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Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation

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This study estimates potential Zakat collectible in 17 member countries of the Organization of Islamic Cooperation (OIC). In our estimation, we found that the zakat to GDP ratio exceeds the poverty gap index to GDP (PGI-GDP) ratio in all but 3 countries, with poverty line defined at 1.25aday.WealsofoundthatthezakattoGDPratioexceedsthePGIGDPratio,exceptin4countrieswithpovertylinedefinedat1.25 a day. We also found that the zakat to GDP ratio exceeds the PGI-GDP ratio, except in 4 countries with poverty line defined at 2.00 a day. We also compared zakat to GDP ratio against poverty headcount ratio. According to our estimates, the Zakat to GDP ratio exceeds the poverty head count ratio to GDP (PHCR-GDP), except in 5 countries with poverty line defined at 1.25aday.WealsofoundthatzakattoGDPratioexceedsPHCRGDPratioexceptin7countries,withpovertylinedefinedat1.25 a day. We also found that zakat to GDP ratio exceeds PHCR-GDP ratio except in 7 countries, with poverty line defined at 2.00 a day. Thus, the institution of Zakat has ample potential to contribute towards the alleviation of poverty. Lastly, we show that the aggregate resources pooled together from the potential Zakat collection in 17 OIC countries will be enough to fund resources for poverty alleviation in all 17 OIC countries combined.
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International Journal of Zakat 1(1) 2016 page 17-35
Zakat Collectible in OIC Countries for Poverty Alleviation:
A Primer on Empirical Estimation
Salman Ahmed Shaikh
Universiti Kebangsaan Malaysia
ABSTRACT
This study estimates potential Zakat collectible in 17 member countries of the Organization of
Islamic Cooperation (OIC). In our estimation, we found that the zakat to GDP ratio exceeds the
poverty gap index to GDP (PGI-GDP) ratio in all but 3 countries, with poverty line defined at
$1.25 a day. We also found that the zakat to GDP ratio exceeds the PGI-GDP ratio, except in 4
countries with poverty line defined at $2.00 a day. We also compared zakat to GDP ratio against
poverty headcount ratio. According to our estimates, the Zakat to GDP ratio exceeds the poverty
head count ratio to GDP (PHCR-GDP), except in 5 countries with poverty line defined at $1.25
a day. We also found that zakat to GDP ratio exceeds PHCR-GDP ratio except in 7 countries,
with poverty line defined at $2.00 a day. Thus, the institution of Zakat has ample potential to
contribute towards the alleviation of poverty. Lastly, we show that the aggregate resources
pooled together from the potential Zakat collection in 17 OIC countries will be enough to fund
resources for poverty alleviation in all 17 OIC countries combined.
Keywords: Zakat, Fiscal Policy, Poverty, Redistribution
INTRODUCTION
More than a billion people live in poverty
even in the twenty first century. On the other
hand, there has been an unprecedented
change in income disparity between the poor
and the rich people during the last half
century. According to Oxfam, the 62 richest
billionaires own as much wealth as the
poorer half of the world’s population. In
contrast, one in every four people in Africa
goes to bed hungry every night, according to
the Food and Agriculture Organization. Do
we really have such a scarcity of resources
that we cannot end poverty, hunger, and
famine? Nobel Laureate Sen (1983) did
research on famine in Bengal and argued
that the famine was not caused from the lack
of resources. It is also striking to note that
the world agriculture produces 17 percent
more calories per person today than it did 30
years ago, despite a 70 percent increase in
the population (Pingali, 2002).
These considerations imply that the
world has sufficient resources to feed
everyone, but these resources are not equally
distributed. Inequality in wealth distribution
is often the result of income differences
arising due to differences in risk tolerance,
work effort, productivity, and human capital,
to name a few factors. However, the level of
inequality increased dramatically in the
post-World War II period, as documented by
Piketty (2014), even as some of the
developed economies actually faced
slowdown of productivity growth since the
1980s.
18 International Journal of Zakat 1(1) 2016
While both the developed and
developing worlds need to find answers for
the egalitarian distribution of income, the
developing world also has to achieve a
decline in poverty. Most of the countries in
the Organization of Islamic Cooperation
(OIC) are generally poorer than other
countries. Most of the population in poverty
resides in Africa and Asia, and the bulk of
the OIC countries are located in these
continents. Half of the global poverty is
from the Muslim world, while the Muslim
population comprises only 24 percent of the
total global population. In a recent study
conducted in Pakistan by Naveed and Ali
(2012), as many as 58.7 million people in
Pakistan are living in multidimensional
poverty, with 46 percent of the rural
population and 18 percent of the urban
households falling below the poverty line.
Other OIC countries such as Bangladesh and
Nigeria also have a high poverty headcount
ratio of 43 percent and 62 percent
respectively. Due to the widespread poverty
and weak governments, most of the OIC
countries rank lower than other countries in
spending on schooling and health services.
Hence, the level of human capital,
productivity, and national income in these
countries remain at low levels.
Under these circumstances, we
sought to empirically analyze the potential
of zakat as an institution of wealth
redistribution to help in addressing the
poverty in the OIC countries. The paper is
organized as follows. Section 2 provides a
review of literature on the socio-economic
effects of zakat and its administration in the
contemporary economies. Section 3 gives
details on the research methodology,
including sampling methodology and the
methods we used to estimate potential zakat
collectible. Finally, section 4 presents the
results of our analysis. We estimate and
compare the potential zakat collectible
against the funding gap for alleviating
poverty in each of the 17 OIC countries.
LITERATURE REVIEW
Wahid (1986) explains that zakat is a
compulsory payment on the part of Muslims
as a share to the poor. Although it is a
religious obligation, zakat also has a variety
of economic and social ramifications. In
early empirical literature on the welfare
potential of Infaq (charity) to alleviate
poverty in Pakistan, Malik et al. (1994) use
micro-data to establish that Infaq (charity)
does have a significant impact on reducing
the poverty gap. In a recent empirical study
on OIC countries, Shirazi and Amin (2009)
estimate the resources required for poverty
elimination under $1.25 a day and $2.0 a
day. Their estimates for Pakistan suggest
that the country needs 1 percent of gross
domestic product (GDP) for elimination of
poverty defined by earnings less than under
$1.25 a day and 6.77 percent of GDP for
elimination of poverty defined by earnings
under $2 a day. In another study from
Pakistan, Kahf (1989) uses different zakat
categories, and according to his estimate,
zakat collection can be between 1.6 percent
of GDP to 4.4 percent of GDP.
In a more recent study, Azam et al.
(2014) in an empirical study in Pakistan
established that zakat significantly enhances
the welfare of the households. Akram and
Afzal (2014), in an empirical study from
Pakistan, report that zakat disbursement
among the poor, needy, destitute, orphans,
and widows has played a significant role in
poverty alleviation. Their results show that
there is an inverse relationship between
poverty and zakat disbursement, both in the
short and long run.
Using aggregate data for Malaysia,
Suprayitno et al. (2013) find that zakat
distribution has a positive, but small impact
on aggregate consumption. Hence, zakat
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 19
distribution should not be limited to the
consumption needs, but should also cover
other forms of monetary aid that can
generate a continuous flow of income for
zakat recipients. In another recent study,
Abdelmawla (2014) argued, based on
empirical evidence using aggregated data for
Sudan, that zakat along with educational
attainment significantly reduced poverty in
Sudan. However, we note here that using
aggregated data for most OIC countries
where official zakat collection is very low
does not make a convincing case for poverty
alleviation.
In another empirical study from
Bangladesh, Hassan and Jauanyed (2007)
estimated that zakat funds can replace the
government budgetary expenditures ranging
from 21 percent of Annual Development
Plan (ADP) in 1983-84 to 43 percent of
ADP in 2004-2005. In a study from
Malaysia, Sadeq (1996) reports that about
73 percent of the estimated potential zakat
collection will be needed annually to change
the status of hard-core households to the
status of non-poor households in Malaysia.
Ibrahim (2006) contends in an empirical
study from Malaysia that zakat distribution
reduces income inequality. His analysis
reveals that zakat distribution reduces
poverty incidence and lessens the severity of
poverty. Firdaus et al. (2012) estimate the
potential of zakat institution in Indonesia by
surveying 345 households. Their results
show that Zakat collection could reach 3.4
percent of Indonesia’s GDP.
