unable to complete that obligation. 8. IBN-US-SABEEL: persons who are travelers and during the course of their journey do not possess basic necessities, though they are well to do at home. They could be given Zakat in order to fulfill travel needs to return home. PERSONS WHO CANNOT BE
GIVEN
ZAKAT:
1. Zakat cannot be given to the descendants of Muhammad (P.B.U.H); 2. Zakat cannot be given to parents and grandparents. In the same manner one's children and grandchildren cannot be given Zakat. A husband and wife cannot give Zakat to each other. 3. Zakat contributions cannot be given to such institutions or organizations who do not give the rightful recipients possession of Zakat, but instead use Zakat funds for constructions, investment or salaries. VIRTUES OF ZAKAT: Allah says in the Quran: "The parable of those who spend their wealth in the way of Allah is that of a grain of corn. It grows seven ears and each ear has hundred grains. Allah increases manifold to whom He pleases." (Quran 2:261) It is stated in the Hadith that by giving Zakat the following benefits are derived:
1. 2. 3. 4. 5. 6.
Gain the pleasure of Allah. Increase in wealth and protection from losses. Allah's forgiveness and blessings. Protection from the wrath of Allah and from a bad death. A shelter on the Day of Judgment; Security from seventy misfortunes.
THE PUNISHMENT FOR NOT GIVING ZAKAT: Allah says in the Quran: "And there are those who hoard gold and silver and do not spend it in the way of Allah, announce to them a most grievous penalty (when) on the Day of Judgment heat will be produced out of that wealth in the fire of Hell. Then with it they will be branded on their forehead and their flanks and backs. (It will be said to them) This is the treasure which you hoarded for yourselves, taste then the treasure that you have been hoarding." (Al-Quran 9:34-35) y
Importance of Economy.
But in addition to safety and reliability another factor that has to be k ept in view is the necessity for economic working. It is essential that the service be conducted with a minimum of cost. The reduction of goods tonnage due to the
present trade depression has been seriously felt by t he Department. The law of Increasing Returns applies to the Railway business, and the greater the volume of business, the less the cost per unit. Much of the expenditure is fixed and does not depend upon the volume of business, so that a rise in volume decreases unit costs, while a drop in the volume of traffic increases unit costs. The present depression has, therefore, had a serious effect on the Railway finances, and unprecedented efforts have had to be made to counterbalance the fall in revenue. In addition to other economies it has been necessary to curtail train mileage in sympathy with the reduction in traffic and in revenue. In making these curtailments great care has been exercised to gauge the requirements of the district concerned in conjunction with the t raffic being carried, and curtailments have been made only where it appeared that the least inconvenience would be caused to the users of the Railway. As an indication of the reductions that have had to be made during the past year, it may be stated that train mileage was reduced by 1,198,986 train miles, or 10.45 per cent. This curtailment has been made without serious inconvenience to our clients. The advent of the motor vehicle, and the great improvement in road surfacing during recent years, has added to the difficulty in holding traffic and maintaining the service on an economic basis. The Transportation Branch is continually on the look-out for means of improving the service without undue additional cost, and particularly for ways of accelerating despatch of traffic and giving greater convenience to its clients. In this respect a definite programme of improvement to, passenger carriages is being carried on as funds available permit. A close contact is kept with modern transport developments, such as those in connection with rail motor vehicles, so that any development suitable to the conditions peculiar to this country may be exploited when circumstances are favourable. The service is being constantly overhauled to effect every possible economy in operation that will not detract from the value of the service given, as it is recognised that in this time of economic depression the Transportation industry, like all other businesses, must reduce operating costs to maintain stability in the industry. At the same time the Transportation Branch of the Railways keeps in close touch with the business needs of the community, and is fully alive to the imperative necessity for a safe, prompt, and reliable transport service. y
Benefits
of Islamic Zakat
Zakat is one of the five pillars of Islam and have important place in Islam. Zakat is mentioned twenty times on different places in Holy Quran along with Salaah. Zakat is an arabic word which means growth, purification and extension of wealth. it is one of
the five pillars of Islam. Technically Zakat is a transfer payment which Sahib Nisab Muslim gives to poors. By paying Zakat a person actually clean and purify his wealth. By the payment of Zakat the circulation of wealth increases which the healthy growth of the community. when the circulation of wealth stops and remains in few hand the poverty increases very much. we can take the example of India where only 36 families are having $191 billions which is equal to 1/4 of Indian GDP and we can see the result how much poverty Indian common man has. if every person gives Zakat to poors Poverty will vanish away from the earth. Benefits of Zakat now i will discuss some benefits of Zakat which we can have by paying Zakat. 1 Enhances Volume of Production when Zakat is collected and distributed among the poor they spend it on various consumer goods which increase the demand of various products of industries which increases production of goods. 2 Discourages Hoarding Zakat discourages hoarding because it is levied on hoarded wealth. 3 raises Savings Zakat is paid out of the accumulated wealth. the wealth owner must in saving ratio, in order to prevent the level of his wealth from decreasing. 4 Zakat increase level of income Zakat increase level of income due to circulation of wealth in the economy. 5 Raises investment Zakat Raises investment due to increase in consumption and production of goods. 6 reduces chances of recession Zakat increases circulation of wealth which reduces chances of recession. 7 Reduces inequality of Wealth Zakat is distributed among the poors from rich people so it reduces inequality of wealth. 8 Raises Income level Distribution of Zakat acts as an unemployment tool. Zakat is given to poor it increases his income level. 9 Raises Demand for necessities Zakat Raises demand for necessities because poor buys things with Zakat of his needs.
