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Zakah and the Economic System in Islam

Most Muslims around the world prefer to pay their zakah (the poor due) in or by the end of Ramadan.

A closer look at the system of zakah versus the current economic and welfare system one would notice an astonishing difference!

What Went Wrong?

Muslims around the world wonder why despite of the immense resources in their countries and around the world, they have been suffering economic deprivation for centuries! What has gone wrong?

Let us first take a closer look at the Islamic economic system from the time of the Prophet Muhammad (peace be upon him) and subsequent generations and causes of its decline and abandonment of the system by many Muslim governments and individuals.

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It is a fact that Muslims proudly believe that Islam is the most complete religion. Although it is normal to expect the adherents of any religion boast about their religion and its merits, Islam goes far beyond that. It proves its supremacy over all other religions of the world through reason, proof and the guidelines in the Divine Text—the Quran.

Although being a good Samaritan is a virtue possessed by many, but personal ethics rather than obligation is the driving force for the charitable acts.

In Islam, the guess work is replaced by clear distinction on who gives and who receives and how much. The name for this system is “Zakah,” which is one of the Pillars of Islam.

God commands: {Establish worship, pay the poor-due (Zakah) and bow your heads with those who bow (in worship).} (Al-Baqarah 2:43)

There are numerous mentions of the poor due in the Quran. God also directly instructs the Prophet saying:

{Take alms of their wealth, wherewith thou may purify them and may make them grow and pray for them. Lo! Thy prayer is an assuagement for them. Allah is Hearer, Knower.} (At-Tawbah 9:103)

The Prophet is reported to have said:

“Islam is built on five things; to bear witness that there is no God but Allah and that Muhammad is His Messenger; to establish prayer; to pay Zakah; keep fast in Ramadan; and perform pilgrimage.” (Al-Bukhari and Muslim)

Definition of Zakah

Although Zakah is commonly translated as poor-due, the root for this word is z-k-a, which means growth and development. Thus Zakah is ultimately supposed to lead to growth and development whereby the need for charity and poor-due is minimized. (Islamic Economics Project)

When a society is governed this way, the economic system is supported and predicted by those in power. The rich know when and how much to give and the poor are assured to have at least their minimum needs met. Furthermore, the percentage taken from the person’s surplus wealth is unanimously agreed among various sects that it is 2.5%. Thus the rich only pays from his surplus wealth and will not be burdened by this small amount and the poor receives sufficient and not left out.

The Prophet Muhammad is reported to have said:

” If a single person were to sleep hungry in a town, then God’s protection is lifted from that town.” (Ahmad)

One may wonder if such system is sustainable. The early history of Muslim economic system demonstrated that a very impoverish society, deprived of basic necessities due the adversaries’ efforts to put out the fire of Islam, flourished in wealth and abundance after the victory of Muslims over their enemies during the life time of the Prophet and their subsequent repeated victories during the time of Caliphs, especially Umar. No one was left out and the system of Zakah was strictly enforced.

Michael Hart notes in his book:

“…a time when, history tells us, hardly anyone was in need of charity.” (The 100, 261-5)

Prior to that, abu Bakr made intense effort to enforce the payment of Zakah after the demise of the Prophet. Some of the Arab tribes took the opportunity, by the Prophet’s absence, to withhold paying the alms. Abu Bakr took upon himself to send messengers to warn, and if necessary, deploy an army to go out and deal with the rebellion, which finally brought the entire Arabian Peninsula to compliance in Zakah payment.

Regretfully, the subsequent rulers of the Umayyad and Abbasid dynasties turned the Khilafah (successorship) to dictatorship and changed many things under the guise of Shari’ah and Ijma’. The political authorities gave themselves the power to do as they liked and redistributed the wealth to the elected and not the deserving needy. The religious authority was elected by the rulers and was governed by their man-made system. Thus the system which was successfully run by predecessors was abandoned and has not returned to its origin, and the gap between the rich and the poor has continued to widen ever since. (Muslim Tents)

Zakah and the Modern Economic System

How is Zakah relevant to the modern times and its economic crisis?

