Zakat economy: Little use of a huge potential
The potential amount of zakat economy is more than Tk40,000 crore. However, in 2019-20, only Tk5crore 18 lakh was deposited in the government zakat fund
Islam introduced zakat to eliminate inequality between rich and poor and to ensure a fair distribution of wealth in society. Many Islamic countries collect and distribute zakat through state management. Although Bangladesh has the second largest Muslim population in the world, proper management of zakat has not yet taken place.
Kabir Hassan, professor of finance at the University of New Orleans, claimed in a study that the zakat economy in the country is more than Tk30,000 crore, even though only a few crore taka is collected in the country under the government's zakat management.
According to the study, conducted around a decade ago, Muslims in Bangladesh pay zakat, which goes to the informal sector.
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However, the World Bank has recently published a report on the possible economy of zakat in 10 Muslim-majority countries. The report, entitled "Islamic Finance: A Catalyst for Shared Prosperity?", highlighted different issues, including the size of the zakat economy in these countries, the inequalities between rich and poor, and how zakat can play a role in eradicating poverty, etc.
The report estimates the contribution of zakat to the gross domestic product (GDP) in these 10 countries. It shows that among the various Muslim countries, the potential of zakat economy is much higher in Bangladesh, which amounts to 1.63 percent of GDP. This rate is the second highest among Muslim countries in the world.
According to the Ministry of Finance, the size of the country's GDP in fiscal year 2019-20 was Tk27 lakh crore. As per the estimation, the potential amount of zakat economy is more than Tk40,000 crore. However, in the 2019-20 financial year, only Tk5crore 18 lakh was deposited in the government zakat fund.
Muhammad Harunur Rashid, director of the government zakat board run by the Islamic Foundation, said, "The people of the country pay zakat to their acquaintances. There has been a lack of official initiatives from the government to collect zakat. As a result, a large part of the sector has remained informal."
According to the World Bank report, Pakistan has the highest economic potential in zakat, accounting for 1.74 percent of the country's GDP. Indonesia, which ranks third, has a zakat economy of 1.59 percent of GDP. Fourth-ranked Sudan has 1.44 percent of GDP and fifth-ranked Malaysia has 1.11 percent.
As the World Bank notes, an organisation called Dompet Dhuafaor Orphans' Wallet has been set up in Indonesia by using zakat. It collects and maintains zakat, sadaqah and waqf wealth from the rich and helps the poor. Dompet Dhuafa allocates about 10 percent of the zakat collected each year to the economic empowerment programme.
A similar fund has been set up in Sudan, called Al-Aman Microfinance. It was established in 2009 under the Bank of Khartoum. The country's zakat management agency Diwan Zakat provided 200 million Sudanese dollars for this purpose. Besides, 25 percent of the zakat collected every year by Diwan Zakat is paid to Al-Aman Microfinance. This money is provided to Sudan's productive sectors such as trade, agriculture and technology.
Zakat system is also prevalent in Bangladesh as it is a Muslim-majority country. However, the zakat system is not systematically organised in the country. Basically, the rich distribute zakat on their own initiative. Many also submit it to the Central Zakat Board and then it is distributed from there. However, people concerned feel that zakat is not being fully utilized in the country as the central collection and distribution system is not smooth.
Use of zakat in Bangladesh
Nasreen Begum of Satkhira bought cows for her husband in 2005 with a loan of Tk8,000 from a microfinance company at 27 percent interest. She had to take out a loan from another institution to repay the loan. The interest rate was almost the same there. After 10 years of marriage, Nasreen's family became destitute repaying one loan after another.
After undergoing training at a sewing machine training centre under the government's zakat fund in 2015, she started a business with capital assistance. The Islamic Foundation also gave her some money from the zakat fund to repay her previous loans. Now her family has become self-sufficient after repaying all the loans.
The Islamic Foundation's Zakat Fund has helped 8,540 women out of debt in the last six years through training and capital assistance. It has spent Tk2.87 crore in this sector. The entire money came from zakat of different individuals and organisations.
