Zakat and poverty alleviation – Lessons learned

Zakat is an ancient Islamic practice based on one of the five pillars of the religion. This obligation for Muslims to give alms to the less fortunate is aimed at alleviating poverty in society. Yet in many countries, poverty is a grim and persistent reality despite zakat institutions. What can we learn from success stories in zakat management?

Encouraging sustainability
Poverty occurs due to the lack of transfer of assets to the poor. The zakat model ensures the nett transfer of wealth to the poorest people at the bottom of the pyramid, without burdening them with repayment and interest.

Zakat has to ensure sustainability for the recipients over the long term. A zakat project jointly initiated by several corporations in Bangladesh has demonstrated success in helping poor families increase their income.

A post-assessment of the project found that not only was the original zakat capital intact, but it had increased by nearly 15 per cent. The study also recommended a phase-out exit strategy of another two years, which will enable the families to be self-sustainable instead of relapsing into poverty.

While zakat can be a short-term arrangement, for long-term rehabilitation and poverty alleviation, waqf institutions are needed to open up opportunities for the poor to access funds in the future.

Case study: Bangladesh
In a village in Bangladesh, villagers were divided into groups of 30 families. Money was transferred to them and left for them to self-manage. In total, 90 lakhs had been given in three tranches over three years. The money belonged to the villagers but they were told to use it in a sustainable way.

At the end of the three years, it was found that not only was the original zakat capital intact but it had increased by nearly 15 per cent. The villagers had also increased their income by 80 per cent. They had used the initial sum to generate further income and send their children to school. Health levels and communal harmony had improved. The non-Muslim fishermen bought their own nets and boats and the Muslim families had bought inputs for their bamboo business or for cattle rearing.

In the traditional microcredit model, repayment and the interest can become burdensome for poor families. But in the zakat model, a nett transfer of wealth to the poorest people is ensured—a model that has proven to not just bring temporary relief but help alleviate poverty sustainably.

Treating zakat payers as shareholders
To successfully institutionalise zakat, the role of Muslim scholarship must be respected. Scholars need to work with practitioners to develop a framework for zakat distribution and come up with authentic and relevant solutions.

Zakat payers should be served as customers and treated as shareholders. As customers, zakat payers want education and a deeper understanding of zakat, including support for calculating zakat. As shareholders, they want an easy and accessible collection, an integrity of management, transparency of information and clear communication.

Zakat payers should not be taken for granted, even though zakat is an obligation, as this attitude will cause a lot of disenchantment among the payers.

Transforming lives of zakat recipients
To better serve zakat recipients, data gathering and management are critical for correct distribution, to measure the impact, and to set a future agenda for advocacy and policy.

Zakat should not only aim to alleviate poverty among its recipients but should also transform their lives. Gaining a deeper understanding of the community that needs help will enable the zakat funds to be used more effectively and strategically. This approach also enables zakat organisations and institutions to determine whether those asking for aid are truly eligible and are not violating social security laws.

While the traditional understanding of zakat is that Muslims give obligatory alms with the intention of sharing their wealth with the poor, zakat should go beyond mere charity- giving. Hence, zakat should be used for education, training, jobs creation and empowerment of people. Furthermore, as zakat is not always appropriate in all situations, the boundaries have to be very clearly defined.

Case study: Zakat working on the ground
The Zakat Foundation of America was established in 2001, after the September 11 tragedy, with the aim of showing the true kindness and goodness of Islam through zakat activities.

Khalil Demir, executive director of the Zakat Foundation, explained that the Foundation serves, firstly, as a resource centre on zakat; and secondly, as a zakat collection and distribution centre that is open to Muslims and non-Muslims.

With offices and operations in 40 different countries, the Foundation is able to carry out a lot of ground activities to distribute zakat funds. For one, the funds are used for emergency relief in Syria, Lebanon, Jordan, Turkey, Gaza and Afghanistan, making the Foundation possibly the most active charity organisation inside Syria and its surrounding areas.

‘As education is the only way to empower societies and communities, we also have schools in Afghanistan, Sri Lanka and the Dominican Republic. Through sadaqah jariyah, we opened around 200 water wells last year, with each well serving around 500 families, and also distributed 500 milk cows to selected families,’ Khalil said, adding that hundreds of thousands of people also benefit from the Foundation’s Ramadhan programmes around the world.

Institutionalising zakat
Institutionalisation of zakat needs to be carefully managed to achieve:
• Scale of distribution; and
• Quality, in terms of appropriate distribution and communication to zakat payers.

Establishing a proper collection and distribution method of zakat is of spiritual and economic concern. To achieve this, more dialogue is needed across the state and community zakat institutions to share knowledge, information and best practices. Islamic financial institutions have a significant role to play here.

One challenge of institutionalising zakat stems from the concern that employees of a zakat organisation could be biased or corrupt. This is why such institutes had to be stringently audited as they are no different from any other institution, such as a government or a bank. There are good and bad, and what is needed is carefully managed and nurtured institutionalisation that gives scale to zakat distribution, while making sure there is quality in terms of how it is distributed and how zakat payers are communicated to.

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This is based on a session in the 10th WIEF in Dubai.