zakah an effective social safety net

Zakah: an effective social safety net

Foyasal Khan1

Abstract:

Every year numbers of safety net programs are undertaken by every government to reduce

income uncertainty and variability, maintain a minimum standard of living and redistribute

income from the rich to the poor. During the last two decades, the government of Bangladesh has

been pursuing a number of social safety net programs such as cash transfer programs, food

transfer programs, and micro-credit programs for self employment and so on. Although the

intensity of poverty lessened in Bangladesh due to these efforts, the depth and severity of poverty

still persists. On the other hand, income inequality is widening in this period. This urges a new

strategy which can reduce poverty and income inequality. In this case, Zakah can be the best

alternative because early history indicates Zakah was effective in solving the problems of

poverty. Apart from that Zakah is unique faith-based institution and still unutilized for poverty

alleviation in Bangladesh. Though utilizing Zakah foreign dependency and income inequality

can be reduced, and many projects can be financed domestically which will ensure sustainable

development.

Key words: Bangladesh, Poverty Alleviation, Social Safety Net, Zakah.

1 The author is a MSS student, Department of Economics, University of Dhaka, Bangladesh. Paper presented at the International Conference on Islamic Economics & the Economies of the OIC Countries 2009, 28 - 29 April 2009, Organized by Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University, Malaysia. He is grateful to Shah Abdul Hannan for his supervision and guidance in the preparation of this paper. He can be reached at foyasal_khan @econdu.ac.bd

1

1. INTRODUCTION:

Poverty alleviation has become a buzzword in Bangladesh over the last three decades.

Bangladesh has so far implemented five Five-Year Plans and one Two-Year Plan and a Three-

Year PRSP Rolling Plan to accelerate economic growth and poverty reduction. Although the

intensity of poverty lessened, its depth and severity still persists. Instruments such as Micro

credit and Safety Net Program have been contributing to poverty alleviation, but it is proven

around the globe that these two instruments are not successful in reducing Income Inequality.

Zakah is an instrument practiced in the Muslim world, which is capable of reducing poverty and

Income Inequality. That is why Zakah has emerged as an effective social safety net.

The paper is organized in the following manner: after a brief discussion on available literature,

Section 3 briefly discusses the methodology used in this paper. Section 4 defines Social Safety

Nets Programs and Zakah from different perspectives. Section 5 portrays the current state, the

trend of budget allocation in these programs and its necessity. Section 6 highlights the role of

Zakah as social safety net and finally recommendations and conclusion is drawn in section 7 and

8 respectively.

2. Review of Literature:

Hasan Zaman (1979) mentions that the social security system as envisaged through the method

of Zakah is different from the capitalist and the socialist social security. In the socialist system

the history of social security is a history of class struggle, bitterness and conflict. It is

established, through legislation, after ages of struggles, class hatred and a sense of deprivation on

the part of wealthy. In the capitalist system, it is a stop-gap arrangement or patchwork. In the

Islamic system of social security, there is none of these features. For Muslims, Zakah is not a

matter of legislation or an issue in the class struggle. It is a duty of some and the right of the

people and is automatically adjusted. 2

2 Zaman, Hasan (1979). Social Security in Islam. Thoughts on Islamic economics. Islamic Economics Research

Bureau, Bangladesh

2

Shah Muhammad Habibur Rahman (1979) objectifies Zakah as tool to deter concentration of

wealth in a few hands, which lead to social stratification which Islam strongly condemns and to

eliminate poverty from the Islamic society.3

Dr. Asad Sayeed and Farhan Sami Khan (2000) describe Zakah, Ushr and Baitul-ul-Mal as the

major social safety nets schemes in Pakistan. The purpose of these schemes is providing

financial assistance and rehabilitation of the poor, needy and destitute. 4

Monowar Hossain (2007) is surprised that Zakah, 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 percent of the population are

Allah-fearing Muslims. Also, there is confusion and ignorance about true practices of Zakah in

the mind of these people, which resulted in lasting benefits not accruing to the traditional Zakah

receivers. 5

Rahmatullah (2007) illustrates that Islam enjoins on believers a duty of individualistic and

collective nature. Moreover duties of the individualistic nature also carry social dimensions. This

is due to the fact that Islam considers individual as an integral part of the total society. Therefore

he has much rights and duties towards it as it has towards him. Zakah as prescribed by holy

3 Rahman, Shah M. Habibur (1979). Zakat: A case for equitable distribution of income and wealth. Thoughts on

Islamic economics. Islamic Economics Research Bureau, Bangladesh)

4 Sayeed, Asad and khan, Farhan Sami (2000); Beyond Safety nets: Provision of Comprehensive Social Safety in

Pakistan; Discussion paper no. 2; Pakistan Institute of Labor Education and Research.

