ROLE OF ZAKAT TO REDUCE THE PROVERTY DEDUCTION

SUBMITTED TO: SUBMITTED BY:

MS. RAFIA ISLAM LINA RAKIBUL ALAM.

LECTURER – DEPARTMENT OF BBA SUBJECT – BBA

ASIAN UNIVERSITY OF BANGLADESH BATCH: 30TH

DHANMONDI COMPLEX SECTION: A

ID.NO: 200720543

DATE OF SUBMISSION: 10/08/2010

Asian University of Bangladesh

Zakat is one of the five pillars of Islam. It has been mentioned, along with daily Prayers (Salaat / Namaz), over seventy times in the Quran. Allah's word commanding ".....and establish regular Salaat and give regular Zakat....." are referred to in many parts of the Quran. From this we can conclude that after Salaat, Zakat is the most important act in Islam. There are many major benefits of giving Zakat: • Zakat functions as a social security for all. Those who have enough money today pay for what they have. If they need money tomorrow they will get what is necessary to help them live decently. • Zakat payer pays his dues to Allah as an act of worship, a token of submission and an acknowledgment of gratitude. The receiver of Zakat receives it as a grant from Allah out of His bounty, a favor for which he is thankful to Allah. • Economically, Zakat is the best check against hoarding. Those who do not invest their wealth but prefer to save or hoard it would see their wealth dwindling year after year at the rate of the payable Zakat. This helps increase production and stimulates supply because it is a redistribution of income that enhances the demand by putting more real purchasing power in the hands of poor. Zakat is obligatory upon a person if : • He or she is an adult, sane, free and Muslim. • He/she must possess wealth in excess of specified minimum (Nisaab) excluding his or her personal needs (clothing, household furniture, utensils, cars etc. are termed article of personal needs). • It should be possessed for a complete lunar year. • It should be of productive nature from which one can derive profit or benefit such as merchandise for business, gold, silver, livestock etc.

CALCULATION OF ZAKAT

To calculate Zakat on jewelry etc. one must first determine the gold or silver content and then calculate the Zakat according to current market price. If the Gold possessed is less than 87.48 grams or if silver possessed is less then 612.36 grams, but the value of both combined is equal to or exceeds the Nisaab of either Gold or Silver, the Zakat will be due

. The amount of wealth which makes one liable for Zakat is called Nisaab. The Nisaab as fixed by Prophet Muhammad (P.B.U.H) is as follows: Grams Tolas Grains Troy Oz. GOLD 87.48 7.50 1350 2.8125 SILVER612.36 52.50 9450 19.6875 Nisaab of cash, stock or bonds, other cash assets is the equivalent amount of Gold or Silver. Nisaab is calculated by adding up the cash value of all the assets such as gold, silver, currency etc. and if it is equal to or in excess of the minimum Nisaab as specified in the above table, the Zakat is due at the rate of 2.5%. The payment of Zakat is compulsory on the excess wealth or affects which is equal to or exceeds the value of Nisaab, and which is possessed for a full Islamic year. If such wealth decreases during the course of the year and increases again to the value of Nisaab before the end of the year, the Zakat then must be calculated on the full amount that is possessed at the end of the year. TYPES OF WEALTH ON WHICH ZAKAT IS IMPOSED: Gold and silver, in any form. Cash, bank notes, stocks, bonds etc. Merchandise for business, equal to the value of Nisaab.

What Is Zakat

Zakat means growth (nam'a), blessings (barakah), purification (taharah), or appreciation (madh). It is called zakat because one's wealth grows through the blessings of giving part of it and the prayer of those who receive it. Zakat purifies its giver of his/her sins and is clearly ordered by God. The Quran says "Take alms of their wealth and make them pure and clean” (9:103). There are two main type of zakat: 1. Zakat on self (zakat al-fitr or fitra). This zakat is caused by breaking the fasting at the end of Ramadan. It

is sometime called sadaqat al-fitr. Zakat ul-fitr is leived on individual and not on his/her wealth. Zakat ul-Fitr is mandatory for every Muslim, young, old, men, women, free and captive. 2. Zakat on wealth (zakat ul-mal). Zakat was instituted among Muslims to carry out a variety of objectives. Islam ordained zakat to achieve, through it, social justice and sublime moral and spiritual values. It is a criterion for the believers and a way to success in this life and the next. Allah says, "Who establishes worship and spend of that we have bestowed upon them, these are the true believers.

