There is a growing realization among policymakers that Islamic philanthropy may have the potential to meet the ever-increasing financing gaps in the humanitarian and developmental sectors. Considering the humanitarian sector first, recent research points to a huge gap between demand and supply for humanitarian funds. As an interesting document “An Act of Faith – Humanitarian Financing and Zakat” points out, “the total funding requested from international donors within the United Nations (UN)-coordinated humanitarian appeals system more than doubled between 2011 and 2014. While international humanitarian funding has increased to record levels in response, the financing gap appears to be getting bigger. The proportion of appeal requirements met in 2014 was the lowest since 2001 (58%), and the volume of unmet requirements was the highest on record (US$7.5 billion).”
As the world moves to meet the Sustainable Development Goals (SDGs) over the next decade and half, it finds the financing requirements to be too large to be met through traditional funding tools alone. For example, a UNEP paper estimates the global investment required in water, agriculture, telecommunication, power, transport, buildings, industry, and forestry sectors to be around US$5-7 trillion annually to realize the aims of sustainable development.1 Increasingly, funds driven by Islamic philanthropy are being seen as among the multitude of untapped resources for this purpose.
Data on Islamic philanthropy in general, and zakat mobilized in Muslim societies in particular, do indicate a huge potential. Countries like Saudi Arabia, Malaysia, Sudan and Indonesia alone, for which actual official data is available; raised over US$4 billion, US$630 million, US$220 million and US$217 million, respectively during the latest year for which data is available. Some recent studies have variously placed the estimates of global zakat mobilized in the range of US$200 billion and US$1 trillion. Estimates vary, given that a very large percentage of zakat is paid at individual level making compilation of data extremely difficult.
A number of potential barriers need to be overcome, if the institution of zakat is to fully realize its humanitarian and development potential. These include Shari’a issues related to imparting direct ownership of zakat to the poor, possibility of zakat utilization for crisis-rid- den people who may be non-Muslims, the percentage of zakat that can be spent or invested in disaster preparedness, the percentage of zakat that can be spent as operational costs, the admissibility of inter-country and inter-regional transfer of zakat funds, etc.
Imparting Direct Ownership to the Poor
Zakat may be paid in cash or in kind. To ensure that zakat funds flow directly and only to a beneficiary deemed eligible by the Shari’a, jurists emphasize on the principle of tamleek. The principle implies imparting direct ownership of zakat funds to the eligible beneficiary with all the attendant rights of ownership. Thus, it rules out payment of zakat as a general contribution (to a welfare fund to cover its administrative overheads) and insists on ensuring actual flow of funds to the eligible individual beneficiaries.
Zakat to Projects/Institutions
Does the tamleek condition imply that zakat can only be paid to private individuals and not to projects or institutions? Zakat may be paid to institutional bodies taking care of the poor and the needy, such as in providing them with education and health services for in the form of medicine and food, clothing and school supplies on agency or wakalah basis. Utmost care must be taken to ensure that the benefits provided by such institutional bodies flow to the poor and not to the rich. As the Third Symposium of Zakat Contemporary Issues held in Kuwait (1992) resolved, zakat funds may be used to establish productive projects to be owned and managed by zakat recipients or their representatives as also to establish service projects such as building schools, hospitals, orphanages and libraries. However, the following conditions must be met:
Only zakat recipients should make use of these projects for free.
The projects are to be transferred to the ownership of zakat recipients and managed by the zakat institution or its representatives.
If the project is sold or liquidated, its price or revenues are considered as zakat money.
In the context of such developmental projects, some scholars take a sweeping position and disallow the use of zakat funds for creating any kind of physical infrastructure. According to the Advisory Council of BAZNAS – the apex zakat body of Indonesia, zakat “is only for human development. The use of zakat funds for building hospitals, schools, and other physical infrastructure is not allowed. They can be built from sources other than zakat, such as, infaq and sadaqah” (Article 4).