5 Hossain , Monowar (2007) ; Zakat Based poverty eradication in Bangladesh: The Millennium Development Goal

is exceed able; International Seminar on “Islamic Alternative to Poverty Alleviation: Zakat, Awqaf and

Microfinance”, April 21-23, 2007 Bangladesh

3

Qur’an indicates nothing but social security/insurance to the indigents of the society where

Zakah is practiced.6

S.M. Ali Akkas (2007) points out the need for introducing a continuous basic minimum initial

asset/capital transfer mechanism like Zakah. Because government safety net programs are often

seasonal, poorly covered and aptly regarded as least organized thereby having very marginal

impact on poverty. Market mechanism, on the other hand, has nothing to do with poverty except

the poor receive something by its trickle down effects emanated from higher growth. 7

Haitam A. Al-Zoubi, Kabir Hassan, Bashir Al-Zu’bi and Aktham Maghyereh (2006) show the

difference between Zakah system of social security and the traditional system. Zakah is not a

compulsory contributory savings plan for the future. It is being paid to the needy people and

other groups in order to get reward in the hereafter. Therefore, it is much wider in scope than a

traditional social security system. Zakah is indeed a relief to its recipients in the short-run, and at

the same time it is a long-run mechanism to lessen the impact of poverty and other economic and

social problems. 8

M. Kabir Hassan (2008) states that Zakah is a religious obligation and instruments of poverty

alleviation .Consensus emerging that many conventional development programs have failed to

reduce poverty. Therefore, need to seek alternative programs and strategies. In this case, Zakah is

6 Rahmatullah (2007); Role of Zakat in Alleviation of Poverty Among Muslims in India; Seminar mentioned in

footnote 5.

7 Akkas, S.M.Ali (2007); An Islamic Alternative to Poverty Alleviation: The “PARSHI” (Neighborhood) Model;

Seminar mentioned in footnote 5.

8 Al-Zoubi, Haitam A.; Hassan, Kabir; Al-Zu’bi, Bashir; and Maghyereh, Aktham (2007). Debt, Zakat and Optimal

Taxation in Islamic Economy. Seminar mentioned in footnote 5.

4

the best strategy. Rationale of using Zakah is that it is the unique faith-based institution and Still

Zakah is unutilized for poverty alleviation.9

3. Methodology:

In this paper, I have applied a multi-methodic framework to strengthen the arguments. A sample

survey was conducted to examine the potentiality of Zakah in Bangladesh as a social safety net.

Mainly two villages, Panjora and Nagori, under Kaliganj Thana 10of Gazipur district were

covered in this survey. A standardized questionnaire has been prepared for the execution of the

sample survey. Randomly selected 20 households (10 from each village) were surveyed. The

main purpose of the survey was to see number of households below and above the Nisab level.

Beside the sample survey, I have discussed with experts when relevant data was not available.

Several issue were discussed including land ownership, Nisab level etc.

In addition, empirical analysis is used to depict the poverty and income inequality scenario of

Bangladesh. The data of Household Income and Expenditure Survey (2005) is used in this

regard. 7440 households were surveyed under a specific questionnaire by the Bangladesh Bureau

of Statistics.

The most important role of this paper is the sample survey which depicts the household’s

production of agricultural commodities and identifies the number of Zakah payer. It has also

incorporated enormous statistics and has related them as supporting arguments.

9 Hasssan, M. Kabir (2008). Estimation of Zakah in Bangladesh with secondary macro-data.

http://centerzakatmanagement.org/

10 A Thana is an administrative unit that is smaller than a district and consists of a number of villages.

5

4. Definition of Social Safety Net Programs and Zakah:

4.1 Social Safety Nets Programs:

Many institutions have defined Social Safety Net Programs in different ways. Some of the

important definitions are mentioned below:

The World Bank defines social safety nets as “programs that protect a person or household

against the adverse outcome of chronic incapacity to work (chronic poverty); and a decline in

this capacity from a marginal situation that provides minimal means of survival with few

reserves (transient poverty).11

The World Bank has also defined the following basic features of Social Safety Nets12:

to prevent the poor from resorting to coping behavior that undermines their assets.

to facilitate the acceptance of market based reforms.

to enable the poor to better manage risk.

The International Monetary Fund (IMF) defines social safety net as instruments aimed at

mitigating possible adverse effects of reform measures on the poor. (Chu and Gupta 1998)13

The Asian Development Bank (ADB) defines “social assistance” as programs designed to assist

the most vulnerable individuals, households and communities meet a subsistence floor and

improve living standards (Howell 2001).14

The International Labor Organization (ILO) defines Social assistance as tax-financed benefits to

those with low income. (2000)

11 Kabir, Ekram ( 2004); Strengthening Social Safety Nets in Bangladesh; page- 8

12 This definition has taken from the World Bank web site: www.worldbank.org/poverty/safety

13 Grosh, Margaret ( 2008); For protection and promotion: The Design and Implementation of Effective Safety Nets; page- 5