Some studies have also shown the
comparative potential of zakat as a superior
tool for poverty alleviation. Debnath et al.
(2013) assessed the effectiveness of Zakat as
an alternative to microcredit in alleviating
poverty in Bangladesh. Through the
Propensity Score Matching (PSM)
techniques, the study indicates that the
impact of the zakat scheme was greater than
that of the microcredit programs.
Furthermore, the study also highlights that
the zakat scheme significantly, with
increases in both income and expenditure of
the recipients in comparison to the
microcredit programs.
Other researchers such as Nadzri et
al. (2012) recommend integrating the
various poverty alleviation and
redistribution tools for creating synergies.
The effectiveness of zakat institutions may
improve by collaborating with other
institutions such as microfinance institutions.
Shirazi (2014) suggests that the institutions
of zakat and waqf (charitable trust) need to
be integrated into the poverty-reduction
strategy of the Islamic Development Bank
(IDB) member countries. The proceeds of
these institutions should be made part of
their pro-poor budgetary expenditures.
Hassan (2010) suggests a model that
combines Islamic microfinance with two
traditional Islamic tools of poverty
alleviation such as zakat and waqf in an
institutional setup. Hassan (2010) argues
that the poor borrowers will have less debt
burden because their capital investments
will be partly met by funds from zakat,
which would not require any repayment.
Norazlina and Rahim (2011) identify
that there are many types of programs that
could be funded by zakat such as providing
schooling, vocational training, and business
support by establishing cottage industries
and providing fixed assets and equipment to
small businesses. In addition, zakat could
also be used to provide low-cost housing
and health care. Abdullah and Suhaib (2011)
argue that if zakat is established as an
institution, it will create a collective social
security scheme for mutual help and the
generated resources can be further utilized
for social development.
To achieve such diverse
contemporary needs, the institution of zakat
is dynamic and flexible. In the Umer (rta)
and Abu Bakar (rta) period of government,
20 International Journal of Zakat 1(1) 2016
zakat was collected by the government.
However, in the Usman (rta) period, people
were allowed to pay zakat privately (Kuran,
2003). Horses were exempted from zakat in
the Prophet’s time, but Umer (rta) brought
them in the zakat net in his period. Similarly,
Mahmud (2001) informs that Umer (rta)
levied zakat on horses and skins, and at the
time when the Arab region was hit by
drought and famine, he exempted the poor
from zakat and suspended zakat from the
rich. Usman (rta) also levied Zakat on the
production in forests, which was not the case
in the earlier period (Nadvi, 1996). Hence, a
policy maker in a modern economy can use
the flexibly of this institution to maximize
the welfare benefits of the zakat system.
Nevertheless, at present, zakat is not
collected by the government in most
countries and is not considered a
compulsory payment to the government
(Powell, 2009). Ahmad et al. (2006)
examines factors contributing to the
dissatisfaction towards formal zakat
institutions based on a sample of 753
respondents who paid zakat to six privatized
institutions. They used logistic regression to
analyse the probability of paying to such
zakat institutions. Their results indicate that
the satisfaction on the distribution and
efficient management of zakat are the main
factors influencing zakat payment. About 57
percent of the respondents were dissatisfied
with the distribution of zakat funds, which
significantly affects payments to the zakat
institutions. Wahid et al. (2008) reveals two
main factors contributing to dissatisfaction,
namely, the ineffectiveness of zakat
distribution and the lack of transparency on
information about the distribution of zakat.
The lack of confidence regarding the
governance of zakat institutions due to the
perceived lack of efficiency and
effectiveness may directly undermine the
collection of potential zakat and the
realization of the desired socio-economic
objectives. Abu Bakar et al. (2007) argue
that the lack of proper implementation of
zakat in OIC countries limits the success of
the noble aims of the zakat institution.
To help change this state of affairs,
Yusoff (2011) urges that every Muslim
country must organize zakat collection and
zakat spending in the most effective and
efficient manner. Azam et al. (2014) also
suggest that there is a need to institutionalize
the Zakat collection system in order to
increase the overall zakat collection. In
another study, Rahman (2003) proposes the
introduction of two zakat governance
measures: the promulgation of Islamic
accounting standard and structural and
policy reform towards more effective zakat
distribution.
One of the other potential reasons for
the insignificant size of central zakat
collection and ineffective disbursement is
that the mainstream Islamic scholarship
allows taxes to be levied other than zakat for
mobilizing public finance. Maududi (1970)
argues that zakat is a religious obligation
and is not a substitute of tax. The same
opinion is held by Siddiqui (1978) and Shaik
(1979). Siddiqui (1978) cites the opinion of
prominent Islamic jurists such as Ibn-e-
Hazm and Imam Shatibi in support of this
view. These scholars hold that taxes other
than zakat can be imposed in an Islamic
economy if these taxes are levied by the
legislative council and used for public
welfare. He contends that the taxes
discouraged in Ahadith are those imposed
by the autocratic kings for their own lavish
consumption, and this kind of usurpation of
public property was discouraged in Islam.
Besides governance, there is a dire
need for a standardized approach on
determination of the zakat base. Shirazi &
Amin (2009) argue that since there is no
agreement among the scholars on the new
wealth that may be covered by zakat, there
is an urgent need for general consensus on
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 21
the definition of the items to be considered
as zakatable items. This requires Ijma
(consensus) of the Ulama (Islamic scholars)
and other contemporary scholars on the
issue. On the need for extending the
coverage of zakat by including all forms of
wealth and produce, Qardawi (1999, p. 333)
applies the methodology of Qiyas
(analogical reasoning) and reasons that the
emerging and increasing types of wealth in
the modern times such as bank deposits and
financial securities such as shares and bonds
may also be covered under zakat (Qaradawi,
1999). Abu Bakar et al. (2007) also suggest
that the Illah (basis or reasoning) for
zakatability should no longer be productive
property, but any property which is in excess
of one’s personal use. Haneef and Mahmud
(2011) also argue that the general directives
of the Quran do not restrict the application
of zakat to certain types of wealth to the
exclusion of others.
That is why wealth or assets subject
to zakat should include cash in hand or at
bank; gold; and silver; held-for-trade
inventory; real estate purchased for the
purpose of resale; and all kinds of financial
investments in stocks, bonds, debentures,
national saving schemes, and mutual funds.
Likewise, production is not limited to
agriculture nowadays. The major part of
production comes from industries as well as
services sector. Therefore, income from the
industrial production and from the services
sector could also be taxed similar to
agricultural yield.
Lastly, we discuss another important
question regarding whether the investment
in financial instruments should be subject to
wealth zakat with total investment value or
should only the income from such financial
investments be subject to income zakat.
Khan (2005) contends that investment in
stocks should be interpreted as any other
investment with some means of earning
income. Investment in a stock is a means of
earning dividend income or capital gains.
Like means of production/income are
exempted from zakat, investment in stocks
should be exempted from wealth zakat.
Therefore, any income arising from the
investment in stocks must be subject to
income zakat. Similarly, this argument could
be extended to introduce income zakat on
mutual funds, investment in National
Savings Schemes (NSS), debentures, and
bonds. Furthermore, if a real estate is leased,
the real estate becomes the means of earning
rent for the owner. Hence, income zakat
could also be introduced on rental income.
To summarize, we see that on
theoretical grounds, zakat is an important
redistributive institution. If the governments
improve the governance, administration, and
effective and transparent distribution of
zakat funds, then tremendous gains can be
achieved in improving public welfare.
RESEARCH METHODOLOGY
Sample
For the estimation of potential zakat
collectible at the aggregate level, we
selected 17 members of OIC. The selection
is based on the availability of complete data.
Due to non-availability of data for some
variables, we had to drop a few OIC
countries from the sample. Since the
variables are needed to form an aggregate
series, any missing value would have been
detrimental in this estimation exercise. This
is different from the case of missing
observations or variables in a regression
analysis where the variables are used to
explain changes in a dependent variable
rather than form an aggregate series.