Zakat-funding of poverty alleviation projects is quite common in Sudan. The scholars carefully seek to address the related Shari’a concerns, especially relating to tam- leek by stipulating that the beneficiaries must become owners of these projects in a legal sense and therefore, possess all the rights related to ownership of the assets. The ownership of the projects should be “closed” and restricted to the beneficiaries of zakat only. Further, the projects that produce a good or service that are not in the nature of “necessities” should not be considered at all.
Another good example is the zakat-funded economic empowerment program (Mas- yarakat Mandiri) of Dompet Duafa and other non-profit organizations (NPOs) in Indonesia. The programme has a clear termination and exit strategy. It withdraws from the region and the programme comes to an end as soon as the community cadres are ready to take part in maintaining programme sustainability – financial and institutional. The programme also ensures that a community-based organization as a legal entity with adequate capacity to sustain cooperation with all stakeholders is in placed before its withdrawal. From a Shari’a perspective, this ensures that the tamleek condition of zakat is complied with, since the poor beneficiaries ultimately become the owners of the local organization in a collective sense with transfer of assets from the programme to the local organization.
Composite Funds
Most Islamic NPOs mobilize funds in multiple forms – zakat, sadaqah, cash waqf – and undertake and operate socially beneficial institutions, projects and activities. Even for pure zakat-collecting institutions that provide education, health and other services; it is practically difficult to restrict the services to the extremely poor and deny the same to the non-poor. A solution to this problem is to begin with a segregation of zakat funds from sadaqah and return-seeking investible funds. Zakat funds may be used to build and operate educational and health institutions with ownership of the institutions being vested exclusively with the poor. This would satisfy the tamleek condition.
Alternatively, if the investible and sadaqah funds are used to build and operate the institutions; then the poor and non-poor alike are charged for the services. At the same time, the poor are reimbursed the charges from the zakat funds. Either option would require meticulous accounting and monitoring of the flow of benefits and careful and independent assessment of the financial condition of the beneficiaries. The OIC Fiqh Academy deliberating on the permissibility of zakat collection and distribution by Islamic Solidarity Fund made some very useful observations in this regard. It resolved that:
It is not permissible to give zakat to the Islamic Solidarity Fund because this will prevent the original recipients mentioned in the Glorious Qur’an from obtaining their right. However, the Islamic Solidarity Fund could be an agent for individuals and organisations in giving out zakat according to the following conditions:
The conditions of legal authorization should be met whether by the Fund, individuals or organizations.
The Fund should allocate a special account for zakat money so that it will not be mixed with resources spent in other non-zakat channels such as public conveniences.
The Fund is not allowed to spend zakat money on administrative fees and employees’ salaries, which do not belong to zakat channels.
Those who pay zakat have the right to determine any of the eight channels for giving out their zakat money and the Fund should stick to their choice.
The Fund should distribute zakat money to its recipients as soon as possible within a year as a maximum.
Zakat as Unconditional Cash Transfers
Another interesting issue that needs to be resolved in the distribution of zakat concerns the type or form of assistance to the poor and the needy. Should zakat be paid in cash or kind? Should zakat be paid as conditional or unconditional cash transfers? Early Islamic scholars were inclined to insist on the unconditional nature of zakat payment (whether cash or kind) emphasizing the condition of tamleek or imparting ownership of the zakat contribution to the beneficiary. As the new owner of the contribution, the beneficiary would have every right to determine how she or he is going to use the money or the asset.
Recent Islamic scholars however, seemed to favor the channeling of zakat into developmental projects in education and healthcare at a societal level and relaxing the strict interpretation of tamleek. For example, a contemporary Islamic economist Shawki Ismail Shehata in a popular article published in Islamic Economic Studies (vol.1, No.2) writes: “Zakat may be given to institutional bodies, taking care of the poor and the needy, in providing the public utilities and services…any money spent on the education and medical treatment of the poor is deemed to have been spent on them and paid to them. Further, zakat may be paid in cash or in kind. Payment in kind includes the money spent for procuring tools and equipment and the like.”
In another work published by IRTI, Islamic economist Seif el-Din Tag el-Din dwells extensively on the concept of tamleek. Highlighting the limitations of physical capital goods transfer, he recommends the equities transfer alternative as a way to make the poor participate in and benefit from mega developmental projects.