6

http://www.worldbank.org/poverty/safety

Sala-i-Martin (1996) has defined “transfers and other social safety nets as a means to buy

political stability and prevent social unrest, such as crimes, revolutions, riots etc.” It is in this

sense a public good and in the long run contributes to economic growth.15

APEC describes social safety net as a set of specific programs designed to provide targeted

income support and basic services to poor people and those needing assistance after economic

downturns, natural disasters and other temporary adverse economic circumstance.16

The Food and Agriculture Organization (FAO) defines Social safety nets as cash or in-kind

transfer programs that seek to reduce poverty by redistributing wealth and/or protect households

against income shocks. Social safety nets seek to ensure a minimum level of well-being, a

minimum level of nutrition, or help households manage risk. (2003)17

In the international context, social safety net can be viewed as a means to assist countries to

overcome the undesirable side effect of globalization and the ensuing process of restructuring

and reform to adopt the changing parameter in the world economy.18

In Economic Review of Bangladesh, Social safety nets are the programs based on the

government policy to reduce income uncertainty and variability, maintain a minimum standard

of living; and redistribute income from the rich to the poor.19

4.2 Zakah:15 Sayeed, Asad and khan, Farhan Sami (2000); Beyond Safety nets: Provision of Comprehensive Social Safety in

Pakistan; Discussion paper no. 2 ; Pakistan Institute of Labor Education and Research.




19 Chapter 13; Economic Review of Bangladesh: 2007 page-170

7

Literal meaning of Zakah: The Arabic word Zakah means “purity” and “cleanliness”, since

giving away a part of one’s wealth to the poor purifies his wealth as well as his heart. Salat

purifies the soul and Zakah purifies wealth (Al Qur’an, 9:103) According to Maududi, a person’s

wealth is impure, if he does not pay the right of Allah’s servants from the wealth bestowed by

him.

Zakah means ‘that which increases’. The payment of Zakah goes spiritual when it is done in the

remembrance of Allah, hence it will lead to increase of his wealth.

Another meaning of Zakah is growth. This growth has two dimensions (Zaman 1980; shad 1986,

p.48). First, spiritual development by pleasing Allah. Second, Zakah redistributes income,

leading to “an urge for greater enjoyment and in turn to greater production.” Accumulation and

hoarding affects production and, on the other hand, distribution and circulation stimulates

production and growth (Zaman 1980, p. 103)

Shariah terminology of Zakah: Zakah is an obligatory Ibadah and a Rukn (pillar) of Islam

ordained in the Qur’an along with prayer. This was an obligatory Ibadah during all other

prophets in the past, which signifies its importance as an Ibadah and also for its role in the socio-

economic life of Muslims. (Maududi 1988, pp.303-313) Zakah is the part of wealth which the

rich, possessing the Nisab, has been ordained to spend for the deserving recipients at prescribed

rates as per rules laid down in the Islamic sources.

Allah has made perfectly clear the purpose of Zakah in the Qur’an as mentioned in the following

verse of ‘Sura Al-Tawaba’:

Alms (Sadaqah) 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 Allah, and for the wayfarer; (thus is it) ordained by Allah, and Allah is full

of knowledge and wisdom. (9:60)

8

From the writings of Muslim and non-Muslim writers:

Many Muslim and non-Muslim scholars have studied zakah profoundly and defined zakah from

different perspective. Some of the important definitions are mentioned here as follows:

According to Maududi, “The institution of Zakah creates the sprit of sharing and helping others,

as against the inherent selfish behavior, and thus creates a healthy and congenial social

environment.”20

Hughes describes Zakah is an institution of Islam and is founded upon an express clause in the

Qur’an being one of the foundations of practical religion. It is a religious duty incumbent upon

every person who is free, sane and adult and a Muslim provided he be possessed in full property

of such estate or effects as are termed in the language of the law ‘Nisab’ and that he has been in

possession of the same for a space of one complete year.21

According to K. Cragg, Zakah is the condition in Islamic economic theory of the validity of

private property. Its essential meaning is that there is a public share in all private ownership

which must be acknowledged.22

According to Ali Akkas, Zakah is a compulsory payment levied by an Islamic state on the

members of the Muslim community, with a view to taking it from the comparatively well-to-do

members of the society and giving it to the destitute and the needy. 23

20 Sadeq, Abu Al-Hasan (2002). A survey of the institution of Zakah: issues, theories and administration. Discussion

paper No.11, Islamic Development Bank and Islamic research and training institute

21 Hughes (1956): Dictionary of Islam Clifton, New survey, pp. 699-700

22 Cragg K. (1959); Sandals in the Mosques, O.U.P. New York, pp.154

23 Akkas, Ali ( 1980) ; Fiscal Policy in an Islamic State; Thoughts on Islamic economics, Islamic economic

Research Bureau, Bangladesh

9

Omar A. Farrukh defines Zakah is a yearly premium on all forms of accumulated productive

wealth as well as on a variety of agricultural products calculated at various rates according to the

nature of the wealth or product and due to the needy individuals of the Muslim community for

their rehabilitation.24

According to Farishta G. de Zayas, “Second only to prayer as an essential article of the faith,