22 International Journal of Zakat 1(1) 2016
Data
The data are obtained from World Bank’s
World Development Indicators (WDI) for
the period 2008-2013. For official gold
holdings in each country, we used the data
provided by the World Gold Council. For
measuring poverty, we use following
variables:
Table 1. List of Variables Used for Poverty Measurement
Variable
Description
Poverty gap at $1.25 a day (PPP)
Mean shortfall from the poverty line ($1.25 a
day), as a percentage of the poverty line.
Poverty headcount ratio at $1.25 a day (PPP)
Percent of total population with income below
$1.25 day.
Poverty gap at $2 a day (PPP)
Mean shortfall from the poverty line ($2.0 a day),
as a percentage of the poverty line.
Poverty headcount ratio at $2.00 a day (PPP)
Percent of total population with income below
$2.0 day.
Source: Author (2016)
In this estimation exercise, we selected
following variables:
Table 2. List of Variables Used in Zakat Estimation
Variable Name
Unit of Measurement
Total reserves (includes gold)
Current US$.
Total reserves minus gold
Current US$.
Official gold reserves
Current US$.
Broad money
Current US$.
Broad money to GDP
Ratio
Market capitalization
Current US$.
GDP
Current US$.
Changes in inventories
Current US$.
Agriculture, value added
Current US$.
Industry, value added
Current US$.
Services, value added
Current US$.
Agricultural irrigated land
Percent of total agricultural land.
Total natural resources rents to GDP
Ratio
Total natural resources rents
Current US$.
Population
Total number of people alive in the country.
Proportion of Muslim population
Percent of Muslims in total population.
Percent income held by top 20 percent
Percent of total personal income.
Source: Author (2016)
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 23
Method for Computing Aggregate Zakat
For estimating zakat on wealth, we used the
following heads:
Estimated private gold holdings
Broad money
Market capitalization of stock
Inventory investment (as proxy for
unsold inventory).
To estimate private gold holdings, we
use the following formula:


 
--- (i)
The proxy uses an assumption that
government holds as much official gold
reserves as the ratio of private gold holdings
as it holds total reserves as the ratio of broad
money. For instance, if the ratio of total
reserves to broad money is 20 percent, then
we assume that the government’s official
gold holdings as a ratio of total private gold
holdings will also be 20 percent. Since we
know the official reported gold holdings of
governments, we can estimate the private
gold holdings using the above formula. Here,
we assume that the government’s choice of
keeping monetary and gold reserves as a
proportion of broad money and total private
holdings, respectively, is the same in the
long run.
Since zakat is levied on currency in
ownership as well as on money deposited in
bank accounts, we use broad money as a
proxy for the wealth held as currency and in
bank accounts. For zakat on market value of
stocks, we use market capitalization. It is
calculated as follows:

 --- (ii)
Where is the number of shares
outstanding for company i, and is the
current market price of the stock of
company i.
Lastly, to estimate the unsold
tradable inventory, we use the figure for
inventory investment”, as reported in the
national income accounts. In national
income accounting, inventory investment
represents the value of production in a
particular year that remains unsold during
that year. It is assumed that the firm has
purchased unsold inventory from itself.
However, the inventory investment figure
reported in national income accounts gives
an estimate of the tradable inventory for
production that took place only in that year.
The actual tradable inventory could be much
more than the reported figure. We sought to
estimate the value of this wealth zakat
function:

 --- (iii)
Here,
 refers to total wealth zakat.
refers to wealth in ownership of
individual x.
 refers to minimum nisaab amount. It
is computed as the market value of 612
grams of silver.
To deduct the nisaab amount at the
aggregate level, we have to estimate the
number of people whose wealth in
ownership exceeds the nisaab amount. We
take a conservative route to assume that the
people in the top income quintile of the
population will have wealth exceeding the
nisaab amount.
We define  as a set of all
people belonging to the top income quintile
and have wealth exceeding the nisaab
amount. Mathematically it is expressed as
follows:
 
--- (iv)
24 International Journal of Zakat 1(1) 2016
If an individual belongs to the
top income quintile, he is assumed to have
wealth exceeding nisaab amount. From the
aggregate value of assets that are subject to
wealth zakat, we have to deduct the product:

In the second part of the estimation,
we attempted to estimate the total
production value tax that can be collected in
individual economies in our sample. The
rate of production value tax can be 5 percent,
10 percent, or 20 percent. Production
processes that mix both labor- and capital-
intensive inputs are subject to 5 percent
production value tax. Production processes
that majorly use either labor- or capital-
intensive inputs are subject to 10 percent
production value tax. Incomes from sources
that neither use labor- nor capital-intensive
inputs are subject to 20 percent production
value tax.
Mathematically, we can represent
this principle of levy as in equation (v). Here,
and
represent very minimal use of the
inputs in fixed amount.  refers to the
production value tax.





--- (v)
Hence, we apply a 5 percent
production value tax on production arising
from irrigated land and production value of
output produced in industry and services
sector. We apply 10 percent production
value tax on production arising from rain-
fed lands. Finally, we apply 20 percent
production value tax on production arising
from rents on natural resources.
Since zakat is only levied on
Muslims, we make the adjustment in all
variables to account for that. We assume that
in the long run, the proportion of Muslims
and non-Muslims in the top income quintile
will be the same as their proportionate
distribution in total population.
For measuring poverty, we use two
measures, namely, poverty headcount ratio
and poverty gap. Poverty headcount ratio is
computed as a ratio of the number of people
in poverty divided by the total population.
The poverty gap index is computed as
follows:


 --- (vi)


 --- (vii)
Here, is the total population of a
country, q is the total number of poor
people in the population with income below
the poverty line, z is the poverty line
defined by a particular threshold of income
like $1.25 or $2 a day and is the income
of the poor individual . In this index, the
poverty gap for individuals whose income is
above the poverty line is zero.
Ahmed (2004) uses a conservative
crude measure of poverty gap by
multiplying the number of poor people with
the average minimum annual income of
$365 or dollar a day, per non-poor person.
This is a conservative measure since it
assumes that poor people have zero annual
income (Shirazi & Amin, 2009). Hence, we
use both measures for comparative analysis.
RESULTS & DISCUSSIONS
In this section, we present the results of our
estimation. We have presented the results in
Table 3. In Table 3, ZGDP refers to zakat
to GDP ratio. PGI-GDP refers to the
Poverty Gap Index to GDP ratio. It is
computed as follows:

 --- (viii)
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 25
Here,
 refers to Poverty Gap Index value.
refers to income at poverty line in
current $.
refers to the total number of people in
the country.
 refers to the value of Gross Domestic
Product.
In Table 3, PHCR-GDP refers to
Poverty Head Count Ratio to GDP. It is
computed as follows:

 --- (ix)
Here,
 refers to Poverty Head Count Ratio.
, and  have the same meaning
as defined above.
We can see that zakat to GDP ratio
exceeds the PGI-GDP ratio, except in 3
countries with poverty line defined at $1.25
a day. Only in Bangladesh, Mozambique
and Nigeria, the zakat to GDP ratio is less
than PGI-GDP ratio with poverty line
defined at $1.25 a day. Mozambique is one
of the members of OIC, with a very small
proportion of Muslim population.
Additionally, zakat to GDP ratio exceeds
PGI-GDP ratio in all but 4 countries, with
poverty line defined at $2.00 a day. Only in
Bangladesh, Mozambique, Nigeria, and
Pakistan, the zakat to GDP ratio is less than
the PGI-GDP ratio, with poverty line
defined at $2.00 a day.
We also compared the zakat to GDP
ratio against the poverty headcount ratio.
However, one must note that the estimate of
funding gap from poverty headcount ratio
assumes that poor people have zero income.
Hence, it exaggerates the true funding
needed to alleviate poverty. We can see that
the zakat to GDP ratio exceeds PHCR-GDP
ratio in all but 5 countries, with poverty line
defined at $1.25 a day. The countries in
which zakat to GDP ratio is less than PHCR-
GDP ratio when the poverty line defined at
$2.00 a day include Bangladesh,
Mozambique, Nigeria, Pakistan, and
Tajikistan. Further, the zakat to GDP ratio
exceeds the PHCR-GDP ratio in all but 7
countries with poverty line defined at $2.00
a day. Countries in which zakat to GDP ratio
is less than PHCR-GDP ratio with poverty
line defined at $2.00 a day include
Bangladesh, Indonesia, Kyrgyz Republic,
Mozambique, Nigeria, Pakistan, and
Tajikistan.
