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The importance of Zakat (Charity) in an Islamic Economy

Updated on July 8, 2015
Naveed Ahmed 624 profile image

Mr. Naveed Ahmed has profound interest in reading, learning, writing and preaching about Islam; as it is the primary duty of every Muslim.

What is Zakat?

Literally speaking, "Zakat" means to purify, to grow or to increase. In Islamic Terminology, the word Zakat stands for a minimum portion of the wealth a Muslim (having the necessary worth) should gift to another needy Muslim. It can be an aid in the form of anything like money, daily use articles, furniture and fixtures or financing of studies, marriage or any other need. It must be paid at the rate of 2.5% once every year by a person who qualifies to pay Zakat (Sahib-e-Nisab).

Zakat is one of the five pillars of Islam besides Tauheed or Shahadah (belief in the oneness of God), Salah (Prayer), Fasting and Pilgrimage. It is therefore obligatory in nature without which one cannot be rightfully called a Muslim.

Zakat as an important source of revenue in Islam

Islam, as taught by the Prophet Muhammad (PBUH), has some defined sources of revenue for managing the state economy. In the contemporary times, managing these sources of revenue and heads of expenditure may be called Public Finance or Public Governance. Islam defines the following sources of revenue for managing the Public Finance in an Islamic Economy / State:

  • Zakat
  • Ushar
  • Khomas
  • Jizya
  • Kharaj
  • Al-Fai
  • Other miscellaneous sources

Zakat is therefore the foremost source of public revenue in Islam, but it has only certain defined heads of expenditure. In an ideal Islamic Economy, it is routed to its heads of expenditure through a central collection point called the Bait-ul-Maal. However, being permissible, a major portion of Zakat is also paid and received directly between the two parties involved; without an intermediary role of the Bait-ul-Maal. For further reading about the other sources of revenue in Islam, visit www.muslimtents.com

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Source
Image with the courtesy of Quran.com
Image with the courtesy of Quran.com | Source

Why is Zakat an obligation in Islam?

Zakat is obligatory simply because it is ordained in the Quran (the Holy Book of Islam). All the commandments of the Quran are obligatory in nature. There are numerous verses of the Holy Quran which stress the giving of Zakat. Its importance can be well acclaimed from the fact that it is the next most important pillar of Islam after Salah or Prayer and has been mentioned with Salah 28 times in the Quran. Amongst many other such verses, the following verse defines the obligatory nature of Zakat.

Righteousness is not that you turn your faces toward the east or the west, but [true] righteousness is [in] one who believes in Allah , the Last Day, the angels, the Book, and the prophets and gives wealth, in spite of love for it, to relatives, orphans, the needy, the traveler, those who ask [for help], and for freeing slaves; [and who] establishes prayer and gives zakah; [those who] fulfill their promise when they promise; and [those who] are patient in poverty and hardship and during battle. Those are the ones who have been true, and it is those who are the righteous.

Al-Quran (2:177)

Nisab-e-Zakat or the Eligibility for paying Zakat

For paying Zakat or Ushar,

  • One should be a free and adult Muslim of sound mind.
  • One should be a Sahib-e-Nisab. In other words one should own a minimum amount of wealth in excess of the assets owned for personal use and the liabilities owed to third parties. This minimum amount that makes one eligible for paying Zakat is called Nisab-e-Zakat and its value is equivalent to either of 595 grams Silver or 85 grams Gold. Because the price of the two commodities may be different, governments of Islamic states might determine Nisab-e-Zakat from time to time according to the defined formula.
  • Nisab-e-Zakat should have been possessed for a full lunar year. Although one is allowed to pay Zakat in advance before the completion of a complete year.
  • The excess wealth should be of a profitable nature which can be used for generating income and profits through business in the future or present.

Note that Zakat is not payable on assets of personal use like house, articles, furniture or vehicle. It is only payable on the assets that are equal in value to Nisab-e-Zakat and excess than the personal needs.

Zakat and Ushar are two different things. Both are important sources of Public revenue for an Islamic economy / state. Zakat relates to the payment or donation for the ownership of assets whereas Ushar relates to the payment or donation for the ownership of land or agricultural produce such as crops and fruits. For understanding the difference between Zakat and Ushar, this may help.

The beneficiaries of Zakat

Simply speaking, all those Muslims who are not Sahib-e-Nisab qualify to receive Zakat. The Book of Islam (Quran) has defined eight different categories of the beneficiaries of Zakat in Sura Tauba Verse No. 60. The Quran states:

Zakat (Alms) are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bondage and in debt; in the cause of God; and for the wayfarer: (thus is it) ordained by God, and God is full of knowledge and wisdom.