Zakah forms an integrant, compulsory and inseparable part of the Islamic way of life, the non-

observance of which is tantamount to a negation of the faith itself”.25

“Zakah is one of the five fundamental principles of Islam which Allah imposed on the properties

of the Muslim to be spent as imposed by Allah on the common affairs and social welfare.” 26

According to Hasan Zaman, “Zakah is an act of worship, a religious duty, a duty to Allah. As it

is no favor to the poor, they feel no humiliation or subservience. The whole process is saturated

with the spirit of friendship and fraternity.” 27

Monzer Kahf states that Zakah is a special annual contribution-cum-worship. It is levied on the

total personal net worth of an individual Muslim. It is to be collected by the state and spend for

the specific purposes. It is assessed on net worth at a fixed percentage which varies according to

the type of wealth or income. Zakah covers agricultural products, industry, money and finance,

commerce and mining and no exemption is given to non productive assets. 28

24 Farrukh, Omar A (1960), Introduction to the Law and Philosophy of Zakah by Zayas, Damascus, XV

25 Zayas ,Farishta G. de(1960) - The Law and Philosophy of Zakah, Damascus, XXII

26 Notice from the Ministry of Finance, Saudi Arabia, (May 11, 1951); The Income Tax and Zakah Law. Translation by Samir Shamma, Darul A’hd, Beirut.

27 Zaman, Hasan (1979); Social Security in Islam; thoughts on Islamic economics; Islamic Economics Research Bureau; Seminar on Islamic economics. p- 102

28 Khaf, Monzer; Zakah and Prohibition of Riba in the Islamic Economic System

10

Umer Chapra states, “Islam requires every Muslim, having resources in excess of a certain basic

amount, to pay Zakah at a given proportion of his or her net worth or agricultural output, for the

benefit of mainly the vary poor and the destitute.” 29

5. Current Status of Existing Social safety net Programs:

In this section the existing social safety nets programs, trends of some major social safety nets

programs, its necessity in alleviating poverty and need for a new strategy will be shown

chronologically:

5.1 Existing programs:

During the last two decades, the government has been pursuing a number of social safety net

(SSN) programs. According to the “Economic Review of Bangladesh 2007” Programs are

categorized into six broad schemes and there are several programs under these schemes as

follows-

1) Cash transfer programs: This includes Old-Age allowance program, Allowances

program for Widowed, Deserted and Destitute Women, Fund for Rehabilitation of the

Acid-Burnt and the Physically Handicapped, Cash transfer programs for education, Rural

Maintenance Program (RMP), Food for Works Program (cash), allowances for fully

Retarded etc.

2) Food transfers programs: This constitutes Food for Works, Vulnerable Group

Development (VGD), Vulnerable Group Feeding (VGF), Test Relief (TR) and Gratuitous

Relief (GR) Program.

29 Chapra, M Umer (1993), Islam and Economic Development; Islamic Research and Training Institute, Jeddah.

11

3) Special poverty alleviation programs: This scheme includes Poverty Alleviation and

Goat Development Project, Providing Incentives and Financial Assistance to Poultry and

Livestock Sector, Fund for Housing the Homeless, Fund for Mitigating Risks due to

Natural disaster, Fund to meet temporary Unemployment, Seasonal Unemployment

Reduction Fund etc.

4) Micro-credit programs for self-employment: This scheme includes Micro-credit

programs for self employment of Women, Urban Based Women Development Project,

Rural women development project, Micro-credit programs of Bangladesh Small and

Cottage Industries Corporation etc.

5) Other special poverty alleviation activities: This scheme is providing fund for

Information and Communication Technology (ICT) for Poverty Alleviation, Urban

Poverty Reduction Program, Rural Infrastructure Development Program, Social services

etc.

6) Several new and desired schemes: These programs are included during the last two years

(2007 and 2008). It includes Maternity Allowance for the poor lactating mothers, Rural

Employment Opportunities for protection of Public Property, Allowance for different

orphanages, Rehabilitation program for Orphanage by Cyclone Sidr, School feeding

program etc.

12

5.2 Trends and effectiveness of current Social Safety Net Programs:

Allocation on some major social safety net (SSN) programs is depicted in the following table:

TABLE 1: Allocation on some major social Safety net Programs

Fiscal year

Old-Age

allowance

Allowances for

WDDW

Fund for

RABPH

Food for Works

Fund for MRND

2002-03 Tk.75 crore Tk.40 crore Tk. 15 crore - Tk. 25

crore

2003-04 Tk.180

crore

Tk.90 crore Tk. 25 crore Tk. 140

crore

Tk. 50

crore

2004-05 -. - Tk. 25 crore Tk.