Abstract

“Reducing Poverty through Zakat System”

Poverty alleviation has been a priority in Bangladesh’s development plans and programs since 1972. Official and NGO efforts based primarily on IRD (integrated rural development) and micro-credit models, by 2000 succeeded in eradicating dire poverty and reducing the overall level to around 50 per cent of the population. Since then Bangladesh has adopted around 50 per cent of the population. Since then Bangladesh has adopted the UN sponsored MDG which aims to reduce poverty level by half by 2015. A carefully crafted strategy (PRSP) through much local and international consultation is essentially based on the elements which succeeded in the 1980s and 1990s.

It is surprising that Zakat, an expressly designed poverty eradication tool, clearly prescribed in the Holy Qur’an and Sunnah, has been completely ignored in all poverty alleviation plans and programs in Bangladesh, where more than 85 per cent of the population are Allah- fearing Muslims. Also, there is confusion and ignorance about true practices of Zakat in the mind of these people, which resulted in lasting benefits not accruing to the traditional Zakat receivers. From the very begging of Bangladesh there are so many NGOs have been running micro credit poverty alleviation project as well as Government running different types poverty eradication programs. But The Governmental and Non Governmental PAPs have several limitations. In order to remove these limitations the Zakat System should be taken in an efficient way.

If the Zakat system will implement in the way of prescribed in this paper then poverty might reduce.

Introduction: “Poverty Eradication” is the very important aspect of millennium development goals. One

question may arise that what should be the best instrument to reduce poverty? We have already seen the governmental and non government intervention to alleviate poverty which leaves seasonal and poor impact on the goal. Therefore a continuous process should be taken like Zakat (Islamic Compulsory charity). In the proposed study I seek to examine whether Zakat reduce poverty or not.

Why the poverty is sustaining in Bangladesh

Poverty situation:

In recent days though poverty rate is declining but the number of poor people is increasing. Poverty has been reduced 7% during 1991 to 2005, but total number of poor people increased 4.4 million in this period. On the other hand, only from 2000 to 2005, number of hard core poor people increased 3 million. According to latest survey of HIES2005 of BBS, 56 million people live under poverty line. In 1991-92 total number of poor people was 51.6 million and in 1995-96 increasing number reached at 55.3 million. In2000 number of poor people was 55.8 million. From 1991 to 2005 in this15 years more than 4.4 million people has been added to poverty line5.

Rich- Poor gap:

“A nation is poor because they are poor” while it’s true for the nation also true for the individual because they can’t involve themselves into the economic activities and the main reasons are behind their malnutrition, less education, no vocational training and so on. Therefore the gap between rich have been fostering day after day. Rising unemployment and declining share of the poorer populaces in national income are two major challenges for the country in achieving the Millennium Development Goals (MDGs), says a government report. In 1992, the Poor’s share in national income was 6.5 percent. But it dropped to 5.3 percent in 2005, marking a decline of18.46 percent in 13 years. One of the shortcomings in Bangladesh’s effort to attain MDGs is failure to make growth process sufficiently pro-poor, says the report, adding that depleting share of the poorer segments of the society in national income and consumption shows that the poor are not benefiting from the growth. “Appropriate interventions are required so that benefits of economic growth reach the poorest quintile”. Observes the report prepared by Planning Commission on progress toward MDGs. 5BBS

Micro- credit:

From the very begging of Bangladesh there are so many NGOs have been running micro credit poverty alleviation project even though the number of hardcore people increasing day after day. This paper is not against any micro credit or any development programs. The study regarding NGO found out a few limitations those limitations are highly interrupting the mechanism of reaching goal.

