Zakat and food security: Implications for small farmers in poor rural areas in Bangladesh

In societies with strong presence of Islam, Islamic instruments can be innovatively harnessed to play an increasing role in the socio-economic development of Muslims to conform to the cultural realities of indigenous people. Initiatives such as the World Bank's World Faiths Development Dialogue show the growing interest to inject religion into development process. A published research by Hossain et al. in the internationally reputed journal, "International Journal of Islamic and Middle Eastern Finance and Management", outlines a scheme to improve poor smallholder farmers' vulnerable financial situation through the application of two Islamic instruments, Zakah, or Zakat, and Salam contract, using Bangladesh as a case study.

Religion-based Institutional Demand initiative can be a key policy initiative to promote the dual objective of agricultural development and social protection leading to positive impact on food security. The importance of food security, along with poverty and inclusive development, has been acknowledged worldwide. The 1996 World Food Summit developed a broad definition of food security which was refined in 2001: "Food security [is] a situation that exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life". The number of food insecure people in the world increased to approximately 1 billion people in 2009. Bangladesh with high incidence of poverty had 64 million, close to half of its total population at the time, food insecure people in 2008. It is imperative that Bangladesh expand its social safety net programmes to safeguard food security of vulnerable households. Bangladesh, where approximately 75 per cent of its 160 million people lives in rural areas, primarily rely on domestic smallholder agriculture for its food production. Agriculture sector employs more than half of the total labor force and contributes less than 20 per cent of the Gross Domestic Product.  

Zakat is one of the five fundamental pillars of Islam. Islam supports people to have a decent and prosperous life and Zakat plays an important role in that regard. It provides a major tool to support the most vulnerable economic groups in society. Effort is made to focus not only on the charity aspect, but also to diversify the uses of Zakat funds for social empowerment and development. Salam is a forward contract between a buyer and a supplier whereby the buyer pays cash in advance for a designated quantity and quality of a certain commodity to be delivered in the agreed future date and price. It is particularly beneficial for small and marginal farmers, who constitute the majority of the agricultural workforce. Through the Salam contract, working capital is provided to these farmers during production time, which allows them to properly manage their farming expenses. Salam practice was common in the agricultural sector of Madinah, during the time of the Prophet Muhammad (pbuh). Though in Bangladesh daily practices of rural villagers are shrouded in their Islamic beliefs, the progress of Islamic microfinance operations in Bangladesh has been rather slow and inadequate.

A competent local Zakat Management Committee (ZMC) would be at the centre of the scheme. ZMC would manage the Zakat fund, set up the food bank, and choose recipients of the Zakat. The Zakat fund takes in collections from the local community as well as a designated share from an available national Zakat fund.  The fund creates a food bank, which includes some basic nutritious food items that satisfy local customs, dietary needs and local production practices. The ZMC develops a Salam contract with farmers, making advance payment for future produce that is destined for the food bank. Along with poorer households with young children, pregnant and lactating women, widows, disables, orphans and old aged people should get priority as Zakat recipients to have the greatest impact with the limited resources. They would be given food vouchers or ration cards that will allow them access to food banks on a periodic basis. The proposed scheme conveniently makes food available locally to the consumers who lack purchasing power, thus targeting the accessibility and affordability aspects of food security.

The pooled Zakat fund will allow the ZMC to deal with local farmers through facilitating credit and institutional demand that would promote smallholder agricultural development and food security. The smallholders can organise themselves into a village level cooperative to provide an institutional platform to deal with the ZMC. The key steps in the scheme are as follows: (i) using the Zakat fund, ZMC provides credit in the form of Salam contract to the farmer cooperative; (ii) the cooperative uses some of the fund to source inputs from the factor market taking advantage of their bargaining power; (iii) the cooperative then engages the individual farmers by offering inputs and working capital; (iv) the farmers, in turn, deliver their crop produce to the cooperative in the future according to the agreement; (v) the cooperative deposits the crops to the food bank.

A Bangladesh Agricultural Research Council (BARC) study in 2020 observed that rice production has largely become a losing venture for the country's peasantry for the past two and a half decades. According to the BARC study, cost of production has been increasing and mid-level actors such as millers, aratdars and wholesalers are harvesting excessive profits at the expense of farmers and consumers. This picture can be generalised for many other smallholder agro-ventures in the country. For various reasons, many farmers suffer from financial exclusion, hence forced to borrow from high-interest charging Non-Government microfinance institutions and informal lenders. Many rural smallholders fall into vicious cycle of poverty due to unfavourable financing schemes, loss of productivity and intermediaries' exploitation. Zakat based Salam contract with the smallholders promotes financial inclusion by making much needed working capital accessible interest free during the production season, which in turn makes application of high yielding inputs more viable. The community-based collective approach would increase the producers' bargaining power to negotiate better input prices and fair price for their produce.  The institutional demand from the Zakat fund creates favourable markets for smallholders and reduces harmful influence of private intermediaries in the already underdeveloped rural markets. The price stability and reliable source of income provide incentives for increased local production. The local food security situation is enhanced through incentivised farming activities and disbursement of food from the food bank to the vulnerable populations. This scheme is sustainable in the long term due to the nature of Zakat as a repetitive yearly affair.    

Religion can play an increasing role in the development process as it brings a value-rationality based on equity and fairness and adds stronger moral and ethical codes to institutions in countries like Bangladesh where rampant corruption exists.  The proposed scheme has positive influence on the commitment of Bangladesh government to fulfil Sustainable Development Goals (MDGs), where the eradication of poverty and hunger gets high priorities. Zakat based Salam contract could be an addition to traditional bank-centred modes of financing to empower the smallholders, the backbone of Bangladesh agricultural sector, to improve their precarious financial condition. Obviously, diversities in producers, problems and institutional capacities emphasise the responsibility of local and national government to appropriately design and implement the framework.

Dr. Ishrat Hossain is an Adjunct Economics Faculty at East West University and former Economics faculty at Qatar University and former Consultant Economist at Qatar National Food Security Programme. [email protected]