Islamic Foundation Zakat Fund Director Mohammad Harunur Rashid said the government's zakat fund has provided education facilities, medical treatment and employment to 9.4 lakh poor people since its inception in 1982.
According to the Zakat Board of the Islamic Foundation, from 1982 to 2019-20, it spent Tk35 crore on children's hospitals, sewing training for poor women, rehabilitation of the disabled, employment of poor men, neo-Muslim self-reliance, monga and rehabilitation of victims of natural disasters. In the 2019-20 financial year alone, the organisation collected Tk5 crore 16 lakh and distributed the amount.
Zakat in private and institutional sector
The Center for Zakat Management is the largest organisation in the country for collecting and distributing zakat outside the Zakat Foundation of the government. In 2020, it collected Tk40.92 crore from 1,600 individuals and 400 organisations. With the collected money, it has been providing education, medical and employment facilities for marginalised people.
Center for Zakat Management Chairman and Rahimafrooz group director Niaz Rahim said, "In the last one decade, the fate of at least 10 lakh people has changed through us and 6.46 lakh people have been provided with food aid and shelter."
Besides the Center for Zakat Management, in the institutional sector, Islami Bank has spent huge sums of money from zakat on education, health and employment of impoverished people.
According to the bank's financial report, it spent Tk71 crore in the zakat sector in 2019. An Islamic Bank official said that zakat is paid by the bank at the rate of 2.58 percent (instead of 2.50 percent as the bank maintains its financial statements following Gregorian Year) and calculated on the closing balances of share premium, statutory reserve, general reserve and dividend equalization accounts. Zakat is charged in the profit and loss account of the bank as per guidelines for Islamic banking issued by the Bangladesh Bank.
Besides, Thalassemia Foundation and Ahsania Mission have collected Tk98 lakh and Tk1 crore respectively in 2020 and spent the money on the treatment of poor people. Several other organisations, including the Quantum Foundation, also collect zakat and work for the poor.
Qawmi madrasas and orphanages are big beneficiaries
Of the 500 students of Jamia Babus Salam Uttara Madrasa, at least 300 live in orphanages. Most of the sustenance of these students is paid in zakat money.
Maulana Anisur Rahman, founder and director of the madrasa, told The Business Standard, "We Tk25-30 lakh a year to support orphan students, excluding teachers' salaries and madrassa expenses. Our well-wishers pay their zakat for this. Teachers also collect zakat from different parts of the country."
According to government statistics conducted in 2015, the number of qawmi madrasas in Bangladesh is about 14,000 and the number of students is about 1.5 million. However, a cable from the US embassy in Dhaka leaked to WikiLeaks in 2009 said that the number of qawmi madrassas in Bangladesh is about 2.3 million and the number of students is more than 2 million.
Most of these qawmi madrasas in the country are run through zakat money. A large part of the informal economy goes to this sector. An official of the government's zakat fund said that the qawmi madrasas collect Tk4-5 thousand crore a year from zakat.
Muhaddis Amirul Islam Belali, central president of the Bangladesh National Mufachchir Parishad, said that Islamic organisations collect more zakat money than qawmi madrasas.
"The madrasas cannot take zakat money directly. Poor and orphan students can take some zakat for their living. However, a large part of the zakat money is taken by Islamic organisations," he said.
He also claimed that it is one of the seven sectors for paying zakat.
Experts suggest sound management
Experts believe that the collection and utilisation of zakat in Bangladesh is much less in the public and private sectors than is possible.
Professor Muhammad Mujahidul Islam of the Department of Banking and Insurance, Dhaka University, said,"The potential for zakat in Bangladesh is huge. But due to a lack of proper management, this possibility is not going to be actualised. Zakat census is required to utilise the potential of this zakat to alleviate poverty. It is the responsibility of the government to conduct the census through coordinating with the top religious scholars of the country."
He further said that zakat should be given importance in the overall development of the country since 17 percent of the total budget is spent on various projects aimed at alleviating poverty.
"If zakat is collected properly and distributed, the government will be able to spend the money on poverty alleviation and development of the country's infrastructure. As a result, both poverty alleviation and economic development of the country will be accelerated," Professor Mujahidul Islam said.