It would be interesting to juxtapose the views of early and contemporary scholars against recent evidence in the conventional domain on cash transfers. Research studies on identifying the type of intervention that performs best in terms of impact on poverty involve a comparison between targeted services or conditional cash transfers and unconditional cash transfers. While many of the largest and best-known cash transfer schemes attach conditions to the money beneficiaries receive (e.g. cash is paid on the condition that children go to school and get vaccinated), some recent interventions have experimented with unconditional cash transfers.
The one that has caught the attention of the policymakers is “Give Directly”, a California-based NPO that uses mobile money technology to transfer cash directly from donors to some of East Africa’s poorest people. In an MIT study to evaluate the impact of UCTs, Haushofery and Shapiro (2013) found that recipients spent the cash on things such as food and healthcare, to replace thatched roofs with metal ones, buy livestock and invest in small businesses. It also found evidence to suggest the money reduced hunger and increased psychological well-being. It debunked the fundamental assumptions underlying conditional giving that the poor would waste the money given to them.
One can hardly miss the interesting convergence between views of the traditional Islamic scholars and the most recent conventional research evidence in favor of unconditional cash transfer over other forms of giving.
Non-Cash Assistance through Zakat
Humanitarian organizations usually need to assist affected individuals in the form of goods (rather than cash), which could include livelihood equipment, such as sewing machines, farming equipment, livestock, medication or medical treatments, school books, education or training courses, paying salaries of service providers (e.g. teachers or doctors). It may be noted that such assistance is based on a thorough needs assessment of affected communities living in poverty. In many situations, cash is not necessarily the most useful asset to help the poor and needy.
Livelihood equipment can be an investment that enables the poor and needy to lift themselves out of poverty permanently, as can high-quality education or vocational training. Further, goods such as medication or school books are often not available locally for poor individuals to buy even if they had the funds. While traditionally, scholars prefer “unconditional” and direct transfers to the poor over other forms of “conditional” assistance, contemporary scholars seem to have no objections as long as beneficiaries are poor and needy. Some take a broad view and permit use of zakat even for paying the salaries of service providers (e.g. teachers, trainers, doctors).
Zakat for Crisis-Ridden People Who May Be Non-Muslims
Large humanitarian organizations, even the ones with dominant presence in Muslim countries, usually operate among mixed communities of both Muslims and non-Muslims. Practically, it is very difficult to differentiate between Muslim and non-Muslim individuals, especially when giving aid to communities suffering from famine, disaster or poverty.
The feedback from field personnel of such organizations corroborates the view that any discriminatory practice while giving assistance to Muslims and non-Muslims could actually be harmful, as it would create resentments and jealousies, and leave Muslim communities in danger. Moreover, such agencies are bound by national and international ethics and guidelines, which forbid discrimination in a humanitarian setting. Further, the humanitarian professionals as Muslims are bound to honor such treaties. Perhaps considering such issues, contemporary scholars permit use of zakat funds to assist the all those affected – Muslims as well as non-Muslims.
Zakat Holding and Investment
When the quantum of zakat distributed in a given year routinely falls below the quantum of zakat collected, either at the level of an individual zakat organization or at the country level, is it a cause of concern? An individual can pay zakat directly to eligible beneficiaries. She or he can also pay zakat through the zakat organization acting as its agent. The issue of delays in payment of zakat has been clearly discussed in the books of Fiqh. Qaradhawi (in Fiqh of Zakat, Chapter 5, Part 5, Volume 2) summarizes the views of early scholars and asserts: “Delaying the payment of zakah without valid reason is not permitted, but zakah may be delayed in certain cases without blame, such as lack of liquid funds or…to wait and give it to needy relatives or to a person in more desperate need, or to investigate the needs of the available deserving beneficiaries. When payment is delayed, the payer guarantees the due amount in case of destruction or loss.”