264crore

Tk. 75

crore

2005-06 Tk. 324

crore

Tk136

crore50lakh

Tk. 25 crore Tk. 300

crore

Tk. 70

crore

2006-07 Tk. 384

crore

Tk.156 crore Tk. 10 crore - Tk. 30

crore

2007-08 Tk 480

crore 80

lakh

Tk 198 crore - - -

2008-09 Tk. 600

crore

Tk. 270 crore Tk. 60 crore - -

Source: Bangladesh Economic Review. Various years

Here, WDDW = Widowed, Deserted and Destitute Women, RABPH = Rehabilitation of the

Acid-Burnt and the Physically Handicapped and MRND = Mitigating Risks due to Natural

disasters.

13

From the above table it is appeared that one of the identical characteristics all the programs show

is that the budget allocation has been increased in case of every program. This is desirable, but

from the evidence it is said that there is a large gap between the allocation and implementation of

social safety net programs. Because of this large gap, SSNP’s are not much effective in

Bangladesh. The upward trends make doesn’t show an overall optimistic view because the

benefits are dragged down due to following reasons:

Social Safety Net Programs are distributed by government officials. Most of them are

involved in corruption. According to the Corruption Database Report 2005 of

Transparency International Bangladesh (TIB) about 71.9% government officials and

employees are involved in corruption.

The actual numbers of beneficiaries were less than the officially determined number.

Local political leaders are grabbing aid able goods such as rice, wheat, lentils etc through

VGF card manipulation.

Nearly 50 percent of the recipients of the stipend at school and madrasah level are fake

and they are getting the stipend money illegally in collusion with a section of corrupt

teachers.

Anomalies are found in transportation, handling of grains and inaccurate weighing for

distribution.

Needy and poor people are not conscious about their rights.

Information gap persists between recipients and authority.

Weakness of government of selecting effective programs.

5.3 Poverty and Income Inequality Situation of Bangladesh and Need for a

New Strategy:

14

Poverty Situation:

Poverty Situation at national level is reported in TABLE 2. The report of Household Income and

Expenditure Survey (HIES)-2005 reveals that incidence of poverty registered a declining trend in

2005 as compared to 1991-92 based on Cost of Basic Need (CBN) method. The incidence of

poverty declined from 58.8 percent in1991-92 to 40.0 percent in 2005 based on the upper

poverty line. During this period, the compound poverty reduction rate is recorded 1.8%.

On the other hand, during 2000 to 2005, income poverty also reduced from 48.9 percent to 40.0

percent and the compound reduction rate is 3.9 percent. Between 2000 and 2005, the depth

(measured by poverty gap) and intensity (measured by squared poverty gap) of poverty declined

simultaneously.

TABLE 2: Trends of Poverty at the national level based on CBN Method

2005(%) 2000(%) Annual change (%) (2000-2005)

1991-92(%) Annualchange (%) (1991-92-2005)

Head Count Index

40.0 48.9 -3.9 58.8 -1.8

Poverty Gap

9.0 12.8 -6.80 17.2 -2.9

Squared Poverty Gap

2.9 4.6 -8.81 6.8 -3.8

Source: BBS, HIES-2005; Economic Review of Bangladesh-2007

The trends of poverty on the basis of Head Count Ratio and Direct Calorie Intake (DCI) method

at national level are presented in the following Table-3:

TABLE 3: Trends of Poverty based on Head Count Ratio and DCI method

at national level

Survey Year

People below poverty linePoverty line 1: Absolute Poverty, Daily less than 2122 kilocalorie food intake

Poverty line 2: Hardcore Poverty, Daily less than 1805 kilocalorie food intake

15

People (%) People (%)2005 40.4 19.52000 44.3 20.01995-96 45.5 25.11991-92 47.5 28.0

Source: BBS, HIES-2005, Economic Review of Bangladesh -2007

According to Head count ratio, using DCI method, in 2005, the incidences of absolute poverty

and hardcore poverty were 40.4 and 19.5 respectively. From 2000 to 2005, a reduction of

absolute poverty and hardcore poverty is recorded 4.1 percent and 0.5 percent respectively.

Income Inequality Situation:

Income inequality situation deteriorated during 1995 and 2005 (TABLE- 4). Income inequality,

measured through Gini Co-efficient, has increased from 0.432 in 1995-96 to 0.451 in 2000 and

then increased further to 0.467 in 2005. Moreover, The income gap between top 5% and lower

5% has increased from 27 times in 1995-96 to 30 times in 2000 and then increased further to 39

times in 2005.This situation portrays the fact that poor are being poorer and rich are being richer

and this gap hampers social justice and encourages corruption, mismanagement, political

instability etc.