Explanation:

According to this Quranic Verse, there are eight different types of beneficiaries of Zakat. It is to be noted that the beneficiaries of Zakat and Ushar are the same. Except these categories defined by the Al-Quran, no body else can be declared eligible for receiving Zakat. These beneficiaries are:

  1. The Poor: Those who cannot fulfill their normal life needs through their own means.
  2. The needy: One who is circumstantially / situationally in need of aid.
  3. The Zakat administrators: The people involved in all the collection, custody and disbursement processes of Zakat.
  4. The sympathetic: Those who are sympathized to embrace Islam.
  5. To free the captives or Slaves: These include prisoners of war for which one can pay to free them. Slaves also can be let free by paying Zakat to their lords.
  6. The debt holders: Those who owe money or other liabilities to others.
  7. In the way of God: This is a multipurpose terminology which stands for paying Zakat to support all the ethical causes. For example supporting the government or the Muslim community who is facing oppression, financing education and paying for marriage expenses etc.
  8. The wayfarers: Those who are unable to meet their travelling and maintenance expenses while in journey. Although this category of beneficiaries might be wealthy enough in their normal life, but being helpless during a journey is enough of a cause to be helped through Zakat.

The importance of Zakat for the society

As already said, Zakat is one of the basic 5 pillars of Islam; denial of which results in one's expulsion from the religion. Allah stresses the giving of Zakat many a times in His Book (Al-Quran) and He also pledges that it is not a reduction of the wealth in actual, it results in multiplying the wealth (a belief we need to have a faith in).

We know that the world over people are rich and poor. Some live luxurious life and some survive under miserable circumstances. Some can afford heart transplants from their own pockets and some die due to malnutrition (insufficient in-take of proper balanced diet). You could be focusing on moving to the Mars or other planets for finding a human friendly environment while it is difficult for most of the living on earth to build a shelter for themselves. This is all due to the wealth and the budget we have and can afford to expend in our lives for our betterment.

A poor argument I would say people use to negate the importance of giving charity is that why should we help those whom God hasn't. The followers of Social Darwinism also argue the inferiority or in-adaptability (to the society) of those living in poor conditions. There is nothing as inferior and superior in reality except the criteria set by God. And God's criteria of superiority is based solely on the intensity of Taqwa (or Fear of God) and the resulting obedience to His commandments.

Allah says in the Holy Quran (Sura Al-Baqra Verse No. 267);

O you who believe, you shall give to charity from the good things you earn, and from what we have produced for you from the earth. Do not pick out the bad therein to give away, when you yourselves do not accept it unless your eyes are closed. You should know that Allah is Rich, Praiseworthy.

It is also stated in the Al-Quran (Sura Al-Room Verse No. 39);

The usury that is practiced to increase some people’s wealth, does not gain anything at GOD. But if you give to charity, seeking GOD’s pleasure, these are the ones who receive their reward manifold.

It is clearly stated in the last quoted verse that Zakat enables manifold increase in rewards (both in material and superficial terms) while usury or interest does not actually increase the wealth. This is very true from the aggregate society's perspective as interest is a source of increase in wealth for the capitalists only where the poor become increasingly poor and the rich increasingly richer. Zakat on the other hand helps in circulation of wealth from those possessing it in excess to those in need. Islam therefore encourages social co-operation and the ethics of care by instructing about giving Zakat.

Should we expressly declare before giving Zakat?

Zakat is an act of Worship declared by Islam and Islam encourages respect for others and their privacy. In this context it is not desirable to expressly declare that (the beneficiary) is being helped with Zakat. Rather, the Zakat payer / giver only should have an intention of paying Zakat by the aid being extended to the beneficiary.

But there are situations where expressly declared Zakat cannot be avoided. These can be in the situation of Zakat deduction on assets like Bank Accounts, Shares or Stocks, Bonds etc. However one should not be publicizing it in any situation for any material gains, because the returns for worship are expected from God and not from the material world.

Further Reading

Want to learn more about Zakat? The following resources can be helpful:

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    • Naveed Ahmed 624 profile image
      Author

      Naveed Ahmed 3 months ago from Bahrain

      Thank you Eman for your interest and appreciation. May Allah guide us all to the right path, Aameen!

    • Emmy ali profile image

      Eman Abdallah Kamel 4 months ago from Egypt

      Good work, informative article, and I liked reading it... Thank you

    • Naveed Ahmed 624 profile image
      Author

      Naveed Ahmed 2 years ago from Bahrain

      Thanks Sehar for your appreciation, it indeed is an important subject in the context of the thirst for sources of revenue in alternative economic systems compared to Capitalism etc.

    • Sehar Nadeem profile image

      Sehar Nadeem 2 years ago from Stoke On Trent

      Well written and a useful hub indeed..

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