Zakat collection, management, and distribution require a system for administration, the establishment of which is the responsibility of the Muslim ruler. Voluntary sadaqah (charity), on the other hand, is solely the responsibility of the individual, although there is no prohibition or ban on the establishment of a system for collecting optional sadaqah, provided it is free of all elements of force, compulsion, and coercion. In fact, the goal of voluntary sadaqah is to create the habit of doing good and seeking to attain spiritual happiness.
When the sadaqah results in flows of benefits that are expected to be stable and permanent (such as by the endowment of physical property), it is called sadaqah jariyah (continuous charity) or waqf (Islamic endowment). Hibah (gift), on the other hand, is the giving of some mal (property) without any long-term material consideration. It is intended to cultivate love and cooperation among citizens. Similarly, qard-hasan (interest-free loan) is another instrument of social finance for the poor and the needy.
Zakat is one of the five pillars of Islam. Literal meanings of zakat are growth and purification (Refer to Qur’an Chapter 9, verse 103). In practical terms, it is an obligatory transfer by a Muslim of the ownership of wealth that has reached a prescribed threshold (nisab), as defined by the Shari‘ah, to eight eligible categories of zakat beneficiaries: the poor (faqir), needy (miskin), zakat personnel (amil), people whose hearts are inclined toward Islam (muallafatul qulub), those in bondage (fi al-riqab), indebted people (gharimin), wayfarers (ibn al-sabil) and those in the path of Allah (fi sabilillah).
Zakat is levied on savings that account for part of the wealth of an individual. It is also levied on forms of wealth that are characterized as stocks, such as gold, silver, trade inventory and livestock. However, contemporary Muslim scholars are of the view that zakat can also be deducted from net returns of manufacturing concerns and building rents and from net savings from salaries. Furthermore, Mazhab Malikis view that the zakat base includes buildings and other fixed assets, except those assigned for personal and family use.
Rates of zakat vary with forms of wealth. With most forms of financial assets, the rate is 2.5%. Nevertheless, zakat is not levied on income that is used for consumption and items of wealth that are for personal and family use, such as a house or car. It is also not levied on wealth that is categorized as a means of production or capital goods. Thus, the levy of zakat results in the transfer of wealth from the rich without adversely affecting their consumption or productive investments.
Unfortunately, zakat has been generally neglected as an important institution to fight poverty in many Muslim countries or considered only a private affair. Only a few Muslim countries, including Yemen, Saudi Arabia, Malaysia, Libya, Pakistan, Sudan, and Iran, have institutionalized some form of centralized zakat collection by the government. However, these vary in terms of coverage of zakatable items and assets. Other countries have not introduced this system, and it is considered a private affair. Zakat collection by governments has been in the range of about 0.4% to 0.6% of the GDP of these countries, which is lower than its potential collection.
We firmly believe that if the zakat institution is revived and fully implemented, then absolute poverty can be eliminated from these countries. A study by Shirazi (2014) shows that potential zakat collection and distribution among the poor can reduce absolute poverty in 23 out of 40 sampled OIC member countries. Furthermore, if an international fund is established to which all member countries contribute their surplus zakat proceeds, after meeting the poverty gap of their own extreme poor, then the poor could potentially be lifted out of poverty even in those countries lacking natural resources.
Article by: Prof. Dr. Nasim Shah Shirazi (https://ifikr.isra.my/library/viewer2/10357)