Scholars underscore the fact that zakat payment can only be delayed for a short period and only on valid grounds, since it is a right to other people. It is also true that when an individual seeks to pay zakat through an institutional agent, she or he remains accountable for the timely flow of zakat to the ultimate beneficiaries. Therefore, similar to the individual zakat-payer, the zakat institution also remains liable for immediate distribution of zakat. Delays are permissible as exception, only for short periods and only on valid grounds.
Indeed, some of the core principles of zakat regulation and standards of zakat management that have been developed recently, contain specific performance parameters that seek to ensure that zakat collected is distributed to eligible beneficiaries within the given year. Separate performance yardsticks are recommended for zakat that is to be distributed for “consumption” as distinct from zakat that is targeted to economically empower the poor and enhance their “productive” capacity.
A related issue concerns “undistributed” or “surplus” monetary zakat that is held by the zakat organization, even if temporarily. Should this be invested for generating returns, since cash earns nothing? Can an argument be made that zakat institutions need to be sustainable entities and the returns on investment of zakat money can be used to expand their outreach and cover their expenditure? The sustainability argument is sometimes used to justify a policy of investing zakat funds in muḍarabah and other Shari’a-compliant investments.
While the act of investment of surplus zakat may be permissible, it may be desirable only in case of provision of start-up capital to the poorest of the poor and not with a view to generating maximum returns on investments. In case of existence of undistributed surplus (a highly unlikely scenario in the presence of large-scale poverty in Muslim societies) these may be invested for temporary periods, but must avoid high-risk avenues. As the OIC Fiqh Academy ruled, “It is permissible to invest zakat money in profitable projects possessed by zakat deserving recipients. These projects may be supervised by the legal authority in charge of levying and distributing zakat, provided that the dire needs of zakat recipients are fulfilled and there are sufficient guarantees that there will be no losses.”
Studies on actual zakat management practices however, indicate that some zakat institutions retain significant quantum of zakat. A study for Malaysian zakat institutions finds for instance, that some zakat institutions retain zakat proceeds and do not distribute in its appropriate time.7 The Third Symposium of Zakat Contemporary Issues held in Kuwait (1992) set out detailed conditions under which zakat funds could be invested. These are:
There must not be urgent channels, which require immediate application of zakat funds. Zakat funds must be invested in a legal and Shari’a-permitted manner.
Necessary precaution should be taken so as to guarantee that the rules of zakat continue to apply to the original invested money as well as to its profits.
Invested assets must be liquidated if zakat recipients need zakat in cash.
It must be ensured that such investments will be safe, lucrative and can be liquidated in times of need.
The decision of investing zakat funds should be taken by the government officials entrusted with the task of levying and distribution of zakat. Such investments should be supervised by efficient experts.
Going back to the sustainability argument, it is pertinent to mention that Shari’a has already provided for the same, by permitting a portion of zakat collected to be utilized in covering related administrative and operational expenditure. We will revert to this issue below once again.
Investing Zakat in Disaster Preparedness
Time provision of humanitarian assistance demands preparedness in advance, much before the calamity or disaster strikes. This requires that humanitarian agencies make investments in certain forms of assets. For instance, an organization may like to carry inventories of foodstuffs, clothes and assets e.g. power generators, tents, and motor boats to effectively assist potential victims in flood-prone regions. Can zakat funds be used for such asset creation, given that classical scholars seem to recommend use of zakat for consumption purposes and utilization of zakat without any delay factor?
Again the answer perhaps lies in the nature of investment or asset creation that is under discussion. If certain forms of asset-creation is considered necessary to help the victims and will contribute to increasing efficiency and effectiveness, this should be undertaken. There seems to be no outright prohibition on use of zakat for asset creation (as long as the targeted beneficiaries are among the asnaf), even while waqf is a more appropriate mechanism for the purpose.
A related question is whether it is necessary for zakat to be allocated and spent within one year of receiving the donation. Whilst zakat is allocated to projects within the year it is received, it may take more than one year for a project to be completed. Practically, it is not always possible to spend all funds within the year they are received, as it takes time to process donations, and then allocate them to projects. Many projects, for example, providing healthcare in a poor community may indeed take 2-3 years to complete.
