Covid-19 pandemic is throttling the world's economy. A recent International Labour Organization (ILO) report warns that job losses could push 35 million people around the world below the poverty line.
Like other countries, in response to contain the spread of coronavirus, Bangladesh has been under lockdown since March 26. A country with a 20.5 percent poverty rate and labour-intensive production sectors cannot afford this lockdown. Consequently, it stands facing a great economic recession.
Given the extraordinary nature of the pandemic induced crisis, the government of Bangladesh has unfolded a stimulus packages worth Taka one lakh crore (nearly $11.6 billion) – which accounts for 3.3 percent of the country's GDP – to fight the pandemic. Now the question is how the government will finance these packages?
So far, the plan is to manage a significant portion of funds using bank loans. But the banking sector is already going through issues like inadequate liquidity and capital.
Consequently, this new pressure on the banking sector will most likely leads to less than optimal disbursement of assistance and make it more vulnerable.
The government can also appeal for financial assistance from donor agencies and rich countries. Rich countries are also suffering from economic damages due to this pandemic and prolonged shutdown. Therefore, having necessary assistance from them may not be feasible in this situation.
When all the normal ways and means to increase the supply of money fail, the government may opt for printing currency. As there is no free lunch in this world, this step may create a huge inflationary pressure.
However, a hidden resource that remains in the hand of the government is Zakat.
Bangladesh is one of the largest Muslim-majority countries in terms of population. Zakat is the mainstay of Islamic finance and one of the five pillars of Islam for its followers.
Zakat means the distribution of a certain portion of one's wealth (who have prescribed amount of wealth) among the poor and needy.
The main purpose of it is to alleviate poverty and create equality. Zakat has economic benefits too.
When Zakat is paid, the circulation of money increases, wealth becomes dynamic, people acquire purchasing power, which increases production, employment opportunity and improves quality of life as a whole.
However, to enjoy this benefit, you require an institutional setup for distributing and collecting Zakat.
Unfortunately, at present, there is neither a well-structured and managed central system of collecting and distributing Zakat in the state nor is a large part of the country's people aware of Zakat.
Some of them just donate a handful amount of money in the month of Ramadan without proper calculation.
Some individuals and organizations such as Centre for Zakat Management (CZM), Anjuman Mofidul Islam, Quantum Foundation, Ahsanullah Mission etc. collect and pay zakat alone which may temporarily benefit the poor, but it is not a sustainable way to reduce poverty.
There are eight specific sources where zakat money can be used. Islamic scholars agree that expending for coronavirus affected people are included in this list.
Following global trends, inequality of wealth in Bangladesh is increasing day by day. Policymakers should take initiative for a central zakat management system to reduce wealth inequality and fight against this global crisis.
In this regard, the involvement of acceptable religious scholars from different corners in the management team could be helpful to mitigate trust issues between a secular government and religious people, and level of corruption in collecting and distributing the Zakat money.
Finally, the digital platform is a must to maintain a comprehensive database to ensure transparency of the Zakat activities and its effectiveness. If the government can succeed to build effective zakat management, it might also serve as an economic shock absorber.
The author is a faculty member at the Department of Finance, American International University-Bangladesh