The Financial Express

In need of efficient Zakat management

Asjadul Kibria | Published: April 30, 2020 21:24:54 | Updated: May 09, 2020 22:02:34

In need of efficient Zakat management

This year the holy month of Ramadan is passing through a period of unprecedented gloom. Muslims across the world are observing Ramadan amid lockdown and without any congregation in masques. The iftar, breaking the day-long fast, is confined within the houses. There is no social gathering for iftar and sehri-- the pre-dawn meal.

The month of Ramadan is a time when faith-based charity becomes very important to support the poor and vulnerable people. Well off Muslims accomplish major part of their charity activities -- both obligatory and voluntary -- in this month.

In Bangladesh, there is a long tradition of faith-based charitable actions in Ramadan although not all are well organised and properly planned. A good number of Muslims who give money in charity are yet to differentiate between the obligatory and voluntary charities. That's why, they mix-up regular alms giving with obligatory charity or Zakat and distribute food and clothing to destitute in the name of Zakat.

UNDERSTANDING ZAKAT: Zakat is one of the five fundamental pillars of Islam. It is a share of the wealth that all eligible Muslims have to pay to the poor and the deprived sections of the community annually. Muslims having a certain volume of their surplus resource every year are to pay Zakat following the guidelines mentioned in the Holy Quran. So, it can't be paid without proper calculation. Also there is the need to identify eligible recipients.

The main principle of Zakat is to collect and distribute part of the surplus resources of well-off Muslims to assist in improving the living standard of the recipients within a period of time. The ultimate objective is to eliminate poverty and create an equitable society.

A Muslim possessing Nisab or minimum surplus wealth has to pay 2.50 per cent of the wealth as Zakat annually. There are two standards of Nisab. The gold standard sets at least 85 grams of gold in possession of a Muslim as surplus after a year-- lunar year to be precise. The silver standard sets at least 595 grams of the metal. Surplus of cash equivalent of any of these standards is counted as Nisab. Moreover, the Nisab amount of non-cash and income generating assets like bond and stock are also subject to Zakat.

Proper calculation of the minimum surplus wealth or Nisab is very important. After meeting all the required expenses and liabilities from the annual income, a Muslim needs to find whether there is Nisab equivalent of wealth. If it is there, only then it becomes obligatory for him or her to pay Zakat. Currently, a number of online calculators of Zakat are available to assist the Zakat payers.

Zakat is clearly different from taxes. Income and property taxes go to state exchequer. Tax payers have to pay the taxes in accordance with the law of the land which doesn't waive the obligation of Zakat. Bangladesh and some countries, however, allow limited tax-exemption on charity including Zakat contributed to authorised welfare organisations.   

DISTRIBUTION: Zakat has to be distributed properly and so it requires institutional arrangement. Like many other countries with Muslims as majority of the population, there is both government and private setups in Bangladesh to collect and distribute Zakat.

The government's Zakat fund is operated by a board under the Islamic Foundation. The foundation website, however, doesn't provide any update on the fund and so it is not possible to know clearly how much money has been disbursed as Zakat so far. (During 1982 and 2015, the Zakat board spent Tk 143 million with the number of Zakat beneficiaries reaching around 750,000).

Private entities like Centre for Zakat Management (CZM), Anjuman Mofidul Islam, Quantum Foundation, and Ahsanullah Mission are some of the leading voluntary organisations engaged in mobilising and distributing Zakat among those eligible people. Many individual initiatives are also there to distribute Zakat.

Despite all these efforts, collection and distribution of Zakat is still not well structured and well managed. There is no comprehensive statistics on annual collection and distribution of Zakat. A number of studies showed that if properly collected, annual amount of Zakat may be around 2.50 per cent of the country's Gross Domestic Product (GDP). Annual Zakat collection in Bangladesh should be at least Tk 600.0 billion now. (In FY19, GDP of the country at market price was Tk 25.42 trillion and 2.50 per cent of the GDP comes to Tk 636.62 billion).

There is also no central database on the activities of the different organisations working on Zakat although private initiatives to mange Zakat are gradually increasing. A comprehensive database is necessary to ensure transparency of the Zakat activities and its effectiveness. An indexing system like one prevalent in Indonesia may be introduced.

A MODEL FOR BANGLADESH: To address the challenge of proper collection and effective distribution of Zakat, Ideas for Development (IFD) has developed a 'Zakat Model' for Bangladesh. IFD is a virtual think-tank established by Mabroor Mahmood, a Bangladeshi finance expert and researcher, now working abroad.    In a paper tiled Bangladesh `Zakat Model', the researcher points out three factors responsible for not properly collecting and distributing the Zakat money. These are: lack of confidence among Zakat payers; absence of networks to connect individuals and institutions; and absence of professionalism in Zakat management.

The IDF paper stressed on extensive digital mechanism to collect and distribute Zakat efficiently. It proposes to create an online platform under the Prime Minister's Office of the Government of Bangladesh to manage Zakat. The online platform will have two dimensions: (a) sourcing of fund, and (b) utilisation of the fund. The model outlines the collection and distribution pattern of Zakat and Sadqah (voluntary charity) from eligible Muslims. Mobile financial service may be used to collect the charities. Through digitalisation, a transparent system can also be developed to track the collection and distribution.

The IFD model also suggests investing from the funds to shariah compatible short-term securities to make the fund size bigger and some other revenue generating activities. It argues that by managing professionally, the platform can benefit a large number of people in the long-run.

IFD also argues that there will be  an acceleration in poverty  reduction; people will be more encouraged to undertake social projects; consumption  in  the  domestic  economy will increase and create more demand and eventually increase investments;  more employment opportunities will be created  and  entrepreneurs  will  be  encouraged  to  launch  new  initiatives.

ZAKAT TO FIGHT CORONAVIRUS: To fight the impact of coronavirus, the government has already announced a set of stimulus package of around Tk 1.0 trillion, mostly for business and trade. Financing the package becomes a matter of concern. As most of the financing will be through bank loans, there will be pressure on liquidity. Some are arguing for minting money which is a very risky proposition at this moment when the economy is fragile. 

Zakat can be a safe and better option to assist millions of poor and vulnerable people in this period of pandemic to finance social safety net programmes. IFD argued that at this 'moment of looming economic crisis resulting from the spread of COVID-19,' it  is necessary to maintain the country's internal economic vibrancy to reduce external shocks. "Circulation of Zakat and Charity within the economy will keep the economy running, and as a result, the probability of economic slowdown will diminish," said the IFD paper. "Payment of charity to the needy  section  of  the  society  will  increase  consumption,  which  will  eventually  propel investments," it argued.



Share if you like