As a matter of principle, zakat should be spent immediately. However, in exceptional circumstances where the organization is compelled to delay expenditure, and this is in the interest of the intended beneficiaries, then this is permissible, according to most scholars. However, the organization must treat such delays or carryover of zakat as exceptional and take steps to minimize such possibility.
Investing Zakat in Community Assets
Major interventions of humanitarian agencies typically take the shape of projects in areas of emergency relief and disaster preparedness, water and sanitation, orphans and child welfare, health & nutrition, education and sustainable livelihoods. The projects aim to assist people who are suffering from some kind of deprivation and are usually based on a thorough needs assessment of communities living in poverty. In many situations, giving cash to individuals is not the most effective way to help the poor or needy, as the most urgent needs of such communities are collective, for example no access to healthcare, clean water, or education. As such, the most effective solutions are also collective such as developing a hospital, well or school. Once completed, ownership of such projects is often transferred to local community organizations or cooperatives.
Can zakat funds be used to finance such projects? Notwithstanding classical preference for tamleek or granting ownership of zakat to eligible individuals – the poor and the needy – many contemporary scholars are comfortable with collective ownership. They emphasize that the fundamental principles of zakat distribution are to fulfil the needs of the poor, enrich the poor and realize the benefits (maslaha) of the poor. The above form of support conforms to all the principles.
Regarding ownership they suggest that once a project is in place providing a service (e.g. education, healthcare) then the rich may benefit from the same without any hindrance, but on payment of a fee. The project may transform itself into an endowment (waqf) where each generation of the poor community can successively benefit from it.
Meeting Institutional Expenditure with Zakat Funds
Shari’a permits a certain percentage of zakat funds to be utilized to cover administrative and operational expenditure of a zakat organization. Amil zakat or the zakat professional engaged in collection and distribution of zakat is the third among eligible recipients of zakat funds. The rationale underlying this provision is to provide autonomy to the institution of zakat, to ensure its independence from external influences – government or any external agency.
We should remember that zakat management is discussed in classical texts of fiqh in the context of an Islamic state. As Qaradhawi quotes jurists “the Islamic state is required to appoint collectors and distributors of zakah. The Prophet (p) and his successors used to assign officers to these duties. There are always people who have wealth but do not know how much they are required to pay. Similarly, there are people who know how much to pay, but have a tendency to be miserly. Officers are thus needed for both information and collection. The state must send officers at the time of harvest to farmers, and must establish zakah payment months so that other payers know when collection officers are expected.”
Al Shafi’i is reported to have suggested that total compensation for workers must not exceed one-eighth of the total proceeds of zakah, based on his opinion that total proceeds must be divided equally among the eight recipient categories. It is pertinent to quote here the guidelines issued by Advisory Committee of BAZNAS, the apex zakat body in Indonesia. Relevant articles are as follows:
Article 2: It is stated that the right of amil equals maximum of one-eighth of the collected zakah funds. As for infaq and sadaqah, there is no right for amil. However, this infaq and sadaqa fund can be used for operational cost with certain limitation and it has to be rational.
Article 3: The cost to socialize is taken from the right of amil. This cost can also be taken from sources of funds other than zakat.
Article 8: Zakat assistance for amil, who is in urgent need, is allowed under asnaf of faqir and miskeen, subject to strict terms and conditions.
Qaradhawi argues that an amil should be paid a salary equal to the market value of his/her skill and labor. According to him, a majority of scholars do not accept the limitation of one- eighth rule. However, this according to him, has the merit of restricting the cost of collection.
The percentage of zakat allocated to cover operational expenditure is a key policy issue. The percentage is usually pegged below one-eighth (12.5%) in South East Asian countries, either as a customary practice or as a Shari’a requirement (there being eight asnaf, the maximum allocation to any one of them should not exceed one-eighth). The ratio is however, much higher elsewhere. In Sudan, the scholars seem to be fine with a cap of 20% (perhaps considering that there are effectively five asnaf). Some however, argue that a higher ratio is a natural consequence of in-kind zakat that is common in Sudan. While 12.5% may look good as a cap in a scenario where zakat is collected in cash or through online transfer, in-kind zakat in the form of crops, and livestock would require much higher operation costs (on transport, storage etc.).