Therefore, we can see that in most
countries, if the potential zakat collection is
made and disbursed effectively, the poverty
gap can be funded even in the first round.
Since zakat is a combination of net worth
and production value tax, it works
effectively, irrespective of the phase of the
business cycle. Furthermore, it targets the
poor and ultra-poor specifically and
achieves direct redistribution.
26 International Journal of Zakat 1(1) 2016
Table 3. Zakat to GDP, Poverty Gap to GDP and Poverty Rate to GDP Ratio
Country
PGI-GDP
($1.25)
PGI-GDP
($2.00)
PHCR-GDP
($1.25)
PHCR-GDP
($2.00)
Albania
0.01%
0.09
%
0.05%
0.47%
Azerbaijan
0.01%
0.05%
0.02%
0.14%
Bangladesh
5.32%
23.13%
20.63%
58.30%
Egypt
0.05%
0.62%
0.23%
3.39%
Indonesia
0.35%
2.74%
2.13%
9.10%
Jordon
0.00%
0.02%
0.01%
0.17%
Kazakhstan
0.00%
0.01%
0.00%
0.03%
Kyrgyz Republic
0.43%
3.07%
1.84%
12.19%
Malaysia
0.02%
0.16%
-
-
Morocco
0.08%
0.74%
0.38%
3.30%
Mozambique
19.49%
52.67%
45.77%
99.54%
Nigeria
4.17%
10.88%
9.41%
19.97%
Pakistan
0.69%
7.58%
4.54%
29.02%
Saudi Arabia
-
-
0.35%
0.70%
Tajikistan
0.56%
4.71%
9.11%
19.30%
Tunisia
0.02%
0.16%
0.27%
0.76%
Turkey
0.00%
0.03%
0.06%
0.17%
Source: Author’s Computations (2016)
In Table 4, we show the zakat
estimation for the individual years during
the period between 2008 and 13. It can be
seen that the estimates have little variance
over the years. Hence, the institution of
zakat can provide a stable source of public
revenue that can be spent on public welfare
directly by transfer of monetary and non-
monetary assets along with the provision of
health and educational services mediated by
welfare institutions from the zakat fund.
Since the institution of zakat only collects
zakat from the people who hold at least a
prescribed amount of wealth, it ensures that
the zakat payers are richer than the Zakat
recipients. This ensures socio-economic
mobility and contributes towards egalitarian
income distribution.
In our estimation, we assumed that
only people in the top income quintile are
asked to pay zakat. The actual number of
people eligible for zakat payment may be
even more, particularly in the middle-
income countries and emerging economies
of South Asia. Since the nisaab value is
equivalent to the value of 612 grams of
silver, the people who come out of poverty
can eventually become zakat payers after
having been zakat recipients.
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 27
Table 4. Zakat to GDP Ratio during 2008-2013
Country
2008
2009
2010
2011
2012
2013
Albania
2.51%
2.46%
2.58%
2.57%
2.62%
2.60%
Azerbaijan
7.57%
5.92%
6.13%
5.86%
5.41%
5.83%
Bangladesh
3.48%
3.06%
3.01%
2.91%
2.83%
2.76%
Egypt
5.34%
4.02%
3.85%
3.99%
3.72%
3.69%
Indonesia
4.66%
4.03%
3.82%
3.69%
3.52%
3.53%
Jordon
5.84%
5.01%
4.79%
4.67%
4.50%
4.30%
Kazakhstan
3.62%
3.05%
2.97%
2.95%
2.72%
2.69%
Kyrgyz Republic
2.98%
3.02%
3.28%
3.12%
3.20%
3.13%
Malaysia
6.05%
5.99%
5.28%
4.85%
4.65%
4.59%
Morocco
5.61%
4.92%
5.02%
5.10%
5.16%
5.01%
Mozambique
1.21%
1.07%
1.12%
1.03%
0.98%
0.97%
Nigeria
1.80%
3.01%
2.30%
2.39%
2.22%
2.20%
Pakistan
3.06%
2.68%
2.68%
2.64%
2.59%
2.54%
Saudi Arabia
10.58%
8.81%
8.53%
8.85%
8.48%
8.45%
Tajikistan
2.39%
2.37%
2.44%
2.37%
2.36%
2.36%
Tunisia
4.20%
3.59%
3.66%
3.77%
3.77%
3.73%
Turkey
3.48%
3.80%
3.53%
3.55%
3.49%
3.42%
Source: Author’s Computations (2016)
In Table 5, we present the correlation
between zakat to GDP ratio and GDP
growth rate for the 6 year period between
2008 and 13. It can be seen that the absolute
value of the correlation coefficient is more
than 0.7 in only 3 of 17 countries. It is more
than 0.8 in only 2 out of 17 countries. In 10
out of the 17 countries, the correlation is
negative, which indicates the countercyclical
stabilization potential of the institution of
zakat.
Table 5. Correlation between ZGDP & GDP Growth during 2008-13
Country
Correlation Between GDP Growth & ZGDP
Albania
-0.58093
Azerbaijan
0.686503
Bangladesh
-0.25932
Egypt
0.785502
Indonesia
-0.22489
Jordon
0.895576
Kazakhstan
-0.42568
28 International Journal of Zakat 1(1) 2016
Kyrgyz Republic
-0.59264
Malaysia
-0.52276
Morocco
0.40042
Mozambique
-0.80824
Nigeria
0.241723
Pakistan
-0.71059
Saudi Arabia
0.436444
Tajikistan
-0.03663
Tunisia
0.301337
Turkey
-0.57057
Source: Author’s Computations (2016)
Next, we examine how long it will
take to fund the poverty gap through the
institution of zakat. The time is represented
as the number of years for each of the four
poverty measures that we have used in the
study. We have assumed that the zakat
recipients do not become zakat payers
immediately; otherwise, the speed of
reaching the target will increase as social
mobility sets in. Table 6 presents the results
of this analysis.
Table 6. Years Required to Fund Poverty with Potential Zakat Collection for 2013
Country
ZGDP
PGI-GDP ($1.25)
PGI-GDP ($2.00)
PHCR-GDP ($1.25)
PHCR-GDP ($2.00)
Albania
2.60%
0.00
0.04
0.02
0.18
Azerbaijan
5.83%
0.00
0.01
0.00
0.02
Bangladesh
2.76%
1.93
8.38
7.47
21.12
Egypt
3.69%
0.01
0.17
0.06
0.92
Indonesia
3.53%
0.10
0.78
0.60
2.58
Jordon
4.30%
0.00
0.01
0.00
0.04
Kazakhstan
2.69%
0.00
0.00
0.00
0.01
Kyrgyz Republic
3.13%
0.14
0.98
0.59
3.89
Malaysia
4.59%
0.00
0.03
0.00
0.00
Morocco
5.01%
0.02
0.15
0.08
0.66
Mozambique
0.97%
20.09
54.29
47.19
102.62
Nigeria
2.20%
1.89
4.94
4.28
9.08
Pakistan
2.54%
0.27
2.99
1.79
11.43
Saudi Arabia
8.45%
0.00
0.00
0.04
0.08
Tajikistan
2.36%
0.24
2.00
3.86
8.18
Tunisia
3.73%
0.01
0.04
0.07
0.20
Turkey
3.42%
0.00
0.01
0.02
0.05
Source: Author’s Computations (2016)
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 29
In Table 7, we present the number of
people that can be lifted out of poverty with
the realization of potential collectible zakat.
The second and third columns show how
much poor people can be lifted out of
poverty in terms of the multiple or fraction
of the total poor people with poverty line
defined at $1.25 and $2.00 a day. It can be
seen that in most countries, the value is
greater than 1, which suggests that if the
potential zakat collectible is indeed collected
by the government and disbursed through
direct transfers, these poor people can be
helped adequately. However, it is necessary
that poor people are provided with this
transfer payment for the necessary duration
so that they can survive as well as
permanently move on to the status of non-
poor. In this regard, the educational and
health institutions of the public sector need
to provide effective and affordable services
with state of the art quality so that the
income earning capacity of these poor
people can be enhanced, along with ensuring
their survival and meeting the basic
physiological needs of life.
