Zakat’s potential in poverty alleviation in Bangladesh

Bangladesh has recently been termed globally as a model for poverty reduction by the World Bank because of its remarkable progress in reducing poverty and sustained economic growth. According to Bangladesh Bureau of Statistics (BBS), in the last one decade (2010-19), poverty declined from 31.5 percent to 20.5 percent and extreme poverty declined from 17.6 percent to 10.5 percent.

However, the success in poverty eradication now appears to be under threat because of the impact of Covid-19 pandemic. A recent study (June 2020) by Binayak Sen, research director of Bangladesh Institute of Development Studies (BIDS), shows that Bangladesh will have 16.4 million new poor in 2020 as the income of the working class in urban and rural areas have fallen sharply due to the shutdown.

The Centre for Policy Dialogue (CPD), the independent think-tank, stated in its flagship report 'The State of Bangladesh Economy' (June 2020) that Bangladesh's national poverty rate rose to 35 percent in 2020 from 24.3 percent in 2016 due to the adverse impacts of the coronavirus pandemic.

Earlier an assessment in May 2020 by South Asian Network on Economic Modeling (SANEM) indicated that the poverty rate in the country could double from the existing 20.5 percent to more than 40 percent during this pandemic. From these estimations, it is clear that a significant portion of the country's poor population may have to suffer from long-term poverty.

Kristalina Georgieva, managing director of the International Monetary Fund, has rightly labeled Covid-19 as 'a global crisis like no other' which needs 'a global response like no other'. In a similar fashion, Professor Rehman Sobhan, an eminent economist and the founder of CPD, has aptly termed it as a national crisis that needs to be dealt with a national agenda.

So far Bangladesh has come up with a fiscal stimulus package equivalent to 3.6 percent of its gross domestic product (Tk1.0 trillion in a GDP of Tk27.77 trillion). Moreover, allocation in the social security sector has been increased from Tk81,865 crore in the revised budget of FY 2019-20 to Tk95,574 crore in the proposed budget for FY2020-21, which is 16.83 percent of total budget and 3.01 percent of GDP.

In addition to direct cash transfers to five million people, Tk300 crore has been allocated for poor senior citizens, Tk229.50 crore for persons with disabilities, Tk210 crore for widows and women deserted by their husbands, and Tk100 crore in the 'Rural Social Services Program' for creating self-employment opportunities in rural areas.

However, given the unprecedented nature of this global health-cum-economic crisis, Bangladesh's fiscal package and budget allocation in FY2020-21 might not be enough to meet the challenge at hand.

Hence, economists suggest to design out-of-the-box policies to cope up with this crisis. In this background, zakat can be an important instrument of poverty alleviation being an additional source of funds in government budgetary expenditures.

Since its inception in 1975, the Islamic Development Bank (IsDB) has been promoting Islamic finance worldwide to empower people for a sustainable future. IsDB's relentless support to Islamic finance has drawn global attention lately. 

It is important to mention that a number of thought-provoking studies have been conducted by international organizations like United Nations Development Programme (UNDP), United Nations High Commissioner for Refugees (UNHCR), the International Monetary Fund (IMF) and the World Bank to explore the potentials of the non-commercial instruments of Islamic finance such as Zakah, Sadaqah, Waqf and Qard al-Hasan (interest free loans) as additional sources of financing to fund Sustainable Development Goals (SDGs).

In this context, the statement of Achim Steiner, administrator of UNDP, is remarkable as he says, "The core principles of Islamic finance and Islamic social finance tools are highly aligned with the spirit of the SDGs… UNDP and other parts of the UN have already begun to engage member countries on Islamic finance in innovative ways."

In line with these global efforts, hence, Bangladesh government should look into the potential of integrating the institutions of zakat and waqf into the poverty alleviation strategic plan and social protection programmes. As an immediate response to the coronavirus pandemic, it can be argued that institutionalising zakat could come in handy in terms of providing food and healthcare facilities to the affected poor people.

The government formed Zakat Fund in 1982 through an ordinance and the fund is operated by a board under Islamic Foundation. The meager collection of zakat by Islamic Foundation, at a time when the country has seen a substantial rise in the number of wealthy and financially-solvent people, indicates that the foundation has failed to earn credibility and the trust of rich people.

In contrast, some voluntary organisations like Centre for Zakat Management (CZM), Anjuman Mofidul Islam, Quantum Foundation, and Ahsanullah Mission have shown success to some extent in mobilising and distributing zakat among those eligible people. Particularly, through its unique initiative and attractive schemes, CZM has already been able to raise nearly Tk500 million as zakat fund since 2008.

Economist Dr Hossain Zillur Rahman, an advisor to the former caretaker government of Bangladesh and BRAC chairman, based on the findings of his two studies conducted in 2014 and 2018 on CZM's Jeebika (livelihood) Karnaphuli Mohora project, claims that the project has successfully alleviated poverty through empowering the beneficiaries financially and thus, the project has demonstrated that the institutionalisation of zakat can be an effective instrument of poverty alleviation.

In a recent column in the Business Post, Dr Baqui Khalily, professor of Business Administration, University of Asia-Pacific, underscores on a fund called 'Zakat for State and Social Reconstruction' as part of his proposal of creating 'National Economic Recovery Fund' to tackle economic fallout of Covid-19.

In a recent television programme, Shamim Osman, a Bangladesh Awami League politician and a member of the parliament, expresses his desire to raise a bill in the parliament for institutionalisation of zakat under the auspices of the prime minister and forming a committee involving ulama (religious leaders) who are acceptable to all quarters, armies, police, bureaucrats, journalists, industrialists etc.

He further emphasised that if we can collect zakat properly and distribute it to provide food, home, education and health care to the underprivileged people, within the next five years, poverty alleviation is possible through zakat money.

It is a really good sign that awareness on zakat's role in poverty alleviation has increased in recent times among the politicians, policymakers and academicians. From the preceding discussions, it is also very clear that zakat can be a safe and better option to assist millions of poor and vulnerable people in this period of pandemic to finance social protection programmes.

Hence, I would like to conclude by stating that the government of Bangladesh should not miss this opportunity of using zakat as a potent frontier in poverty alleviation through institutionalisation of zakat.

Foyasal Khan is an Economist based in Dhaka, Bangladesh and holds a Ph.D. in economics from International Islamic University Malaysia. He can be reached at foyasal.khan@gmail.com