The limitations are following6

1,MFIs are not economically viable due to lack of fund mobilization and highAdministrative cost.2,MFIs need to depend on grant of donors which is by naturally unsustainable.3,The type of activity for which the funds are used money also be low Productivity activities.4,Institutions do not server the poorest, who are either not given loan or drop out of credit schemes. Grameen Bank borrowers often take loans from other sources to pay installments and are trapped in spiraling debt cycle

5,Compounded interest impositions The declared objective of targeting women as recipients of fund is to empower them. But targeting the women as beneficiaries of credit by MFIs create tension within the household and increase frustration and violence in the family.6,Some groups of people are not addressed by NGOs, such as a) Poorer menb) Hardcore poorest women those who can’t payback c) Those who are physically disorder

Government safety net programs

Government safety net programs are often seasonal and poor impact on the goal. The safety net programs are basically Food for Works (FFW}, Food for Education (FFE), and vulnerable Group Development (VGD) Program for disadvantage women and Test Relief (TR). Among these programs FFW is the largest and second largest programs is the FF. it is evident that the highest level of delivery of those programs took place in 1995-96 distributing 1078 thousand metric tons of wheat costing Tk. 13,970.9 million and 70 thousand tons of rice valued Tk. 907.2 million. That means, food grains costing a total of Tk. 14,878.1 million were distributed in 1995-96. It should be noted that the safety net programs are based on donors’ humanitarian grants with high degree of fluctuations. At the same time, it is hardly a net transfer mechanism since FFW, the major component of the safety net programs, is given as wage to construct and repair rural infrastructure.

Even though there are few poorer areas where the development programs can’t reach such as1, The people are deprived from FFW programs those who are not capable to work.2, The programs don’t run throughout the year.3, Development programs regard as improving infrastructure which can’t foster the situation of poorest people.

Root cause in the Failure of Poverty Alleviation Programs1,PAPs are bound to be unsustainable because of donor dependence2,Inability to provide initial basic minimum ownership- capital.3,Less organizational sustainability due to low capital productivity

ZakatWhat is Zakat:

Zakat (Arabic:زكاةzakaat or zakāh, meaning 'grow', 'purify', or' foster') is the Islamic concept of tithing and alms. It is an obligation on Muslims to pay 2.5% of their wealth to specified categories in society when their annual wealth exceeds a minimum level (nisab). Zakat is one of the Five Pillars of Islam.

Misconception about Zakat:Most of people Most of the people of our country think that Zakat is charity but according to

holy Qur’an the people are ought to give the Zakat if his or her wealth is above the nisab level. Another common misconception of people that Zakat is only applicable on the gold, money and nothing else but a pure hadith may crystallize this perception.

Why Zakat:It is already mentioned above the limitations of PAPs so far have been taken in our country. In

order to solve all the limitations another form of PAP should be taken like Zakat. More over Zakat is not manmade instrument rather it is divinely. It is that system which narrows gap between the haves and the have-nots, for which the socialists had been relentlessly fighting during the bygone century, but failed. It is not a fiction but a part of the recorded history that during the rule of Hazrat Omar (Ra.), the Second Caliph of Islam, there was not a single man to accept Zakat. All men became rich enough to be able to give Zakat within 5 years of the introduction of the Zakat system. Why was the system proved to be so successful?

The answer is simple. Because, it came from Allah, the Almighty, who is the creator of everything. Allah, who created men, knows very well how to solve the economic problems.

Principal of Zakat:There are four basic principal of Zakat those are following:1, Economy well being within frame work of model of Islam.2, Universal brotherhood and Justice.3, Equitable distribution of wealth.4, Individual freedom within context of social welfare.3.5 Uniqueness of Zakat1, Pure transfer from rich to poor.2, Direct incentive on the poor people.

3, No interest and no payback.4, Hardcore poorer peoples are addressed by Zakat.