TABLE 4: Percentage share of income of households by deciles group (bottom 20%) and Gini Co-efficient

Household Income Group

1995-96 2000 2005

National 100.00 100.00 100.00Lower 5% 0.88 0.93 0.77Top 5% 23.62 28.34 29.93Income Gini Co-efficient

0.432 0.451 0.467

16

Source: Report of the Household Income and Expenditure Survey 200530

Necessity of Social Safety Nets Programs and need for a new strategy:

The declining trends of poverty are optimistic and reveal the necessity of Social Safety Nets

Programs. As the declining rate is slow and still 40 percent of the population is remaining poor

and income inequality is increasing, government should take new strategy to eradicate poverty

beside these existing programs. In this case, Zakah can be the best strategy because early history

indicates Zakah was effective in solving the problems of poverty. Apart from that Zakah is

unique faith-based institution and still unutilized for poverty alleviation in Bangladesh.

6. Zakah: The best strategy to alleviate poverty:

In this section the estimation of Zakah and its reality in Bangladesh along with effectiveness of

Zakah as Social Safety Net will be shown.

6.1 Estimation of Zakah:

In Bangladesh Zakah is not obligatory payment rather voluntary. It is a matter of great regret that

no government has yet taken to collect Zakah centrally. That is why the actual amount of Zakah

is unknown to us. Estimated amount of Zakah is found. Many enthusiastic Islamic scholars have

made an effort to estimate zakah in Bangladesh in different times. Among them contribution of

M Kabir Hassan (2008), Shah Muhammad Habibur Rahman (1995) and Mohammad Abdul Latif

(1990) will be shown here very briefly.

Aggregate Zakah calculation can be divided into three parts. These are -

Calculation of Zakah on Agricultural Crops

30 Dev, Uttam; Hoque, Zobdul; Khaled, Nafisa and Bairagi, Subir Kanti (2008); Growth, Income Inequality and

Poverty Trends in Bangladesh: Implication for Development Strategy. Paper presented at the Dialogue on

“Addressing Regional Inequalities: Policy Options and Strategies” held on 28 February 2008; Organized by Centre

for Policy Dialogue (CPD)

17

Calculation of Zakah on Bank Deposits

Calculation of Zakah on Other Sources

1. Calculation of Zakah on Agricultural Crops:

Mohammad Abdul Latif has a great contribution in determining the total value-added of

agricultural crops of Bangladesh and the Nisab of Ushr (Zakah on Agricultural Crops).

According to his estimation the Nisab level land is 2.03 acres for non-irrigated and 1.13acres for

irrigated land. 71.02% of cultivable land is subject to Ushr payment.31

K. Hassan, S.M.H. Rahman and M.A. Latif have used same approach to calculate of Zakah on

Agricultural Crops. According to Kabir Hassan (2008) the calculation of Zakah on Agricultural

Crops (2005-06) is depicted in the following table:

TABLE 5: Zakah Calculation on Agro crops (2005-06)

Particulars Amount (TK in million )1) Value of Agro-crops subject to user (64.27% of total value of agro-crops amounting TK.461182 million)

296402

2) Value of Agro-crops subject to user for irrigated land (36.12% of 296402 million)

107060

3) Value of Agro-crops subject to user for non- irrigated land (63.88% of 296402 mi0llion)

189342

4) Usher to be collected from irrigated land (5% of TK. 107060 million)

5353

5) Usher to be collected from non- irrigated land (10% of TK. 107060 million)

18934

6) Total Agro Zakah to be collected [4+5] 24287

2. Calculation of Zakah on Bank Deposits:

To calculate Zakah on Bank deposits S.M.H. Rahman and M.A. Latif have used same approach.

According to their process calculation of Zakah on Bank Deposits (2005-06) is shown below:

31 Latif, M.A. (2005); Zakah in Poverty Alleviation: Bangladesh Perspectives; Eviction of Poverty in Islam; Edit by Nurul Islam Manik, Published by Islamic Foundation Bangladesh. P- 200

18

TABLE 6: Calculation of Zakah on Bank Deposits (2005-06)

Types of Deposits

Amount Rate of Zakah Amount of Zakah(TK in Million)

A)Time Deposits 1380219 2.5% 34505.475B) Post Office Deposit

50277 2.5% 1256.925

Total (A+B) 35762.4Source: Bangladesh Statistical Year book 2007, BBS p. 314

According to Kabir Hassan amount of Zakah on Bank Deposit in 2005-06 is TK 43097 million.

There is a gap of TK 7334.6 million due to using different method.

3. Calculation of Zakah on Other Sources:

M.A. Latif mentions three other sources of Zakah. These are as follows-

Zakah on Crops other than Agriculture such as cash crops ( jute, tea, tobacco)

Zakah on Industrial and Trade Services

Zakah on gold/ornaments.

