The economic power of 'zakat' to fight poverty

Muhammad Akhyar Adnan, Director, International Program, Faculty of Economics, Universitas Islam Indonesia, Yogyakarta

Muslims have often been associated with poverty, which is certainly the case in Indonesia. However, if the Islamic concept of zakat (Muslims tithes) is really applied this may not be the case.

Zakat is one of the five pillars in Islam -- besides the syahadat (the profession of faith in Allah and His Prophet, Muhammad), performing prayers, fasting (during Ramadhan) and the pilgrimage to the holy city, Mecca.

The concept of zakat relates to the two dimensions of life -- the transcendental and the horizontal, that is relations between people. Islam requires Muslims to give away at least 2.5 percent of their wealth -- whether it be in the form of food, agricultural or livestock products, property, gold and silver and so forth. Its distribution is organized to target specific groups such as orphans, as mentioned in the Koran.

The poor understanding of zakat among Muslims themselves is considered to be one of the reasons why collections remain small here compared to the huge number of the poor.

Misconceptions range from the understanding of the concept to its distribution. Some confuse zakat with charity, or sadaqah (alms).

Zakat, unlike charity, is mandatory. Those who can afford to must give away at least 2.5 percent of their wealth -- as this amount belongs to someone else who is less fortunate.

However many simply assume they are not rich enough -- but they would also refuse to be classified as poor and therefore entitled to zakat and charity. One reason for the misunderstanding may be because the term is sometimes used interchangeably with other terms in the Koran.

Another misperception among Muslims is that zakat is an expense, and they try to pay as little as possible, as with government tax. Obviously this is an incorrect view, simply because the rationale behind tax is totally different from zakat.

Rather than an expense, the benefits of zakat should be viewed as a kind of investment for oneself in this world and in the hereafter.

Furthermore, many classical fiqh (Islamic jurisprudence) books discuss zakat in terms of specific societal conditions that no longer exist. Few books, if any, discuss zakat in the context of contemporary economic development, where there are many professionals -- not only farmers. Since there is no appropriate guide for these professionals about zakat obligations, many of them do not fulfill it.

On the other hand, many farmers, particularly in this country, are poor, and cannot be classified as those who are obliged to pay zakat.

The following illustration describes an ideal situation where all Muslims who have enough wealth to pay their dues. Assume that in a tiny province like Yogyakarta, there are approximately three million people.

Eighty percent, or 2,400,000 of them are Muslims. Assume that only 500,000 of them are obliged to pay zakat. They might be categorized into three more levels: First, 200,000 people with an income of Rp 4 million a month; second 200,000 who earn Rp 2 million a month; and third, 100,000 who earn only Rp 1 million a month. The zakat collected, if everyone paid at least 2.5 percent, would be Rp 32.5 billion a month, or US$3.18 million per year.

The collected funds could be used for establishing productive business units to help the poor and needy in the form of employment opportunities.

In the above example, 8,000 small or medium scale businesses could be set up in one year, assuming that one needed a capital of Rp 50 million. If every single company employed five persons, zakat then would be able to provide about 40,000 new job opportunities a year.

The new law, Zakat Act No. 38/1999, which rules that zakat will be fully tax deductible starting next year, acknowledges Muslims' contribution to the nation's development. With this golden opportunity the zakat institutions and Muslims in general should participate in proving the economic power of zakat to solve the fundamental problem of the Muslim community -- poverty.

However, the issue of the law's implementation must first be solved; particularly in regard to the professionalism of the zakat institutions. The huge potential economic power shown above will otherwise be meaningless, unless all parties involved try hard to minimize the handicaps that exist today.