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March 27, 2015

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March 27, 2015

1/4 of the world’s people already subject to large annual wealth tax to tackle poverty. Has anyone told Piketty?

March 27, 2015
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A few years ago, I sat next to a young muslim guy from Birmingham on a plane, and he told me how frustrated he was with the Zakat-mainway his community’s annual act of alms-giving, known as Zakat, was managed – no accountability, no real checks on where it goes or what it achieves. I’ve wondered about that ever since, so yesterday I went online to watch the launch of An Act of Faith: Humanitarian Financing and Zakat, a new report by the Global Humanitarian Assistance (GHA) programme. The report is excellent. Here’s my summary and a few comments:

What is Zakat?

All of the world’s major religions contain some element of almsgiving, but Zakat is different because it is mandatory for all Muslims who are able to pay it, and is one of the five pillars of Islam. The word Zakat can be translated to mean ‘purification’ or ‘growth’. Through Zakat, Muslims are required to give a proportion – traditionally defined as one-fortieth, or 2.5% – of their accumulated wealth for the benefit of the poor or needy (and other recipients as highlighted in the verse of the Qur’an, below).

“Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (To Truth); for those in bondage and in debt; in the cause of God; and for the wayfarer.” (Qur’an 9:60)

Has anyone told Thomas Piketty and the inequality campaigners that we already have a global wealth tax in place. And rather a large one, affecting one in four of the world’s people?

Donations overtake receipts in Indonesia

Donations overtake receipts in Indonesia

What are the Numbers?

The short answer is we don’t know, but it’s a lot of cash. The paper cites previous global estimates of anywhere between US$200 billion and US$1 trillion a year. A speaker at the launch (couldn’t find the names on the webpage, sorry) pointed out that 2.5% of the combined GDP of the Middle East and North Africa comes to $65bn a year.

According to the report:  ‘Data we have collected for Indonesia, Malaysia, Qatar, Saudi Arabia and Yemen, which make up 17% of the world’s estimated Muslim population, indicates that in these countries alone at least US$5.7 billion is currently collected in Zakat each year.

We estimate that the global volume of Zakat collected each year through formal mechanisms is, at the very least, in the tens of billions of dollars. If we also consider Zakat paid through informal mechanisms, then the actual amount could be in the hundreds of billions of dollars.’

Zakat and Humanitarian Response

Islamic countries are central to humanitarian response both as recipients and (increasingly) as donors. Between 2011 and 2013, international humanitarian assistance from governments within the Organization of Islamic Cooperation (OIC) grew from US$599 million to over US$2.2 billion, a growth in the share of total international humanitarian assistance from governments from 4% to 14%. A speaker at the launch claimed that Turkey is now the world’s third largest humanitarian donor (Syria, Somalia). At the same time, an estimated 75% of people living in the top ten recipient countries of humanitarian assistance in 2013 were Muslim.

The report found that ‘between 23% and 57% of Zakat currently collected is used for humanitarian assistance, depending on the context in which it is raised and used…. the amount of Zakat potentially available in both Indonesia and Pakistan could meet all current requirements to respond to domestic humanitarian emergencies, with significant amounts remaining to cover other areas of Zakat spending.’

How is Zakat collected?

Government-collected: Zakat In Islamic and Muslim-majority countries is collected and distributed by the state. Six Zakat UScountries have legally enforced payments of the Zakat; for three of these, the responsibility of the state for collecting Zakat appears in the national constitution.

Independent collection and delivery agencies: In some Islamic and Muslim-majority countries, the government oversees the collection and distribution of Zakat, but independent agencies are given a license to manage the process. This is the case in Malaysia, for example, where individuals can choose which approved agency they pay their Zakat to.

In countries where Zakat is not managed by the state and there is no governing body overseeing collection and distribution, Muslim citizens can choose how to pay their Zakat and to whom. Many Muslims living in Muslim-minority and/or non-Islamic countries choose to pay their Zakat to charities or other NGOs, which use the money to fund their own programmes.

Mosques: Mosques collect large sums of Zakat, particularly in non-Muslim countries with no centralised or government-managed Zakat collection agency. Zakat collected by mosques may be spent on the mosque itself – such as on upkeep or renovations – or it may be distributed by the mosque to local people in need. Some may also be passed onto a third-party organisation, such as an Islamic charity or international NGO.

Individuals: Some Muslims believe that Zakat should not be paid via a third party; rather that it should be a direct transaction between the person giving (the muzakki) and the person receiving it (the mustahiq). Many people therefore give their Zakat directly, perhaps to someone in need who lives within their community, or to someone further afield with whom they have connections. In this way, funds given through Zakat may contribute to money sent abroad in the form of remittances.

Could Zakat provide big new flows of money for humanitarian response?

Potentially. However, ‘there are a number of possible barriers that will need to be overcome if Zakat is to fully realise its humanitarian potential’. According to the report, ‘These fall into two main categories:

• Logistical – such as streamlining and formalising how Zakat is collected, by whom, and how it is channelled to the humanitarian response community.

zakat calculator

• Ideological – such as how best to manage conflicting opinions on whether non-Muslims can benefit from Zakat and where it can be used. The question of whether non-Muslims can benefit from Zakat is central to discussions concerning the compatibility of Zakat with humanitarian principles.