Kabir Hassan mentions six other sources of Zakah. These are as follows-

Zakah on Remittances

Zakah on Mines


Zakah on Fishery

Zakah on Shares

Zakah on Live stocks

Aggregate Zakah Calculation:

In 1990-91, According to Muhammad Abdul Latif, the total Zakah collection is 2066.84 crore

taka.32

32 Latif, M.A. (2005); Zakah in Poverty Alleviation: Bangladesh Perspectives; Eviction of Poverty in Islam; Edit by

Nurul Islam Manik, Published by Islamic Foundation Bangladesh. P- 202

19

In 1995-96, an estimation of Zakah was prepared by A.S.M.Torikul Islam and he showed

2837.68 crore taka as Total Zakah collection.33 At the same year, Shah M Habibur Rahman

prepared another estimation and calculated 3177.67 crore taka as the total Zakah. 34

Recently Kabir Hassan finds out the aggregate calculation of Zakah from 1997-98 to 2008-09. 35Following table portrays the scenario:

TABLE 7: Aggregate Zakah Calculation

Year

Zakah on Remittances

Zakah on Mines


Zakah on Bank Deposit

Zakah on Fishery

Zakah on Agro-products

Zakah on Shares

Zakah on Live stocks

Aggregate Zakah (taka in millions)

1997-98 1390

686 19091 11929 2111 14968 1784 6052019

1998-99 1643

671 20651 13585 2308 17059 1784 6457765

1999-00 1965

812 22380 16146 2513 16544 1784 6962213

2000-01 2053

912 24733 18924 2400 17938 1784 6968813

2001-02 2878

957 27277 21519 2450 17850 1617 7174619

2002-03 3544

1028 30601 25020 2592 18970 1804 7583634

2003-04 3974

1105 34188 28472 2731 20476 371 7991396

2004-05 4729

1188 38764 33223 2781 21844 5311 90107930

2005-6442

1287 44294 43097 3007 24286 5088 97127598

33 Islam, A.S.M. Torikul (1999), Role of Zakah in Poverty Alleviation: Bangladesh Perspectives; Eviction of Poverty

in Islam; Edit by Nurul Islam Manik, Published by Islamic Foundation Bangladesh. P- 167

34 Rahman, Shah M Habibur (1996); Zakah in Poverty Alleviation and Social Welfare; Islamic Economics: Selected

Essays. P- 56

35 Hasssan, M. Kabir (2008). Estimation of Zakah in Bangladesh with secondary macro-data. http://centerzakatmanagement.org

20

06

In 2005-06, the total Zakah collection is 12,760 crore taka and it will be 14,770 crore taka in

2008-09 (assuming 5% average annual GDP growth for the last few years) which is 22% of

national budget.

6.2 Estimation of Zakah and Reality:

Estimating Zakah is a great contribution indeed. It shows the potentiality of Zakah as a tool for

poverty alleviation. But question may arise do the estimations touch the reality? In this regard

our survey portrays an optimistic view. According to our survey, 45% households have fulfilled

Nisab who have the minimum quantity of crops the possession of which makes a person liable to

Ushr in accordance with Shariah. Though land size is being smaller day by day, production of

agricultural crops are increasing to a great extent because farmers are being now more alert and

using modern technology. Total Ushr able amount of paddy is 830 maunds from which 41.5

maunds paddy can be collected as Ushr. If we converted this amount of paddy into rice, the

amount is 29.05 mounds which market price is 32,528 taka. Although farmers do not know much

about Ushr and how to pay, they pay a small amount of paddy as gift to mosques, religious

institutions and destitute. It shows an optimistic view of collecting huge amount of Zakah

throughout the country of 68000 villages and supports previous estimations conducted by

Muhammad A. Lafif, Shah M Habibur Rahman and Kabir Hassan. (Annex 1)

6.3 Zakah as an Effective Social Safety Net:

Due to following reasons Zakah may be the effective social safety net-

Reducing foreign dependence: Deficit budget and foreign aid has been entwined

together in the economy of Bangladesh since its birth. Every year government borrows

from foreign sources to meet the large budget deficit. The Government will borrow

additional 14,590 crores taka from foreign sources (loans and project aid) in 2008-

21

09.Zakah can substitute foreign borrowing completely, thus reducing our foreign

dependence.

Eliminating “crowding out effect”: Borrowing is a regular phenomenon for our

government. Every year government borrows a huge chunk of money from bank and

non-bank sector and this year is not exception. In 2008-09, The Government will borrow

taka 14,000 crores from banking system and taka 3,500 crores from non-banking sources,

which totals taka 17,500 crores. Zakah can substitute government borrowing from the

banking system, thus eliminating “crowding out effect” for the private sector borrowing

from the banking system.

Fund for annual development Budget: We have seen earlier that the estimable

Zakah for 2008-09 is Taka 14, 770 crores. On the other hand, the ADP budget for 2008-

09 is 25,600 crores Taka. In that case, Zakah can fund 58% of 2008-09 annual

development budgets.

Zakah downgrades ownership: Zakah downgrades ownership as such by

encouraging everyone to regard the relinquishing of wealth, not only as an act of merit

but almost as a habit. Every Muslim is enjoined to give of his own wealth to others. Even

the poor and the needy are, according to the best authorities, liable for paying Zakat al-

Fitr, which is due once a year after the end of the fasting month of Ramadan. In this way

Islam encourages every individual to look upon money not with the eye of the greedy, but

with the feeling of the generous and the helpful.