10 Raises Standard of Living Zakat Raises standard of living of a poor person. 11 Reduces unemployment Zakat reduces unemployment and helps poors to do business with amount of Zakat. 12 End Poverty Zakat ends poverty as Zakat is given to poors. 13 Redistribution of National Income. 14 Reduces Crimes. Zakat has many other benefits as well. it is indeed the best way of ending poverty from earth May Allah Swt help us in giving Zakat to deserving people.
The Institution Of Zakat and its Economic Impact on Society Zakat is one of the most important aspects of the Islamic Economic System. Unfortunately for all of us µZakat¶ which is one of the Five Pillars of Islam, has been reduced to just a ritual which we perform once a year. The institution of Zakat is the cornerstone of the Islamic Economic system. The Quran emphasises µZakat¶ as a critical component of socieo 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 modern times (except 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. The Quranic Perspective of Economic Justice The Quran itself sheds light on the economic importance of Zakat. The commandment to establish Zakat is mentioned more than 100 times, usually in conjunction with salah(prayer), as two means of purification. God commands Muslims to pay Zakat on their total wealth in excess of nisab (minimum wealth), to the poor for benefit of the society¶s social and economic welfare. The following Quranic verses, among others, emphasize that all resources belong to God and that these resources are thus a trust (Quran 57:7) that must be used to satisfy the basic needs of all those who, for no fault of their own, cannot afford the basic necessities of life in a humane and dignified manner.
³(so that) wealth does not circulate only among your rich´ (Quran 59:7) ³And(would assign) in all their wealth and possessions a due share (zakat) unto such as might ask (for help) and such as might suffer privation´ (Al Quran 51:19) 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 over-burdened 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)
Likewise we find from the sayings of the Prophet Muhammad, who once said,
³He is not a man of faith who eats his fill when his neighbour is hungry´ ³A locality where a person has to sleep hungry deprives itself of God¶s protection´ Ali, the fourth Caliph, expanded on this idea in saying that: ³God 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:
1. Earning Halal (permissible) income; 2. ensuring an equitable distribution of wealth; and 3. creating an economic safety net to assure need fulfilment 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 ³haves´ and ³have nots´, 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 economic 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 s ocial 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 ³in 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 Disbursement categories.
Sources of Zakat As noted above, God commands Muslims to pay a certain percentage of their net worth above nisab (the poverty line) as well as a certain percentage of the net output of agricultural and mineral production. This payment is not a favour, but rather an appropriate use of their wealth which god has given them as a trust (Quran 57:7), which is 2.5% of the net wealth. Nisab, the dividing line that separates the basic necessities of life from luxuries, differs from society to society and changes over time. It sets an acceptable standard of living, which covers all necessities of life compatible to a particular community at a particular economic period. As a general rule, it includes food, clothing, household effects, a house for personal use, medical care, education, means of transportation, and tradesman¶s tools and equipment. (Large and medium size manufacturing plants are not considered tradesmen¶s tools and equipment).