Table 7. People Lifted Out of Poverty from Potential Zakat Collection for 2013
Country
People Lifted Out of
Poverty (No.)
Multiple of Total Poor
($1.25/Day)
Multiple of Total Poor
($2.00/Day)
Albania
735,046
53.00
21.52
Azerbaijan
8,669,335
306.88
129.95
Bangladesh
9,082,150
0.13
0.00
Egypt
22,000,113
15.77
1.08
Indonesia
67,120,324
1.66
0.04
Jordon
3,171,523
491.02
414.16
Kazakhstan
13,658,865
801.69
1,776.80
Kyrgyz
Republic
495,829
1.70
0.09
Malaysia
31,492,916
211.95
150.09
Morocco
11,401,599
13.29
0.94
Mozambique
333,727
0.02
0.00
Nigeria
25,118,087
0.23
0.01
Pakistan
12,921,233
0.56
0.01
Saudi Arabia
138,644,438
24.05
19.24
Tajikistan
440,016
0.26
0.01
Tunisia
3,844,006
88,981,612.33
314.37
Turkey
61,680,905
58.80
22.94
Source: Author’s Computations (2016)
Lastly, we show whether the OIC
countries we had selected in our sample
collectively have enough resources to
overcome poverty from the realization of
potential zakat collectible. It can be seen
from the table that on most counts of
poverty, the aggregate resources pooled
together from the potential zakat collection
30 International Journal of Zakat 1(1) 2016
will be sufficient to fund resources for
poverty alleviation. Hence, it is important
that OIC to collaborate with member
countries and transfer necessary resources
from the zakat surplus regions to the zakat
deficit regions.
Table 8. People Lifted Out of Poverty from Potential Zakat Collection for 2013
Country
Potential Zakat
Collectible
(mln $)
PGI ($1.25
Per Day)
PGI ($2 Per
Day)
PHCR ($1.25
Per Day)
PHCR ($2
Per Day)
Albania
335
1
12
6
61
Azerbaijan
3,955
5
37
13
103
Bangladesh
4,144
7,981
34,694
30,936
87,450
Egypt
10,038
139
1,695
636
9,225
Indonesia
30,624
3,055
23,785
18,468
78,980
Jordon
1,447
1
8
3
57
Kazakhstan
6,232
1
15
8
62
Kyrgyz Republic
226
31
222
133
881
Malaysia
14,369
68
499
68
499
Morocco
5,202
83
773
392
3,422
Mozambique
152
3,046
8,232
7,154
15,558
Nigeria
11,460
21,752
56,766
49,111
104,180
Pakistan
5,895
1,612
17,618
10,554
67,413
Saudi Arabia
63,257
2,631
5,261
2,631
5,261
Tajikistan
201
48
401
775
1,642
Tunisia
1,754
10
76
129
358
Turkey
28,142
17
241
479
1,422
Total
187,432
40,478
150,336
121,497
376,573
Surplus/Shortfall
146,954
37,096
65,935
-
189,141
Source: Author’s Computations (2016)
In Table 9, we provide a numerical
example of wealth redistribution under the
zakat system. Suppose, we have an interest-
free economy that comprises 10 rich people,
each having wealth of $1,010. We also
assume that there are 50 poor people, each
having wealth of $2. Let us suppose that the
nisaab amount in this interest-free economy
is $10. Column 2 shows the aggregate
wealth of the rich people. Column 3 shows
the wealth transferred from the rich to the
poor during each year. Column 4 shows the
aggregate wealth of poor people after wealth
transfer. For simplicity, we suppose perfect
wealth equality between the people in each
group. For the sake of highlighting the effect
of wealth redistribution of wealth transfers,
we assume that income is generated
randomly in this interest-free economy, with
no interest-based lending allowed.
Furthermore, we assume that income earned
is consumed in that period to enable us to
focus our attention on the wealth
redistribution effects of zakat in an interest-
free economy. Column 5 shows the wealth
multiple in each year for the two groups.
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 31
Table 9. Numerical Simulation of Wealth Redistribution under the Zakat System
Year
WR
Wealth Transfer (R
to P)
WP
WR to WP
Multiple
WR to WP Multiple
Per Person
0
10,100.00
100.00
101.00
505.00
1
9,850.00
250.00
350.00
28.14
140.71
2
9,606.25
243.75
593.75
16.18
80.89
3
9,368.59
237.66
831.41
11.27
56.34
4
9,136.88
231.71
1,063.12
8.59
42.97
5
8,910.96
225.92
1,289.04
6.91
34.56
6
8,690.68
220.27
1,509.32
5.76
28.79
7
8,475.92
214.77
1,724.08
4.92
24.58
8
8,266.52
209.40
1,933.48
4.28
21.38
9
8,062.36
204.16
2,137.64
3.77
18.86
10
7,863.30
199.06
2,336.70
3.37
16.83
11
7,669.21
194.08
2,530.79
3.03
15.15
12
7,479.98
189.23
2,720.02
2.75
13.75
13
7,295.48
184.50
2,904.52
2.51
12.56
14
7,115.60
179.89
3,084.40
2.31
11.53
15
6,940.21
175.39
3,259.79
2.13
10.65
16
6,769.20
171.01
3,430.80
1.97
9.87
17
6,602.47
166.73
3,597.53
1.84
9.18
18
6,439.91
162.56
3,760.09
1.71
8.56
19
6,281.41
158.50
3,918.59
1.60
8.01
20
6,126.88
154.54
4,073.12
1.50
7.52
21
5,976.20
150.67
4,223.80
1.41
7.07
22
5,829.30
146.91
4,370.70
1.33
6.67
23
5,686.07
143.23
4,513.93
1.26
6.30
24
5,546.42
139.65
4,653.58
1.19
5.96
25
5,410.26
136.16
4,789.74
1.13
5.65
26
5,277.50
132.76
4,922.50
1.07
5.36
27
5,148.06
129.44
5,051.94
1.02
5.10
Source: Author’s Computations (2016)
It can be seen that after around 27
years, the wealth multiple will drastically
decrease from 101 to almost 1, for the two
groups as a whole. Column 6 shows the
wealth multiple per person. It can be seen
that wealth multiple will become only 5
32 International Journal of Zakat 1(1) 2016
after 27 years from the initial value of 505.
Eventually, the wealth recipients will
become ineligible for zakat receipts, and on
the contrary, they will become part of the
zakat payer group. It can be seen from
Figure 1 that the wealth multiple as a group
and on per person basis declines as time
passes. Wealth transfer is greater when there
is relatively higher inequality and declines
as inequality reduces in the economy.
Source: Author (2016)
Figure 1. Wealth Inequality and Zakat (Result of Numerical Simulation)
CONCLUSION
In this study, we found that zakat to GDP
ratio exceeds the PGI-GDP ratio in 14 of the
17 enrolled countries with poverty line
defined at earnings of $1.25 a day. Only in
Bangladesh, Mozambique, and Nigeria, the
zakat to GDP ratio was less than the PGI-
GDP ratio, with the poverty line defined at
$1.25 a day. We also discovered that the
zakat to GDP ratio exceeds the PGI-GDP
ratio in 13 of the 17 countries when the
poverty line was defined at $2.00 a day.
Only in Bangladesh, Mozambique, Nigeria,
and Pakistan, the zakat to GDP ratio was
less than the PGI-GDP ratio, with the
poverty line defined at $2.00 a day. Our
empirical analysis also showed that the zakat
to GDP ratio exceeds the PHCR-GDP ratio
in 12 of the 17 countries, with the poverty
line defined at $1.25 a day. The countries in
which zakat to GDP ratio was less than
PHCR-GDP ratio with poverty line defined
at $2.00 a day were Bangladesh,
Mozambique, Nigeria, Pakistan, and
Tajikistan. We also found that the zakat to
GDP ratio exceeds the PHCR-GDP ratio in
10 of the 17 countries with poverty line
defined at $2.00 a day. The countries in
which the zakat to GDP ratio was less than
the PHCR-GDP ratio, with poverty line
defined at $2.00 a day, included Bangladesh,
Indonesia, Kyrgyz Republic, Mozambique,
Nigeria, Pakistan, and Tajikistan. Hence, we
conclude that the institution of zakat has
ample potential to contribute towards
poverty alleviation. Our analysis also
revealed that the aggregate resources pooled
Zakat Collectible in OIC Countries for Poverty Alleviation: A Primer on Empirical Estimation 33
together from the potential zakat collection
in 17 OIC countries will be sufficient to
fund resources for poverty alleviation. Thus,
OIC can collaborate with other member
countries to transfer necessary resources
from regions with zakat surplus to the
regions that have zakat.