India presents a unique case where some scholars have permitted as high as 40% of zakat mobilized to be applied towards the cost of collection itself. The high cost experienced in India appears to be more because of inefficiency and not due to “greed” factor. There is undoubtedly a colossal loss of the economies of scale and scope due to the traditional and costly system of zakat collection in India (by an army of private individuals). Centralization of zakat collection and distribution as well as a possible use of digital finance tools can lead to significant improvement in efficiency and cost reduction.
A related question is whether a cap (e.g. one-eighth in South East Asia) is recommended at a micro level or macro level or both. The nature of intervention perhaps needs to be taken into consideration while prescribing a cap. For example, when zakat is collected primarily through corporatized agency networks, distributed as unconditional cash transfers and credits in bank accounts of the poor, the corresponding costs may be low as well as fairly predictable.
In contrast, when zakat is used to address sufferings of people in remote places affected by natural calamities, such as floods and earthquakes; the distribution costs may shoot up significantly. Interventions in such case would entail high costs, much higher than the one-eight cap. Therefore, a cap of one-eight or one-fifth may serve as a good regulatory goal at a macro level. At a micro level however, the nature of the intervention may indeed determine the quantum of operational and administrative costs.
Inter-Country and Inter-Regional Transfer of Zakat Funds
How should a humanitarian organization balance the obligation to give zakat to local people in need (i.e. in the same countries as their donors) versus giving zakat to people in need internationally? Scholars feel that there are strong Islamic imperatives for zakat to be spent locally as a priority. While many “fundraising countries” (USA, UK, Germany) are now facing considerable poverty and deprivation themselves, the organizations are often confronted with much higher levels of poverty and deprivation in other countries, where thousands of people may be facing deaths from starvation, disease, natural disasters, or other poverty-related causes.
As discussed earlier, scholars do recommend “priority” to be given to local people in need, while permitting distribution to those suffering more extreme needs in far-off places or internationally. Thus, what is needed is to find a balance with high priority accorded to people in “dire necessity”. In addition to looking at the levels of maqasid – dire necessity, necessity, comfort, luxury, extreme luxury – the organization should also consider the outcome with or without the intervention. In a situation where a donor places conditions on how his or her zakat should be spent, the organization may consider if by doing so the purpose of zakat is being served or negated. In the latter case, the Shari’a permits the organization to break the conditions, but must duly inform the donors.
Economic Empowerment and Microfinance with Zakat Funds
The primary objective of zakat is to pull a Muslim out of economic distress by providing for his or her basic needs. Basic needs by definition are recurring in nature. It is therefore, pointed out by some that zakat proceeds must aim for economic empowerment and not for meeting their immediate consumption needs. The latter may indeed encourage dependence and make the poor permanently dependent on zakat. This is indeed a serious problem faced by zakat organizations. Year after year, zakat is distributed to the same set of poor people dependent on the dole-outs. Suggestions to address this problem include creation of a database of recipients of zakat for close monitoring and follow-up in order to ensure that a poor and needy individual receives only for a certain number of years at the maximum and is able to progress out of poverty. This of course, demands that she or he be economically empowered.
Economic empowerment and meeting basic consumption needs need not be mutually exclusive. In any programme of economic empowerment through zakat, satisfying immediate basic needs of the poorest of the poor must always be accorded top priority. In a subsequent phase, the beneficiaries may be made to go through skill-improvement programmes through meeting their cost of education and training with zakat funds. Zakat funds may also be pro- vided as start-up capital for their nano or micro-enterprises either in the form of outright grants or loans (qard al-hasan) or micro-equity without expectation of returns depending upon the degree of their vulnerability. This would enable the poor to generate a sustainable means of livelihood and transform them from the category of zakat recipients (mustahiq) into that of zakat payers (muzakkī). Such ambitious poverty alleviation and economic empowerment project through efficient collection and distribution of zakat can be undertaken by the state or a not-for-profit organization.