By its very definition, nisab is a dynamic, not a static concept. While an automobile today may be a necessity in the United States, it may be a luxury in a country like Sudan or India. Similarly, a horse used as a means of transportation, and therefore a necessity in a country like Afghanistan, could be considered a luxury in the upscale suburbs of San Francisco. Simply stated, as ordained in the Quran, those who have more than nisab, no matter how modest it may be, must understand and accept that poor members of the society have aright to a portion of all of their wealth (Quran 57:7). Nowhere do we see the term manafi¶a (net profit) used in Quran in the context of zakat. Since Quran uses the term amwa¶al (wealth), the basis for calculating zakat is clearly one¶s total net worth and not just on their annual income or net profits. Disbursement Categories of Zakat
Just as it outlines the source of zakat, the Quran also defines its disbursement categories in the following verse: ³The 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 fulfilment 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 be 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 (i.e., by means of the widest possible 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 a righteous cause, both in war and in peace, including expenditures for the propagation and defence 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 at his/her disposal. In its wider sense it describes a person who, for any reason whatsoever, is unable to return home either temporarily or permanently: for example, a political exile or refugee. Economic Impact of Zakat
When a certain percentage of one¶s wealth is spent annually over the foregoing eight categories as prescribed in the Quran, zakat has a significant economic impact on society. Income support provided to the poor and needy would result in a measured increase of the money supply in the economy causing upward shift in demand for goods and services. To support this upward shift in the demand for basic necessities of life such as food, clothing, shelter etc., the production facilities would gradually expand and begin to absorb the idle capital. To support the increased production, the economy would generate more jobs and new employment opportunities. This added employment in turn would generate more demand for goods and services, more room for additional investments, and finally, the growth cycle based on balance consumption would contribute to a balance economic growth. As noted above, fir-riqaab, the fifth category of zakat expenditures, (in addition to ransoming prisoners of war), relates to the freeing of slaves. Today, obviously, human beings are no longer bought and sold as property. But by extrapolating the intent of this category, it can be safely stated that one of the basic purposes of zakat is to free human beings from economic slavery as well. The majority of people living in poor countries suffer from abject economic slavery at the hands of many local landlords, loan sharks, rich industrialists, and multinational corporations that exploit natural resources. One of the best ways to free people from economic slavery is to first give these oppressed people temporary relief and then, f or economic rehabilitation through essential financial resources to acquire training, equipment, and material. For example, small businesses or privately owned ³co operatives´ could be created. A regular flow of income of these entities would accrue to the recipients. Depending upon the rate of profit and retained earnings, the value of these enterprises would progressively grow. The income multiplier effect not only would benefit the economy several times the original investment in these enterprises, it would enable the poor to eventually become selfsufficient and free themselves from economic slavery while contributing to the economic stability of the society.
Expenditure
on the sixth category, al-gharimun, is designed to assist those people who, being overburdened with debts, are unable to fulfil their obligations. A closer understanding of this category would reveal that Islam does not allow bankruptcy where creditors, whether individuals or financial institutions, eventually pass on their bad debts to the consumers in the form of increased prices. Such increases, if not offset by other elements of consumer price index, eventually contribute to inflation.
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 satisfy 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 self-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. Through accumulation of surplus in zakat funds during prosperous years, the institution of zakat provides necessary contingency funds during depressed economic conditions when zakat revenues may not be sufficient to meet the required needs of the society. The levy of zakat, particularly on the idle portion of an individual¶s wealth, induces the zakat payer to seek a return on his wealth at a rate at least as high as the rate of zakat, so as to be able to pay zakat without reducing his/her wealth. Re-establishing The Institution of Zakat.
Due to a variety of eroding factors, the institution of zakat, which once provided an economic safety net to society, has lost its meaning. Today, it has an ad hoc and irregular function reduced to almost a ritual practiced individually by a small minority of Muslims. Many who pay zakat, unfortunately, do not even know how to accurately calculate it, let alone its potential economic impact on society. To re-establish the institution of zakat, it is essential that we first understand the importance of zakat in terms of its economic impact upon society. Also, in order to properly apply its rules and regulations to many forms of wealth, we must recognise that there are new categories of wealth (such as intellectual property and other intangible assets) which did not exist in early Muslim society, and for which we need
to use appropriate evaluation methods (book value, replacement values, market value, present value of future earnings, etc.) in computing zakat. 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 cumulative 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 reasonable 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 of Umar ibn AlKhattab and Umar ibn Abdul Aziz (717-720 C E.), 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.