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Salman Ahmed Shaikh
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Malaysia
salman@siswa.ukm.edu.my
... Meanwhile, in Bangladesh, based on table 4.8, zakat has a negative and insignificant effect with coefficient value = -2.10 and prob = 0.89 > 0.05. The results of this study are supported by research by Shaikh, who says that the greater the zakat fund, the greater its contribution to increasing the level of economic growth (Salman, 2016). ...
... Based on table 2, it is known that Zakat has a significant effect on economic growth, meaning that the greater the contribution of zakat funds in increasing economic growth, the greater the contribution. As research to Salman (2016), says zakat has a significant effect on economic growth. On the other hand, zakat is influenced by other variables, namely unemployment, and poverty, where the results show that unemployment has a significant effect on zakat with a coefficient of 1.41 and prob = 0.004, meaning that if unemployment increases by one unit, zakat will increase by 1.41 units. ...
... Based on table 2, it is known that Zakat has a significant effect on economic growth, meaning that the greater the zakat funds, the more economic growth increases. As research by Salman (2016), where the results of his research show that zakat has a significant effect on economic growth. On the other hand, zakat is influenced by other variables, namely poverty, and unemployment, where the unemployment variable has no significant effect on economic growth either directly or through the zakat variable, where the poverty coefficient on economic growth = -0.898, ...
Article
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This study aims to analyze the effect of zakat funds and macroeconomic variables on economic development in Indonesia and Bangladesh for the 2010-2019 period. This study uses secondary data with a time series data model of zakat funds, macroeconomic variables consisting of taxes, unemployment, economic growth (GDP), poverty, and the human development index (HDI) from both countries. Furthermore, the data were tested using multiple linear regression models and simultaneous model tests, to obtain test results and complex analysis of the effects of exogenous and endogenous variables on the economic development of the two countries, with the help of the EVIEWS application version 9. The results showed that zakat funds had an effect on positive and significant effect on economic growth in both countries, taxes have a negative and insignificant effect on economic growth in both countries, poverty has a positive and insignificant effect in Indonesia, and insignificant negative in Bangladesh. While the results of the influence of the simultaneous model include; there is a simultaneous effect of zakat, unemployment, and poverty on economic growth in Indonesia and Bangladesh. There is no simultaneous effect between the variables of tax, unemployment, and poverty on economic growth, and there is a simultaneous effect between the variables of the human development index (HDI), poverty, and unemployment on economic growth in Indonesia and Bangladesh.
... Some researchers have suggested integrating various mechanisms for poverty reduction and redistributing wealth in order to create synergies. Collaboration with microfinance and financial organizations could enhance the effectiveness of zakat organizations, implying a need to incorporate zakat and waqf entities into poverty alleviation strategies of member countries such as Kazakhstan within the Islamic Development Bank (Kahf, 2013;Ahmed Shaikh, 2016). The IDB reports that while zakat has a potential 3 % share of global GDP, its actual collection is only 0.15 % for OIC countries (Obaidullah & Shirazi, 2015). ...
... Notecompiled by the authors on a basis of (Shaikh, 2016) ...
Article
Object: The rise of Islamic finance, which involves financial instruments operating within the ethical and shariah principles framework and adopted by financial institutions, gains momentum in main global markets. This trend is driv en by a new global reality where long-term development cannot occur without addressing deepening social contradic tions and ethical norms and Islamic finance’s sustainable approach plays vital role. This article aims to assess the Islam ic finance social impact and evaluate the covering resource shortfall and poverty reduction through social tools. Methods: The methodology of the research is based on the empirical methods and examination of the correlation between the country's potential Islamic financial assets, the estimated zakat collection and the coverage of resource shortage. Findings: The findings have practical implications for the country's socio-economic development. The authors have empirically assessed the resources Kazakhstan requires to cover poverty in the share of the gross domestic prod uct, and the resource gap for poverty reduction. Furthermore, the authors have evaluated the potential zakat collection of the country. Conclusions: It is suggested that the potential zakat collection can impact the poverty reduction process and ad dress deepening poverty indicators within the country. The zakat institution possesses the capacity to provide support to the impoverished population and potentially reduce government expenditure required to enhance the socially vulnerable population welfare.
... Some researchers have suggested integrating various mechanisms for poverty reduction and redistributing wealth in order to create synergies. Collaboration with microfinance and financial organizations could enhance the effectiveness of zakat organizations, implying a need to incorporate zakat and waqf entities into poverty alleviation strategies of member countries such as Kazakhstan within the Islamic Development Bank (Kahf, 2013;Ahmed Shaikh, 2016). The IDB reports that while zakat has a potential 3 % share of global GDP, its actual collection is only 0.15 % for OIC countries (Obaidullah & Shirazi, 2015). ...
... Notecompiled by the authors on a basis of (Shaikh, 2016) ...
Article
Object: The rise of Islamic finance, which involves financial instruments operating within the ethical and shariah principles framework and adopted by financial institutions, gains momentum in main global markets. This trend is driv en by a new global reality where long-term development cannot occur without addressing deepening social contradic tions and ethical norms and Islamic finance’s sustainable approach plays vital role. This article aims to assess the Islam ic finance social impact and evaluate the covering resource shortfall and poverty reduction through social tools. Methods: The methodology of the research is based on the empirical methods and examination of the correlation between the country's potential Islamic financial assets, the estimated zakat collection and the coverage of resource shortage. Findings: The findings have practical implications for the country's socio-economic development. The authors have empirically assessed the resources Kazakhstan requires to cover poverty in the share of the gross domestic prod uct, and the resource gap for poverty reduction. Furthermore, the authors have evaluated the potential zakat collection of the country. Conclusions: It is suggested that the potential zakat collection can impact the poverty reduction process and ad dress deepening poverty indicators within the country. The zakat institution possesses the capacity to provide support to the impoverished population and potentially reduce government expenditure required to enhance the socially vulnerable population welfare.
... The research revealed that half of the global poverty is concentrated in countries that are members of the Organization of Islamic Cooperation (OIC), even though the Muslim population only accounts for 24% of the total global population. Most of the poor are located in Asia and Africa, with a smaller portion in other continents (Ahmed Shaikh, 2016). ...
... Research by Samputra and Munandar (2019) shows that while there is a relationship between ZIS and poverty levels, not all independent variables have a significant impact. Unemployment is a dominant factor affecting poverty levels, while ZIS serves as one instrument to support poverty reduction (Ahmed Shaikh, 2016). ...
Article
The aim of this research is to analyze the impact of Zakat, Infak, and Shadaqah (ZIS) on the macroeconomy (poverty, unemployment, HDI, Gini ratio, and GDP) in Indonesia and to evaluate the effectiveness of BAZNAS's management of ZIS in reducing poverty and enhancing community welfare. Data from 29 provinces in Indonesia were analyzed using a combination of econometric models, including Fixed Effect Models (FEM) and Random Effect Models (REM), to account for both time-invariant and time-varying factors. The research also employed regression analysis to determine the impact of ZIS on various economic and social variables. The results show that ZIS has a significant impact on various economic and social aspects. ZIS can explain 99.8% of GDP variability, indicating a substantial contribution to economic growth. Additionally, ZIS significantly impacts unemployment (11.6%), poverty (4.3%), and income inequality (96.6%). Finally, ZIS shows a very strong positive impact on the Human Development Index (HDI) with an adjusted R-squared of 98.7%. However, the results also indicate that other factors influence unemployment and poverty, requiring additional approaches to address these issues. Overall, ZIS can be an effective strategy for improving community welfare and reducing social inequality.
