Written by Maya Hammad, former International Policy Centre for Inclusive Growth (IPC-IG)
What is Zakat and how is it institutionalised in social protection systems?
Zakat is the third of the five main pillars of Islam and constitutes an obligatory donation that Muslims must make. In Arabic, Zakat comes from the word meaning ‘to purify’ as it is a mechanism to ‘purify’ the wealth of the rich and redistribute it to achieve social justice. Only Muslims whose wealth has reached above a certain point known as the Nisab are required to pay Zakat. Nisab is equivalent to the price of 85 grams of gold and a person becomes liable to pay Zakat if this amount is in their possession for a full year and after all personal expenses are deducted (Machado, Bilo, and Helmy 2018). Zakat must be paid on wealth owned in the form of gold and silver, agricultural products and livestock, business assets, financial assets, and rentable buildings. Zakat is set at 2.5 per cent of all productive wealth and is meant to be distributed to eight categories (Asnaf) of people listed in the Quran as having the right to receive it:
- the poor,
- the needy,
- new converts to Islam,
- slaves and captives,
- the debt-ridden,
- stranded travellers,
- Zakat administrators,
- and ‘for the sake of God’ (Quran 9:60).
For donations to qualify as ‘Zakat’ they must be given to one of the eight categories, and in most Muslim countries Islamic jurisprudence authorities issue Fatwas  clarifying those eight categories and elaborating on what can be considered Zakat. For example, in Egypt, a Fatwa clarified that Zakat is permissible to cover teachers’ training expenses as education is a public good and thus falls within the ‘for the sake of God’ (Quran 9:60) category (Atia 2011). Likewise in Singapore, a Fatwa indicated that covering a student’s fees can count as Zakat within the ‘slaves and captives’ category because it contributes to freeing someone from the ‘shackles of ignorance’ (Hammad 2022a).
Governments across the Muslim world have sought to regulate and institutionalise Zakat but this differs from one country to the next. Hammad (2022a) explores the different modalities of how Zakat collection and distribution systems operate and highlights the management and institutional arrangements of Zakat – i.e whether they are State- or charity-led, centralised or decentralised; as well as the financing of Zakat systems – i.e whether they are compulsory or voluntary.
Management and institutional arrangements
In most countries, Zakat is administered either through state-led Zakat Funds like in Jordan, Egypt and Malaysia or through charity-led Zakat collection processes like in Lebanon, South Africa and India (see Figure 1). Jordan’s Zakat Fund has a central office in the capital and then local committees spread out across the Kingdom. 10 per cent of Zakat collected by the committees must be sent to the Central Zakat Fund for redistribution to committees in the poorest areas. Another interesting case is the state-led Zakat Fund in Indonesia which was established in 2011 and subsequently required all past private Zakat collectors such as mosques, and Islamic schools to register for a Zakat Collection Permit and report on the amounts of Zakat collected and distributed (Hammad 2022a).
State-led Zakat funds are usually under the Ministry of Religious Affairs. Although Hammad (2022a) highlights Kuwait and Saudi Arabia as they involve the Ministry of Finance in Zakat collection. In Saudi Arabia, Zakat collection is done by the General Authority for Zakat and Tax which then transfers the Zakat to the Ministry of Human Resource Development to fund the country’s main cash assistance programme.
Figure 1: Modality of Zakat Collection by Country
Source: Hammad (2022a)
In the report, Hammad (2022a) finds that 12 countries have voluntary payments to Zakat Funds (See Figure 2). Pakistan, Malaysia, and Singapore make Zakat payments obligatory by law akin to tax payments and Sudan, Pakistan, Saudi Arabia and Kuwait even extend this obligation to companies. Pakistan is a notable example of compulsory Zakat as it is the only country in the world where Zakat is automatically deducted once a year from the savings bank accounts of Muslims whose wealth has reached the Nisab. A mechanism for voluntary Zakat payment is still possible through in-person payments to local offices (Hammad 2022a). A similar provision of mechanisms for both voluntary and obligatory Zakat exists in Kuwait whereby individuals make voluntary payments to the Zakat House, while companies pay their obligatory Zakat to the Ministry of Finance and then it is re-routed either to the Zakat House or to the state budget as shown in Figure 3.
Figure 2: State-led Zakat payment mechanism by country
Source: Hammad (2022a)
Figure 3: State-led Zakat collection process in Kuwait
Source: Hammad (2022a)
How was Zakat utilised in the social protection response to COVID-19?