Zakat in the context of the Malaysian Economy Zakat in the Context of the Malaysian Economy Zakat Institution has not played a significant role so far, the main reason is the small amount of zakat collected in the country. It is very small (about RM 408 Million in 2003) compared to the revenue of the government (which is about RM 89.2 billion from tax and other revenues) Therefore, development of the Muslim community in this country does not and cannot depend on zakat money. Zakat is such a small portion. The economic, educational and social needs of the community are financed almost wholly from government revenue.
If a national zakat organisation is set up and the collection in Malaysia is abo ut RM 700 million a year. The projected collection include zakat on business if they are given rebate from corporate tax. Even though it is still a small amount compared to government revenue and the general economy, the zakat institution may then be able to play some significance role in meeting some of the needs of the community, provided effective distribution programs are carried out in all the states to complement government programs. The challenge is to be able to make an impact on the community using zakat money of about RM 430 million a year collected by the various Islamic councils in the country. Overall the malaysian economy is many times larger, namely about 230 billion ringgit for a population of about 25 million people of whom about 61 are Muslims. Zakat Organization In Malaysia In Malaysia, though Islam is the official religion, The Federa l Government does not have the fullest authority in religious affairs.Zakat is the responsibility of the Islamic Council o f each state in the country There are 14 Islamic Councils, one for each of the 13 states and one for the Federal Territory Wilayah Persekutuan of Kuala Lumpur. Each state has its own religious Administration Enactment while the Federal Territory has its own Act to manage zakat. The Islamic Councils have a unique status in that they are not a part of the Federal or State Government However, they have been established either through Federal or State legislation. They also depend on the Islamic Religious Department which is a government depart ment existing in each state to provide the administrative services and to implement the dec isions of the Council. The Council is mainly a policy-making and supervisory body. Each Council is report to the Sultan or Ruler of each State The National Council for Islamic Affairs acts as a coordinator between the various state Islamic Councils especially when it concerns Islamic matters that effect the whole country. Since its inception the PPZ has experienced many changes and improvements in its administration by passing bureaucratic procedures and a customer oriented approach as well as a pro-active approach in tackling customers complaints. PPZ was officially open by the Honourable Prime Minister of Malaysia, Tun Dr. Mahathir Muhamed On 8t h March 1991 by being the first zakat office to operate in a new corporate style. Zakat Organization in the Federal Territory of Kuala Lumpur The Islamic Council of the Federal Territory of Kuala Lumpur has set up a Zakat Collection Centre (PPZ) having a corporate style management co mbined with computerised collection system, proactive marketing and custo mer-oriented approaches. In early of 1991, the Federal Territory Islamic Religious Council had established a subsidiary company known as Hartasuci Sdn. Bhd., also known as Zakat Collection Centre. While the responsibility of the Zakat Collection Centre is to collect zakat on mal & self for the Federal Territory Religious Council, while the distribution of zakat is still being done by the Federal Territory Baitulmal. Therefore in 1990, a proposal made by Y. Bhg. Dato¶ Haji Abdul Rahim bin Abu Bakar to Y. B. Tan Sri Dato¶ Dr. Mohd Yusof Noor was well received to try out a new system and structure of establishing a new Zakat Collection Centre. A study done by a consultant (PricewaterhouseCoopers) had summarised the following findings to be implemented by the Federal Territory Religious Council. - The first was to adopt a corporate method and structure as a way to collect zakat. - The Second was to set up an office specifically for zakat i.e. Zakat
Collection Centre that is separated from other activities of the Federal Territory Islamic Religious Department. - And the third to fully utilise computer technology in all zakat collection transactions. Since its inception the Zakat Collection Centre has experienced many changes and improvements in its administration by passing bureaucratic procedures and a customer oriented approach as well as a pro-active approach in tackling customers complaints. Zakat Co llection Centre was officially open by the Honourable Prime Minister of Malaysia, Tun Dr. Mahathir Mohamed on 8th March 1991 by being the first zakat office to operate in a new corporate style. Zakat is the compulsory giving of a set proportion of one\'s wealth to charity. It is regarded as a type of worship and of self-purification. Zakat does not refer to charitable gifts given out of kindness or generosity, but to the systematic giving of 2.5% of one\'s wealth each year to benefit the poor. The benefits of Zakat, apart from helping the poor, are as follows: 1. Obeying God 2. Helping a person acknowledge that everything comes from God on loan and that we do not really own anything ourselves 3. And since we cannot take anything with us when we die we need not cling to it 4. Acknowledging that whether we are rich or poor is God\'s choice, so we should help those he has chosen to make poor 5. Learning self-discipline 6. Freeing oneself from the love of possessions and greed 7. Freeing oneself from the love of money 8. Freeing oneself from love of oneself 9. Behaving honestly The 2.5% rate only applies to cash, gold and silver, and commercial items. There are other rates for farm and mining produce, and for animals. Pakistan-Zakat as a Welfare System Social security plans were first introduced in the 1960s but have nev er achieved much success. Traditionally, the family and biradari have functioned as a welfare system that can be relied on in times of need based on reciprocal obligations. In