Zakah ensures money circulation: Zakah is a weapon against hoarding, since

money whether utilized or not is taxable at the same rate. Those who keep their money

out of circulation and consequently affect the economic growth of society would be

severely punished by having their wealth reduced annually to the point of extinction.

Islam, by taxing capital as well as profit, forces the capitalist to put his money into

circulation and thereby keep the economy going.

Contributing to a balance economic growth: Income support provided to the

poor and needy would result in a measured increase of the money supply in the economy

causing upward shift in demand for goods and services. To support this upward shift in

the demand for basic necessities of life such as food, clothing, shelter etc. The production

22

facilities would gradually expand and begin to absorb the idle capital. To support the

increased production, the economy would generate more jobs and new employment

opportunities. This added employment in turn would generate more demand for goods

and services, more room for additional investments, and finally, the growth cycle based

on balance consumption would contribute to a balance economic growth.

7. Recommendations:

Proper estimation of Zakah: Considering Zakah as an effective social safety net,

Government should estimate Zakah collection properly. It will help him to take the firm

decision to collect and distribute Zakah centrally.

Updating Zakah ( Collection and Utilization) Rules,1983: Religious Affairs

Division under Ministry of Local Government ,Rural Development , Co-Operative and

Religious Affairs prepares rules of collecting and utilizing Zakah in 1983 in exercise the

power inferred by section 15 of the Zakat Fund Ordinance,1982 (VI of 1982), the Zakat

Board. These rules should be updated and taken a bold step to collect and utilize Zakah.

Creating Regional Zakah Fund in Private Sector: As public sector is failed to

Zakah collection and utilization properly, private sectors should be come forward to meet

the demand of Shariah. In this case, at least, rich persons including land lord, traders

should create Zakah fund in major cities.

Duties of Large Islamic Organizations: Large Islamic organizations can play an

effective role in collecting and utilizing Zakah. They should organize Zakah fund and

demonstrate awareness campaign because most of people are not conscious about Zakah.

Large political Islamic organization should also promise to establish Zakah centrally in

their election manifesto.

23

8. CONCLUSION:

The abovementioned analysis attempt to demonstrate that if we establish Zakah the way it has

been prescribed in the holy Qur’an and Sunnah and practiced by the devoted followers the

Prophet (PBUH), Zakah can be an effective social safety net as well as an effective tool for

poverty alleviation in Bangladesh. Government should realize this and integrate Zakah in the

poverty alleviation policy. It is also true that this can not be done unless the entire politico-

economic system of the country is fully Islamized. Therefore, Islamic organizations and private

sectors have to play an important role in implementing Zakah under existing circumstances.

24

Annex 1

Survey Report 2008

Characteristics of the Villages:

Single cropped area

Mostly irrigated

Most of the farmer are share cropper

Small farm (0.5-2.49 acres)

TABLE A.1: Land distribution

Land Size (acre) No. of Households

0.06- 0.49 40.5- 0.99 101-1.49 41.5-1.99 2Total 20

According to the definition of The Statistical Year book 2007 all of them are small category of

land holdings by farm sizes.

TABLE A.2: Ownership of Land

Types of Ownership No of Households percentage Own 6 30Sharecropper 14 70Total 20 100

25

About 70% of the households are sharecropper. They cultivate other land and produced goods

are divided into two parts.

TABLE A.3: Production range wise Household distribution

Production range ( maund) No of Households0-19 420-39 440-59 360-79 480-99 1100-119 3120-139 1Total 20

Range 60-79 to 120-139 is under Ushr. There are 9 (45%) households who lie in these ranges.

TABLE A.4: Ushr able Production

(Production in Maunds)Production

range Average

Production No of

Households Total Production

60-79 70 4 28080-99 90 1 90100-119 110 3 330120-139 130 1 130Total 9 830

We can calculate Ushr on 830 maunds. As irrigated land, Ushr is 41.1 maunds of paddy.

Converting Paddy into Rice, Ushr is 29.05 maunds.

29.05 maunds are equal to 1084.26 kgs. Market price of rice is 30 taka per kg.

So, Ushr is at market price 32528 taka.

26

Annex 2Survey Questionnaire

Section 1: Personal Information:

Name:

Address:

Village: Thana: District:

Section 2: Production Information:

1) Land Size:

2) Cropped area: (Tick)

a) Single Cropped b) Double Cropped c) Triple Cropped

3) Production of Rice:

Aus-

Aman-

Boro-

IRRI-

4) Production/ acre:

5) Others Crops:

Wheat

Sugarcane

Jute

Others

Section 3: Motivation

27

http://www.newsnetwork-bd.com/

http://www.csbib.org/

Do you know there is a Zakah on crops called Ushr?

Answer:

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zakah an effective social safety net

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