The linkages between Zakat and a country’s social protection system differ from one country to the next but generally include:
- Using Zakat for social protection budgeting and expenditure (Saudi Arabia, Kuwait, Yemen)
- Having complementary / and or coordinated databases and/or eligibility criteria between Zakat programmes and governmental cash assistance programmes (Oman, Libya, Jordan) (Hammad 2022)
In COVID-19 there was greater use of Zakat for social protection expenditure and stronger coordination between programmes implemented by Zakat Funds and those implemented by governmental cash assistance agencies.
Zakat as an emergency financing mechanism
Across the Global South, Zakat financed 11 measures out of 961 measures mapped in the IPC-IG Dashboard (2021) but it is important to recognise that this number may not reflect the reality on the ground. When looking at the MENA region, Bilo, Dytz and Sato (2022) find that 8 per cent of measures are financed by Zakat. To cope with lockdown measures, State-led Zakat Funds in the MENA region, South East Asia and South Asia increased Zakat collection to finance emergency responses (Hammad 2021). The Jordanian Zakat Fund, for example, launched a mobile app for remote donation and contributed to the efforts of the National Social Protection Emergency Response Committee by financing 13.6 per cent of its emergency in-kind assistance programme (UNICEF and Jordan Strategy Forum 2020). Similarly in Indonesia, the Central Zakat Agency facilitated receiving Zakat through QR codes, e-wallets, bitcoin, and a newly established crowdfunding platform. The new digital solutions for Zakat collection were found to have generated a 70 per cent increase in Zakat donations in the second quarter of 2020 compared to the same period in the previous year (Hammad 2021; Baznas 2021; Wayhy and Anwar 2020). In the UAE, the Ministry of Education and an NGO collaborated to implement the ‘Education Uninterrupted’ measure delivering laptops to low-income students. The measure had a Zakat-compliant donation campaign to encourage people to contribute to it (Hammad 2022b).
Coordinated measures implemented by Zakat Funds and governmental social assistance agencies
COVID-19 saw a greater increase in coordination between governmental social assistance agencies and Zakat Funds which have historically worked in isolation negatively affecting the effectiveness and coverage of social protection systems (Machado, Bilo and Helmy 2018). Notable examples of such coordination are in Egypt and Kuwait, both of which resulted in protecting previously uncovered groups. In Egypt, the Zakat House and the Ministry of Manpower collaborated so that the Zakat Funds implements an extension of an emergency programme introduced by the Ministry. At the start of the pandemic, the Ministry implemented a wage subsidy for 1.6 million informal workers for 3 months. As the pandemic persisted, the Zakat Fund financed an extension of the programme to benefit an additional 30,000 informal workers (Hammad 2021). In Kuwait, the Ministry of Social Affairs, Zakat House and 50 NGOs collaborated to set up a joint donation campaign and emergency cash and in-kind assistance programme for vulnerable families. The coordinated effort resulted in protecting previously uncovered groups such as Bidoon (stateless individuals) and migrant workers (Hammad 2021).
How can Zakat be better leveraged?
In the context of COVID-19, Zakat constituted an additional emergency financing mechanism and succeeded in extending coverage to previously uncovered groups such as migrants. If carefully managed, Zakat can have a role to play in future responses and social protection systems more generally. To do so, the following elements must be considered:
- State-led Zakat can be linked to the social protection system either by 1) constituting all or part of social protection budgeting and expenditure (i.e as in Saudi Arabia, and Kuwait or by 2) ensuring complementarity with national cash assistance programmes and coordination between the two, especially through integrated beneficiary management information systems
- The interpretation of Zakat’s 8 categories which a country follows have to be clearly indicated and explained
- Any additional eligibility criteria have to be studied in relation to the wider social protection system. Examples of additional eligibility criteria could be to 1) specify that beneficiaries are below the poverty line (if the country adopts poverty targeting), 2) show proof that a household is not benefitting from another institution
- State-led Zakat collection and distribution processes have to be transparent, and this can be done by setting a requirement for routine financing reporting and auditing in the Zakat Fund Law
- Alsayyed, N. 2009. Shari’ah Board, the Task of Fatwa, and Ijtihad in Islamic Economics, and Finance. MPRA Paper, No. 20204. Gombak, Malaysia: International Islamic University Malaysia. https://bit.ly/3QeF3jO. Accessed 1 February 2022.