From a microfinance perspective, use of zakat funds raises two important issues. The first issue relates to whether the poor should be provided grants or loans. It is pointed out by some that the flow of zakat funds in contemporary Muslim societies is extremely inadequate and erratic. Providing revolving credit through qarḍ al-ḥasan loans out of pooled zakat proceeds ensures that the Fund is now automatically replenished every time loans are repaid. The out-come is a sustainable Shari’a-compliant financial service provider for the poor.
Notwithstanding the sustainability argument, the fact remains that micro-credit (even without interest) is not for the poorest of the poor. The extreme vulnerability of this section of the society makes them reluctant to opt for loans. Those who venture are confronted with the possibility of remaining in debt for extended periods if liberal waivers are not granted to them in case of inability to pay in the true spirit of qarḍ al-ḥasan. Indeed this violates the very essence of zakat – of pulling an individual out of indebtedness.
It is pertinent to mention here the views of contemporary Shari’a scholars in the matter. According to the Advisory Board of BAZNAS, the apex zakat body in Indonesia, the operational cost and mentoring cost needed for economic empowerment program can be taken from zakat that has been allocated for asnaf of faqir and miskeen (Article 6). Further, the use of qard al-hasan scheme in the distribution of zakat is allowed. In case the mustahiq fails to repay the non-interest loan (default), then this default must be written off (Article 7).
In Sudan, the scholars take an enabling view of zakat-funding of microfinance. Zakat organizations fund microfinance initiatives using the qard al-hasan mode, but through the banks, and cover the costs themselves. Since the government in Sudan has made it compulsory for banks to set aside a percentage of their funds for microfinance initiatives. However, the banks usually provide three-fourths of the finances necessary. The zakat organizations in such cases may provide the remaining portion of the financing needed. In Sudan, zakat is also used to fund waqf, for example for orphans. The Shari’a requirement is that once the loan is repaid, or the waqf bears profits, these funds must be considered as zakat too.
Summing Up
Zakat funds must be an integral part of any humanitarian and poverty alleviation initiative. Humanitarian needs invariably score over other types of needs in terms of urgency. When natural calamities, such as, earthquakes, cyclones and floods strike a population, the affected and displaced people need immediate support. Zakat funds provide for the “immediate” basic consumption needs of the poorest of the poor, such as, food, clothing and shelter. As discussed above, such safety nets can only be funded through charity.
Second, in order to transform such individuals to economically active and productive agents, there is a need to impart or strengthen appropriate skills – technical and entrepreneurial – so that they are able to generate income on a sustained basis without being dependent on charity. Again, such skill-improvement initiatives can be funded through zakat and charity funds.
It is important that the safety nets are then linked with microfinance programmes. This will ensure that the same individuals may move through several stages – from abject penury to a stage where they are able to meet their consumption needs – then to a stage where they come to acquire necessary technical and entrepreneurial skills for setting up microenterprises – and then to a stage where they are able to obtain required funds from micro-financing institutions (MFIs) and have the microenterprises up and running. Where for-profit MFIs are reluctant to invest in start-up equity, zakat could fill the gap by providing micro-equity to enterprises set up by the poor.
An important recent change in global thinking is the realization that financial services are not just for income-generating loans or micro-enterprises, but that people have emergencies, risk management needs as well as protection needs. Often individuals borrow funds from MFIs to meet emergency needs relating to education, health and social obligations. Further, gains people may achieve through a growing business could easily be setback by a tsunami or even smaller risks at a household or personal level.
What is needed therefore is a way to finance productive activities as well as to meet contingencies, emergencies. While a revolving qarḍ al-ḥasan fund based on zakat may not be an ideal solution for developing microenterprises, it may be ideal to provide emergency credit. Since individuals burdened with debt constitute eligible recipients of zakat, zakat may also be used to create guarantee fund that leverages its use for provision of finance to greater numbers. Finally, zakat along with sadaqah and waqf may be used to establish micro-takaful projects for the poor and the vulnerable.