5, Those who are not addressed by any other PAPs, Zakat addressed to them.6, Zakat does not increase poverty.7, whatever the amount that is very small portion.8, Making down flow of money.9, Bridge between rich and poor.10, Zakat reduces social crime.

Role of Zakat in reducing dependence on IMF, WB:The experts in Islamic economy say that in Bangladesh every year ten thousand crore of Taka,

which is almost one fifth of our national budget of the current fiscal, can be realized as Zakat. And by proper distribution of this Zakat money through the state machinery, poverty, which is at the root of our lingering backwardness, can be eradicated in ten years only. Moreover, we can reduce substantially, our dependence on the IMF and the World Bank.

How Zakat Reduces poverty:Aggregate Zakat Receipts: Rural and Urban Shows total amount of Zakat (Zakat & Ushr) to be

collected in Bangladesh during the period under simulation. An amount of Tk. 28,337 million may be collected as Zakat (including Ushr) in the base Year of the simulation, which stands at Tk. 47,213 million in 1998 and becomes Tk.110,517 million in 20109. 9 Bureau of Islamic Economic

Interventions by Zakah to Eradicate Urban Poverty:If so, per household annual Zakah receipts would be able-1: Interventions to alleviate urban

poverty Tim Urban poverty gap is estimated to be Tk. 2,666 in 1997. That means both urban ultra and very poor can be covered by Zakah receipts each year. Per capita Zakah receipts by urban ultra and very poor being Tk. 3,756 they can be brought under immediate intervention for poverty alleviate around Tk. 22,536. In 1999 per capita Zakah receipts by urban ultra and very poor would be Tk 4,221 which would lead to a per household annual Zakah receipts of Tk. 25,326. The amount, if provided at a time, should form an initial capital for running at least a subsistent level livelihood possibly without requiring further help in the next year10.

Strength of Zakah as poverty alleviation:Strength of Zakah as a poverty alleviation to vailing poverty gaps would be financed by Zakah

proceeds. The strength can be measured by portion of poverty gap that Zakah can finance at rural and urban areas. This rural-urban segregation does not have any legal implication but it provides insights on the effect of interventions pursued on regional basis. The information so received may help preparing policies which will encourages resources to be transferred wherever these would be of best use.

How the program should be run?For poverty alleviation, all moderate urban poor can be covered immediately in the next 1 (one)

year. That means, within two years time it would be possible to eradicate income poverty (in terms of calorie intake). This will allow release of urban Zakah money from the third year to make available for eradication of moderate poverty in rural Bangladesh. This strategy, if pursued, will lessen the period of eradicating poverty of rural moderate poor to 5 (five) years instead of10.5 years.

Ideal village project:Based on the previous experience in the area of community development, MACCA is try, sitsity

people errces. The total program is run by the active participation of the beneficiaries. The gong the program would be more than population that forms neighborhood. Basis of the program would be the notable say of the Prophet (S.M) that “those who go to bed leaving their neighbors unfed are not Muslims”. This will be an initiative, which will work for a hunger-free community as to discharge their duty as vicegerents of God. The program components may include Zakah assistance to eligible persons with a view to build enabling environment for the so that they are able to lead a sustainable livelihood. Assistance, capacity building, socio- capacity building, socio- economic and religious orientations for discharging the responsibility of vicegerency would be some of the important functions of the program. It would be ideal if the neighborhood community can be based centering a mosque. now piloting this project. It adopts an integrated approach to community development. The core concept behind the project is strengthening relationships among the neighbors- making them sensitive to the needs of others living in the community. The core component of the project is Parshi. A Parshi (a Bengali word means neighbor), involving 30-40 people of the same locality (mainly neighbors) living under prove together to sort out their problems and solutions as well to them. PRA tool is applied to identify community needs. In a community there can be a number of Parshi(s). It has various development components such as health, sanitation, education, income generation, capacity building, and leadership building etc. Resourceful generation, capacity building, and leadership building etc. Resourceful Common contributes to financial support of the project in the form of Zakat. Apart from individual zakat money, the Zakat Board of the GoB also supports the project. In all interventions community ownership is ensured. Participation in the program is family based and gent equity is strictly maintained. The vision of the project is to solve the community problems through community leadership and preferably through community resou The major tasks of MACCA under the project are to enhance the capacity of the Parshi people, link them up with existing service delivery institutions, and mobilize community resources etc.program currently runs in Chandirchar Village under Zagir Union Parishad in Manik Sadar Upazailla. The number of Parshi stands as of now 8 that engage approximately 300 people. The project is expected to be replicated in other parts of the country after the successful completion of the piloting.