1980, as a part of his Islamization program, Zia introduced a welfare system, known as the Zakat and Ushr Ordinance. Based on the Islamic notion of z akat , the aim was to forge a national system to help those without kin. The Zakat and Ushr Ordinance combined elements of the traditional Islamic welfare institution with those of a modern public welfare system. The ordinance's moral imperative and much of its institutional structure were directly based on the Quran and the sharia. As
a traditional religious institution, z akat involves both the payment and the distribution of an alms tax given by Muslims who enjoy some surplus to certain kinds of deserving poor Muslims ( mustahaqeen-see Glossary). The traditional interpretation by the Hanafi school of religious law stipulates that z akat is to be paid once a year on wealth held more than a year. The rate varies, although it is generally 2.5 percent. Ushr is another form of almsgiving, a 5 percent tax paid on the produce of land, not on the v alue of the land itself. Both z akat and ushr are paid to groups as specified in the Quran, such as the poor, the needy, recent converts to Islam, people who do the good works of God, and those who collect and disburse z akat . The Zakat and Ushr Ordinance set broad parameters for eligibility for z akat , which is determined by local z akat committees. Priority is given to widows, orphans, the disabled, and students of traditional religious schools. Eligibility is broad and flexible and presumes great trust in the integrity, fairness, and good sense of the local z akat committees. Although the program initially focused on providing cash payments, it gradually has moved into establishing training centers, especially sewing centers for women. By 1983 the z akat program had disbursed more than Rs2.5 billion to some 4 million people. The program, however, has come under a great deal of criticism for the uneven manner in which funds are disbursed.
Shia have vociferously criticized the program on the basis that its innate structure is built around Sunni jurisprudence. Shia leaders successfully have championed the right to collect z akat payments from members of their community and to distribute them only among Shia mustahaqeen.
Social security plans were first introduced in the 1960s but have never achieved much success. Traditionally, the family and biradari have functioned as a welfare system that can be relied on in times of need based on reciprocal obligations. In 1980, as a part of his Islamization program, Zia introduced a welfare system, known as the Zakat and Ushr Ordinance. Based on the Islamic notion of zakat , the aim was to forge a national system to help those without kin. The Zakat and Ushr Ordinance combined elements of the traditional Islamic welfare institution with those of a modern public welfare system. The ordinance's moral imperative and much of its institutional structure were directly based on the Quran and the sharia. As a traditional religious institution, zakat involves both the payment and the distribution of an alms tax given by Muslims who enjoy some surplus to certain kinds of deserving poor Muslims ( mustahaqeen--see Glossary). The traditional interpretation by the Hanafi schoo l of religious law stipulates that zakat is to be paid once a year on wealth held more than a year. The rate varies, although it is generally 2.5 percent. Ushr is another form of almsgiving, a 5 percent tax paid on the produce of land, not on the value of the land itself. Both zakat and ushr are paid to groups as specified in the Quran, such as the poor, the needy, recent converts to Islam, people who do the good works of God, and those who collect and disburse zakat . The Zakat and Ushr Ordinance set broad parameters for eligibility for zakat , which is determined by local zakat committees. Priority is given to widows, orphans, the disabled, and students of traditional religious schools. Eligibility is broad and flexible and presumes great trust in the integrity, fairness, and good sense of the local zakat committees. Although the program initially focused on providing cash payments, it gradually has moved into establishing training centers, especially sewing centers for women. By 1983 the zakat program had disbursed more than Rs2.5 billion to some 4 million people. The program, however, has come under a great deal of criticism for the uneven manner in which funds are disbursed. Shia have vociferously criticized the program on the basis that its innate structure is built around Sunni jurisprudence. Shia leaders successfully have championed the right to collect zakat payments from members of their community and to distribute them only among Shia mustahaqeen.