“Contrary to the beliefs of both religious and secular Muslims, Prophet Muhammad’s achievements were based not on ephemeral but on the permanent values of the Quran. He brought about the greatest revolution, even an economic and political miracle in human history” (The 100, 3-10)

We can observe that Zakah becomes a religious obligation that is to be paid to the Islamic government for distribution to the needy. This, brings about a much better socio-economic development if carried out properly, thus to reduce the gap between the rich and the poor and the best welfare system divinely ordained.

The present global inequality of wealth distribution is one example of the consequences of leaving out the Divine instructions from economic sphere.

“Elements of monetary discipline in an Islamic economy include stable exchange rates and doing away with increasing money supply incessantly. This is supported by the principle of prohibition of interest in an Islamic economy.” (Economic Analysis)

A more progressive way to look at Zakah is to consider it as a wealth tax and resource endowments. “In Zakah, production with intensive mix and use of factors of production (labor and capital) is taxed leniently at 5%. Production with less intensive mix and use of factors of production (labor or capital) is taxed at a minimum of 5% to a maximum of 10%. Windfall gain is taxed at 20% if it arises from neither the use of labor nor capital.” (Economic Analysis)

It is noteworthy to mention that all aspects of one’s economic life is affected through payments that are divinely ordained. This includes all incomes from all sources, being cash, in kind, goods, etc.

The fact that each person is also obliged to pay Zakah on cash on hand which is not in use for the business, one is encouraged to invest and thus help make the economic wheel spinning. The prohibition of interest is also incentive not to let the cash sit idle.

One may note that the system of Zakah does not put any burden on anyone and in fact helps what goes around comes around by having a fluid economy throughout the country.

A sincere governmental system will ensure that the distribution of Zakah is handled fairly and would take extreme care to avoid any kind of embezzlement by the authorities, or avoidance of tax payment by individuals. (Economic Analysis)

In Malaysia

I live in Malaysia, a Muslim country that has pioneered and sustained Islamic banking, stock market, insurance, endowments, Hajj and investment savings for the Muslims.

If I were in a position to implement Islamic economic principles to any Muslim country, I would do exactly as they are doing.

The challenges are the competition with the secular banking and economic systems that are largely governed by the Chinese population and those in power.

Many banks lend based upon conventional criteria which include interest while not as many interest-free loans are available to Muslims who constitute about 60% of the Malaysian population. There are also other pitfalls, most of which is the propaganda that pulls the unaware Muslim population into the trap. Many become insensitive about the Divine laws which include paying Zakah and shunning the interest-bearing loans. This is due to the luring affects of economic market and pretended benefits.

The reasons why the Zakah system is not widely implemented here in Malaysia is due to the governments’ not fully adhering to Islamic laws. For example in Malaysia, the government consists of various ethnicities and religions. Although Malaysia is known to be a Muslim country, the legal and government system is not Islamic and lends more toward secularism. Muslims use the court system for issues related to inheritance and family laws, but all other matters are governed by the secular system. This is true in many Muslim countries around the world, even the ones that claim to be fully Islamic.

However one great incentive remains for the Malaysian Muslim to pay Zakah to registered non-profit organization is that their zakah contribution is tax deductable and supported by the government.

Lastly, a conscious Muslim knows that there is no longer an Islamic state like that of the era of the Prophet Muhammad and the subsequent era. Thus he has to rely on the believing community and support of certain reliable authorities and do his best or possibly stand alone to shun un-Islamic activities.

Ultimately a Muslim knows there are no gains in any business that equals the ultimate reward offered to a believer in the Hereafter.

God the Almighty reminds us:

{O You who believe, shall I show you a commerce that will save you from a painful doom? You should believe in Allah and His messenger, and should strive for the cause of Allah with your wealth and your lives. That is better for you if you did but know.} (As-Saff 61: 10-1)

Works Cited:

Hart, Michael H.. The 100: A Ranking of the Most Influential Persons in History. Citadel, 2000.

About Raya Shokatfard
Raya Shokatfard holds an MA in Journalism/Mass Communications and an M.A.D. in TV journalism. BA in Communication and BA in Islamic Studies. She has been Islamic propagator in the U.S and Egypt for many years and academic lecturer, writer, international presenter, consultant, foreign correspondent. She can be reached at: [email protected]