... Some researchers have suggested integrating various mechanisms for poverty reduction and redistributing wealth in order to create synergies. Collaboration with microfinance and financial organizations could enhance the effectiveness of zakat organizations, implying a need to incorporate zakat and waqf entities into poverty alleviation strategies of member countries such as Kazakhstan within the Islamic Development Bank (Kahf, 2013) (Ahmed Shaikh, 2016). The IDB reports that while zakat has a potential 3 % share of global GDP, its actual collection is only 0.15 % for OIC countries (Obaidullah & Shirazi, 2015). ...
... The estimating the potential zakat collection and effects on reducing poverty within the country is given in (Figure 2) by Shaikh. Notemade up by authors on a basis of (Shaikh, 2016) Potential Zakat assessment has been adjusted for the indicators pertaining to actual data as the percentage of GDP. Firstly, we opted to modify the approach employed by Shirazi et al. in computing the potential zakat, which involved removing the non-Muslims and impoverished from the assessment but also adjusting for the population who are economically active as the total population share involved in productive activities. ...
Article
Object: The rise of Islamic finance, which involves financial instruments operating within the ethical and shariah principles framework and adopted by financial institutions, gains momentum in main global markets. This trend is driv en by a new global reality where long-term development cannot occur without addressing deepening social contradic tions and ethical norms and Islamic finance’s sustainable approach plays vital role. This article aims to assess the Islam ic finance social impact and evaluate the covering resource shortfall and poverty reduction through social tools. Methods: The methodology of the research is based on the empirical methods and examination of the correlation between the country's potential Islamic financial assets, the estimated zakat collection and the coverage of resource shortage. Findings: The findings have practical implications for the country's socio-economic development. The authors have empirically assessed the resources Kazakhstan requires to cover poverty in the share of the gross domestic prod uct, and the resource gap for poverty reduction. Furthermore, the authors have evaluated the potential zakat collection of the country. Conclusions: It is suggested that the potential zakat collection can impact the poverty reduction process and ad dress deepening poverty indicators within the country. The zakat institution possesses the capacity to provide support to the impoverished population and potentially reduce government expenditure required to enhance the socially vulnerable population welfare.
... Several studies discuss the relationship of Islamic finance to the SDGs. Such as research conducted by Ahmed, (2004), Yumna & Clarke, (2009) Mohsin, (2013, Hoque et al., (2015), Ahmed et al., (2015), Ambrose et al., (2015), Jaelani, (2016), Shaikh, (2016), Gundogdu, (2018, Meerangani, (2019) Usman & Rahman, (2020), and Bilo & Machado, (2020). Almost all of them reveal that SDGs are in line with the philosophy of Islamic finance so that SDGs can be achieved with Islamic finance as a financial alternative (Abduh, 2019). ...
Article
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Islamic social finance instruments can be adopted to restore and achieve a healthy life and promote welfare after COVID-19, integrated with SDGs number three. As Islamic social finance instruments, Zakat, Infaq, Sadaqah, and Waqf play a significant role in solving marginalization and vulnerability that focus on local programs, thus impacting social and economic inclusion. Using a literature review approach, the objective of this paper is to examine the role of Islamic social finance instruments as alternative funding to achieve Sustainable Development Goals (SDGs) number three, "Good Health and Well-being," which is also in line with the recovery of COVID-19 in the healthcare sector. The results of this study indicate that Islamic Social Finance can solve the problem of economic funding due to the COVID-19 pandemic. In the short term, building and repairing primary health facilities, providing affordable health services, and providing access to health insurance for people experiencing poverty are actions that need to be realized immediately. As for the medium term, post-COVID-19, mental recovery and consultation efforts must be intensified. Investments in technology for telemedicine or telemedicine facilities and reforms in the post-pandemic COVID-19 health sector must be addressed and pursued. Based on current findings, this study recommends a synergy for all countries to jointly achieve the SDG number three target while restoring global socio-economic conditions post-COVID-19.
... Such countries include Benin (24%), Cameroon (20%), Gabon (10%), Guyana (7.2%), Ivory Coast (38%), Mozambique (17%), Suriname (19%), Togo (20%), and Uganda (12%). Considering that these countries are generally characterised as economically disadvantaged, with an average poverty line of $2.00 per day, exploring zakat research in these regions could be instrumental in boosting their economies and addressing poverty issues (Shaikh, 2016). ...
Article
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Research on zakat has captured the attention of scholars since 1981, exhibiting an increasing trend in publications and citations. This trend presents an opportunity for the author to delve into zakat research. The primary aim of this study is to dissect 10 years of zakat research, spanning from 2013 to 2022, with a focus on evaluating past achievements, current research patterns, and potential future research directions. Utilising bibliometric analysis as the primary tool, this study has formulated seven research questions derived from the primary objective. Key findings indicate a consistent upward trajectory in both publication and citation rates over the past decade, with 2013 being a pivotal year. Notably, Malaysia, Indonesia, and Saudi Arabia emerged as the top three countries actively contributing to zakat research during this period. This study further outlines eight contemporary research trends, exploring various facets of zakat over the past decade. Additionally, this study identifies four prospective areas in zakat for future scholars to explore. This study’s outcomes offer three significant contributions: 1) signalling to scholars that zakat research continues to burgeon; 2) providing inspiration and ideas for current scholars; and 3) motivating future scholars to embark on research ventures in untapped areas within the realm of zakat.
... The study was conducted on the basis of Malaysian society. The empirical study by Shaikh (2016), argues that OIC member countries could employ the distribution of zakat and Sadaqah to eradicate poverty despite the fact that different countries have varied policies and tactics to undertake it. Additionally, the findings demonstrate that very modest amounts of resources are needed to reduce poverty in Muslim countries. ...
Article
Full-text available
This article investigates the history of the institutionalization of Zakat management in Bangladesh and presents an example from the Centre for Zakat Management (CZM). The primary objective of this piece is to shed light on the significant measures that have been implemented by the Centre for Zakat Management (CZM) to enhance the way that Zakat is administered in Bangladesh. It investigates the creation of a comprehensive database to identify and assist those who are entitled to receive zakat, the development of innovative means for collecting zakat, and the execution of zakat-based livelihood, microfinance, and other one-of-a-kind programs to empower the disadvantaged. The efforts that the Central Zakat Commission (CZM) has undertaken to educate people and raise knowledge about zakat are also evaluated in this study. In addition, this study sheds light on the challenges that were faced in the process of institutionalizing the administration of Zakat in Bangladesh, such as guaranteeing equal distribution, decreasing administrative inefficiencies, and overcoming social misunderstandings regarding Zakat. In addition to this, it analyses the function that should be played by the government, religious academics, and organizations of civil society in the process of developing the Zakat management. In general, the example of Bangladesh is a rich source of information on Zakat's development, institutionalization, and administration. The Centre for Zakat Management example highlights the need for specialized institutions to guarantee proper collection, distribution, and utilization of Zakat money, which eventually contributes to reducing poverty and advancing socioeconomic conditions of the country.
... The OIC member countries have developed varying models, policies, loan programmes and plans for financing agriculture. Among these are the Community Direct Loan Assistance scheme in Indonesia (Kutsiyah, 2020), the People's Business Credit scheme in Indonesia (Wahyuni & Sara, 2020), and the Rural Agribusiness Development programme in 17 selected member countries of the OIC (Rashid & Razak, 2016;Shaikh, 2016). There are also some common trends and practices in financing agriculture in OIC countries. ...
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Purpose — This study aims to discuss several examples of temporary Islamic endowments (waqfs) in the modern period, arguing that jurists and Muslim endowment managers should utilise them more widely to adjust to current societal circumstances and open the door for new ways of caring for those in need. Design/Methodology/Approach — It employed textual analysis of legal opinions related to temporary waqfs, outlining the positions of scholars on both sides of the issue, including a presentation and analysis of their evidence. Findings — The research findings show that temporary waqfs are an essential means of renewable and sustainable economic support, where wealthy people endow their money for religious gain and to help others in need. Originality/Value — Unlike some previous studies, this article specifically examines modern and contemporary forms of temporary endowments and demonstrates some of their effects in supporting the economy and the needy in society. Practical Implications — Following this paper’s recommendations, those with funds and everyone who can create an endowment should support endowment institutions in modern ways and in different areas of temporary endowments, which would be very beneficial in eliminating poverty and supporting the economy. Research Limitations/Implications — Due to the limited scope of the study, its findings are limited to contemporary jurisprudential issues related to temporary endowments. Hence, it is related to the Islamic economy and steps for strengthening it in Muslim societies.