Survey Report:

Here is taken only one Parshi as research study the Parshi no 1. The Parshi 1 has been formed with 30 members in December 2005. The MACCA surveyed their Scio-economic status which is given belowParshi 1

Chandirchar, Zagir Manikgonj Sadar Upazailla Economic Background

No of Families, No of Family Members, (average) Monthly Income, (average) Monthly Expenditure (average) Area of Land Involvement in Another NGO( in percentage) 304, 2500 tk2600 tk25 (Satangsa) 90% Occupation

StrategyThe strategy of MACCA is almost similar with other Microcredit system. At first MACCA has form

an authority there to make a best use of their money and trying to make sure an optimum use of money by the recipients. At the initial stage MACCA gave them 100000 taka (one lacs taka) to the authority instead of hand of the members in December, 2005, so each member was receivable3333 taka approximately. Thereafter every member was allowed to take the loan according to his/her needs to invest in income generating something as prescribed by the authority. The members are not in a position for investment, has been getting 12.5% profit against his deposit. If any member takes a loan more than that of his or this each member who her deposit he/she is liable to share12.5% profit or loss he earned against his/ her investment. Beside of withdraws his/her deposit he/she is ought to give installment 25 taka against 1000 taka per month. Like this way the authority is circulating the money. In one word they are following the strategy of Islamic Banking system.

How they Generating IncomeFor example those who are the Rickshaw pullers they used to hire a Rickshaw with 50 taka as a

rent per day. If he earns 150 taka per day he would have 100 taka left over his hand from that of view his income level has gone up by 1500 taka per month after purchasing Rickshaw by the Zakat money. Let’s take another example those who are farmers now they are able to purchase seeds, fertilizer, pesticide etc on the time and after harvesting the farmers very easily pay back. Then those who are little bit physically weak they are running small business. These are mechanism to foster the velocity money which role of Islamic economic system.

Progress ReportDescriptive Statistics, Initial Income 88000 taka, Current Income 151905 taka, Total Growth of

Income 63905 taka, Growth per Month 22961.26 Rate of Growth 1.9% per Month, Rate of Growth 22.8% per Year, This project will continue there until making them able to give Zakat. Then the project will switch to another poor place.

Conclusion:

The task of every Muslim ummah in creating solidarity with the poor is to struggle with them to eradicate social injustice and poverty. People do not wish to be poor or simply happen to be poor. Their poverty is largely the byproduct of capitalism and oppression. And this is why the Quran stresses the importance of zakat within the society and as an obligation of the Muslim ummah. The call for a reliable and efficient zakat collection system is only one side of the coin. We needed a two-pronged approached to this issue. Firstly, the real standing issues are whether we as individuals have done our duty to Allah by giving zakat to the relevant authorities and secondly, whether this fund is managed in a manner that will result in reducing the poverty rates, dependency and to a large extend creating sustainable employment for the intended recipients as laid out in the Quran.

Bibliography Name Sources Amount of Zakat Masjid Council for Community Advancement (MACCA) Literature survey, The holy Quran and authentic hadith, Akkas, S.M.Ali (1999) An Islamic Alternative to Poverty Alleviation: The “PARSHI” (Neighborhood) Model Income Inequality through market mechanism Akkas, S.M.Ali (1999) An Islamic Alternative to Poverty Alleviation: The“PARSHI” (Neighborhood) Model Zakat collectable in Bangladesh Bureau of Islamic economics Poverty classification Internet.

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