To begin to address these barriers, interested parties need to focus efforts in five areas:

1) Humanitarian donors and agencies should engage in discussion with academics, Islamic scholars, theologians and practitioners, and share learning on the use of Zakat for humanitarian assistance.

2) An independent and credible global body that has taken part in these discussions needs to provide guidance on the parameters of reasonable interpretations of Zakat.

3) Actors at all levels – including small, local Zakat-receiving organisations, national and international NGOs, and the UN should work together to improve channels between Zakat funds given and the international humanitarian response system.

4) Resource-mobilisation efforts should focus on increasing Zakat revenues and channelling new funds to humanitarian assistance, rather than redirecting existing funds.

5) Efforts to increase the use of Zakat for humanitarian assistance should be combined with those of the wider development community to ensure a complementary approach.’

The main additional points that came across on an intermittent webstream from the launch were:

a) serious problems in internationalizing flows of Zakat, due to the proliferation of counter-terrorism and money laundering controls on flows such to countries like Somalia

b) huge suspicion both of governments and international organizations (bureaucracy, theft), leading to a call for an organization such as the Islamic Development Bank to set up some kind of Zakat International (apparently they are doing some initial thinking about it). Some thought the 2016 World Humanitarian Summit in Istanbul would provide the perfect launchpad for some kind of initiative.

c) Insistence that this should be a two way process. Not just about how to hoover up Zakat to fund a western-designed humanitarian system, but also about what that system can learn from Islam.

What did I miss?

8 comments

  1. A very interesting blog post.

    My first question is if this money is channeled towards more humanitarian relief agencies then who would stop getting this money? Who would lose out? Hopefully not local communities.

    If the focus, as stated in one point above, is to increase Zakat revenues somehow, then maybe this is not an issue.

  2. Interesting. I feel the last point is the most important. Listening and learning should be the stance here, and the report sounds like a useful step in that direction.

    1. Thanks Duncan – we at GHA are glad to see the report sparking such interest and debate.

      One other thing that Chloe Stirk, the report’s author, drew out in the event yesterday was that Zakat is only one type of Islamic social financing – and that this is of course only one part of faith-based giving. If the 5 largest Christian and Islamic humanitarian agencies were classed alongside international government donors, their combined private humanitarian assistance (a huge US$396.7 million) would have made them the 14th largest provider of humanitarian assistance in 2013.

      On the issue of a two-way learning street between the western humanitarian (and development) system and Islam – absolutely. The report notes that Zakat and Islamic financing have an approach that is inherently about empowerment and ownership, not a ‘donor-recipient divide’ – certainly something to learn from. And that “Rather than being seen purely as a charitable donation, Zakat is in fact the spiritual duty of Muslims, as a means of redistributing wealth in order to restore social equality and promote a more just society”. Picketty indeed!

  3. Fascinating research. Having done a lot of research on charitable giving in Muslim majority nations, I can attest to the potential scale of zakat but there are other considerations.

    Humanitarian aid in many Western nations has not come about due to the benevolence of our leaders. Civil society, funded by the public, has successfully campaigned for it. When we talk about the scale of voluntary donations compared to ODA we forget that the former has been used to lobby for the latter. We need to ensure that focussing on zakat does is not at the expense of sadaquah (voluntary donations).

    As one of the five pillars of Islam, Muslims are understandably keen to ensure that their zakat satisfies the definition laid out in the Qur’an. Many, though by no means all, see this as essentially alms giving to poor Muslims – a definition that might conceivably include humanitarian giving but perhaps not the funding of programmes that bring about systemic change.

    To greater and lesser extents, zakat has become an instrument of the state. In Pakistan, Malaysia and Saudi Arabia, zakat is collected and distributed via the state. Clearly, this enables them to collect vast resources but by taking the decision away from the individual, there is an argument to say that it also takes away any warm glow that they might feel for the way it is being spent. In other nations, some worry that the mandatory payment of zakat is overshadowing the voluntary payment of sadaquah – voluntary donations. I recently visited Turkey and spoke to the government about low levels of charitable giving in a nation whose government has been very committed to humanitarian aid.

    http://futureworldgiving.org/2015/02/26/why-arent-turkish-people-giving-regularly-to-civil-society-organisations/

  4. Inspiring report indeed about a wonderful institution, Zakat. Thanks for blogging about it, Duncan! It seems to be a good example of how religion and the application of spiritual principles can contribute to development.

    In the Baha’i Faith, the youngest world religion, there also exists an institution called Huquq’ullah (the Right of God) which is spiritually binding for every believer and which is used for charitable purposes. It is also used to distribute wealth more equally across different parts of the world. The amount one should offer in a “spirit of joy, fellowship and contentment” is calculated based on the wealth one possesses after deducting necessary expenses. While the offering of Ḥuququ’llah is a spiritual obligation, its fulfillment has been left to the conscience of each believer.

    The Sikhs apparently know an institution similar to Zakat and Huquq’ullah, too.

  5. Great report and blog piece. At the World Humanitarian Sunmit secretariat, this is a work stream we are actively pursuing and already had one roundtable and engaged with Islamic Devt Bank, commercial banks and other institutions. We hope to have something exciting launched by Istanbul 2016. But other Islamic social finance tools are also important esp Waqf. We are working on zakat, waqf and Sukuk. Watch this space!

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