Chapter
Blockchain technology, including public ledgers and decentralized identities (DIDs), can ensure zakat reaches the rightful recipients while preserving their privacy. In Singapore, the shift to digital cash waqf results in a greater need for transparency and accountability through blockchain and smart contracts to ensure the proper use of waqf funds. For businesses, blockchain can reduce the issuance costs of micro sukuk, enabling micro, small, and medium enterprises (MSMEs) and small and medium enterprises (SMEs) in Malaysia and Singapore to raise funds. Blockchain also has much to offer to address the operational issues in Islamic financial institutions (IFIs), such as the technical Shariah non-compliance of foreign exchange (FX) spot. For murabaha transactions, smart contracts can address the current imbalance where IFIs provide guarantees without charging fees. Blockchain could also help manage IFIs’ liquidity risks through decentralized liquidity saving mechanisms (LSMs) particularly when combined with using cryptocurrencies such as stablecoins as Shariah-compliant alternatives to fiat currency.
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Poverty is a curse at individual as well as community level. It is a threat to humanity at whatever level it exists. All the societies of the world have made efforts to address this challenge. Islam being the religion of all times has also presented a comprehensive system to alleviate this curse. The present study explores the application of some of these measures in collective way and brought into consideration the Zakat system exercised in Pakistan since 1980. This is hypothesised that weather Zakat disbursement along with other Islamic measures has proved to bail out the poor from poverty. Descriptive as well as empirical appraisal of the existing system showed that the Zakat disbursement among the poor, needy, destitute, orphans and widows has played a significant role in poverty alleviation. The ARDL approach to cointegration is used to evaluate the short run and long run impact of Zakat disbursement along with the other exogenous variables on poverty. The results of the study show that there is an inverse relationship between poverty and Zakat disbursement both in the short run and long run. The study also investigated the certain flaws in the system operated in Pakistan and suggested the remedies.
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This paper is the extended and updated version of Shirazi (2006), which covers 38 OIC-member countries. The paper estimates the resource required and potential zakat collection for poverty elimination. The paper employed the poverty gap index based on US 1.25adayandUS 1.25 a day and US 2.0 a day estimated by the World Bank (2009). Zakat potential has been estimated by employing Kahf (1989) method of estimation with some modifications. The paper finds that half of the sample countries not only meet their resource shortfall by potential zakat collection but also generate surplus funds which are sufficient for the resource deficit countries. The paper suggests pooling of zakat funds from the zakat surplus countries and providing for the resource deficit countries to eliminate the poverty. Keywords: Poverty Alleviation, Resource Shortfall, Zakat Collection. OICMember Countries
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Isu bocoran bayaran zakat sering diperbahaskan. Sesetengah individu didapati lebih gemar membayar zakat terus kepada asnaf berbanding membayarnya kepada institusi formal sebagai amil yang dilantik. Malah terdapat individu yang membayar zakat di luar kawasan permaustatin mereka. Keadaan ini tentunya menjejaskan koleksi zakat dan seterusnya memberi kesan kepada keberkesanan agihan. Walaupun kewujudan institusi formal seperti Pusat Pungutan Zakat (PPZ) dan Pusat Zakat Selangor (PZS) dapat memperbaiki pengurusan zakat dari segi kutipan dan agihan, namun gejala ini tetap berlaku. Soalnya mengapa ia terus berlaku dun apakah faktor yang mendorong individu untuk terus berbuat demikian. Sehubungan itu, kajian ini akan meneliti apakah faktor yang dapat mendorong ketaatan individu untuk membayar zakat kepada institusi formal agar dengannya dapat mengurangkan bocoran dun menaikkan jumlah kutipan. Kajian dilakukan berdasarkan data primer dan dianalisis menggunakan kaedah diskriptif dan model logit. Keputusan kajian mendapati rasa puas hati individu terhadap pengurusan institusi formal adalah antara faktor terpenting menentukan kepatuhan bayaran kepada institusi formal. Oleh itu, untuk menarik lebih ramai individu kepada institusi formal maka institusi formal perlu terlebih dahulu meningkatkan kepuasan individu pembayar zakat. Di antara cara yang boleh dilakukan ialah memperbaiki prestasi, sentiasa menjaga nama baik, lebih telus dan menambah agihan yang bersifat produktif.
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In Islam, poverty is defined based on an individual failure to fulfil any of the five basic human requirements of life that is based on Maqasid Syariah: i) religion, ii) physical self, iii) knowledge, iv) dignity, and v) wealth. Consistent with the brotherhood concept in Islam, Muslims were strongly encouraged to look after the poor in their community. Thus, in 9AH, the obligation to pay zakat on wealth was received by the Prophet Muhammad (pbuh). History proves that zakat is an effective tool to alleviate poverty as during the period of Umar bin Al Khattab and Umar bin Abdul Aziz poverty is completely eliminated. However, with the fall of Islamic Empire and the increasing European influence during the colonialism period, Zakat Institutions have lost their glory. Therefore, the objective of this paper is to provide a conceptual study on the roles of zakat in alleviating poverty especially in Malaysia by examining both theory and practical aspects. It is also suggested that the effectiveness of Zakat Institutions may improve by collaborating with other institutions such as Microfinance Institutions.
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This paper estimates the impact of Zakat funds on the annual development plan of Bangladesh. While the Government of Bangladesh has been very keen on alleviating poverty, it has never looked at the institution of Zakat as a national strategy for poverty alleviation. We have shown that Zakat funds can replace government budgetary expenditures in amounts ranging from 21 percent of Annual Development Plan (ADP) in 1983/1984 to 43 percent of ADP in 2004/2005. This amounts to TK.30683 million in 1983/1984 to TK. 220000 million in 2004/2005. The government can utilize this money for other developmental or social expenditures. Zakat funds can increase the taxation potential of the government through the improvement of productivity, employment and output. The Poverty Reduction Strategy Paper (PRSP), on the other hand, is a lucrative issue as the governments of Least Developed Countries (LDCs) or Highly Indebted Poor Countries (HIPCs) are due to get more funds from the Aid Clubs that ultimately increase the dependence of our economy on the externally driven prescriptions. Though Bangladesh currently falls in the category of LDC, the country's increasing external debt burden may move it to an HIPC classification. The Domar Debt Model shows that the dynamic debt burden is 5.4% of GDP. Individuals behind the PRSP have some pious hopes of eradicating poverty. Unfortunately, neither the government nor the International Monetary Fund/World Bank see the need to include Zakat as a poverty alleviating instrument.
Article
The year 1995 saw the publication of the proceedings of an international conference on zakat (alms) held five years earlier in Kuala Lumpur.1 The weighty volume's main theme is that today's zakat systems have a negligible impact on poverty alleviation-the very task they were expected to accomplish more effectively than secular redistribution systems. One contributor after another observes that even in countries where income redistribution has recently taken on an explicitly Islamic character, Muslims are by and large failing to live by Islam's only principal requirement that is squarely economic: the duty, incumbent on all adult Muslims except the poorest, to pay zakat on an annual basis.
Article
The main objective of this study is to determine the impact of zakat spending and school enrollment on economic growth using panel data represented by the fourteen states of Malaysia. Zakat is collected and disbursed to the eight groups of eligible recipients by each state in Malaysia. Malaysia also has been one of the developing countries that has given a special attention on education to provide the man-power and skills needed by the various sectors of the economy. As a result, there has been a large increase in the enrollment of students in both primary and secondary schools as well as in tertiary education. The results of this study support the hypothesis that zakat spending and school enrollment are important determinants of economic growth in Malaysia. The zakat spending and student enrollment could significantly explain the variation in the growth of real output represented by the growth in real GDP. Therefore, it is suggested that all Muslim countries must improve the efficiency of zakat collection and spend it prudently. A more serious effort has to be made to formulate better strategies, planning, and effective policy actions to provide the needed infrastructure and to increase the stock of human capital in accordance to the need of the nations to generate growth and sustain the development of Muslim society.