- Atia, M. 2011. Islamic Approaches to Development: A Case Study of Zakat Sadaqa and Qurd Al Hassan in Contemporary Egypt. Paper presented at the 8th International Conference on Islamic Economics and Finance, Doha, Qatar, 18 December. http://iefpedia.com/english/wp-content/uploads/2011/12/Mona-Atia.pdf . Accessed 1 February 2022.
- BAZNAS. 2021. Outlook Zakat Indonesia 2021: Pusat Kajian Strategies. Jakarta: Badan Amil Zakat Nasional. https://drive.google.com/file/d/1VWF8UEtDMitcsz0bWRfh2O7bAWFP98QO/view . Accessed 5 August 2021.
- Bilo, C., L. Sato and J.P. Dytz. 2022. Social protection responses to COVID-19 in MENA: Design, implementation and child-sensitivity. Research Report No. 76. Brasília and Amman: International Policy Centre for Inclusive Growth and United Nations Children’s Fund Middle East and North Africa Regional Office. https://socialprotection.org/discover/publications/social-protection-responses-covid-19-mena-design-implementation-and-child.
- Hammad, M, F. Bacil, F. V. Soares. 2021. Next Practices — Innovations in the COVID-19 social protection responses and beyond. Research Report No. 60. New York and Brasília: United Nations Development Programme and International Policy Centre for Inclusive Growth. https://socialprotection.org/discover/publications/next-practices-innovations-covid-19-social-protection-responses-and-beyond. Accessed 29 December 2022.
- Hammad, M. 2022a. Overview of Zakat practices around the world. Research Report No. 69. Brasília and Kabul: International Policy Centre for Inclusive Growth. and UNICEF Afghanistan country office. https://socialprotection.org/discover/publications/overview-zakat-practices-around-world
- Hammad, M. 2022b. COVID-19 and Social Protection in the Gulf Region: Analysis and Lessons Learned on Shock-Responsive and Child-Sensitive Systems. Research Report. Upcoming. Brasília and Riyadh: International Policy Centre for Inclusive Growth and United Nations Children’s Fund Gulf Area Office.
- IPC-IG. 2021. Social Protection Responses to COVID-19 in the Global South: Online Dashboard. Social Protection website. https://socialprotection.org/social-protection-responses-covid-19-global-south . Accessed 12 July 2022
- Machado, A.C., C. Bilo, and I. Helmy. 2018. The Role of Zakat in the Provision of Social Protection: A Comparison between Jordan, Palestine and Sudan. Working Paper, No. 168. Brasília: International Policy Centre for Inclusive Growth. https://socialprotection.org/discover/publications/role-zakat-provision-social-protection-comparison-between-jordan-palestine-and. Accessed 5 August 2021.
- UNICEF and Jordan Strategy Forum. 2020. Jordan’s National Social Protection Response During COVID-19. Amman: United Nations Children’s Fund Jordan and Jordan Strategy Forum. https://socialprotection.org/discover/publications/jordan%E2%80%99s-national-social-protection-response-during-covid-19. Accessed 5 August 2021.
- Wayhy, A.R.M., and W.A. Anwar. 2020. Management of Zakat Baznas Regency Sidrap During COVID-19’s Pandemic. Proceeding of International Conference on Islamic Economics and Business. http://22.214.171.124/index.php/Iqtisaduna/article/view/15807/9327 . Accessed 5 August 2021.
 Religious pronouncements based on the rules of interpretation outlined in Islamic jurisprudence for the purpose of deriving laws from Sharia to address the needs of people in different locations and at different time periods (Alsayyed 2009, 2–3)
This post is part of the ‘COVID-19 Social Protection response series’, a 12-piece blog series featuring discussions based on data and evidence from the interactive dashboard ‘Social protection responses to COVID-19 in the Global South’, developed by the former International Policy Centre for Inclusive Growth (IPC-IG) in partnership with SPACE and sponsored by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and UNDP Brazil. The dashboard illustrates part of the data compiled in the COVID-19 tracking matrix and provides detailed insights into countries’ social protection responses to the crisis, working as a repository of experiences and government practices in shock-responsive social protection taking place in developing countries worldwide. Its indicators are divided into seven thematic sections: overview of responses, type of adaptation, timeliness, identification of beneficiaries and application tools; delivery mechanisms; coverage; and adequacy of benefits. This blog series is supported by the Department of Foreign Affairs and Trade (DFAT) of Australia.