ZAKAT MANAGEMENT IN BRUNEI DARUSSALAM: FUNDING THE ECONOMIC ACTIVITIES OF THE POOR BY ROSE ABDULLAH

Transcription

1 ZAKAT MANAGEMENT IN BRUNEI DARUSSALAM: FUNDING THE ECONOMIC ACTIVITIES OF THE POOR BY ROSE ABDULLAH i

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3 Published by Universiti Islam Sultan Sharif Ali Spg. 347, Jln. Pasar Baharu, Gadong Bandar Seri Begawan, BE 1310 Negara Brunei Darussalam Rose Abdullah, Hajah 2012 First Edition 2012 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Director of Post Graduate Studies and Research, Universiti Islam Sultan Sharif Ali, Negara Brunei Darussalam. Perpustakaan Dewan Bahasa dan Pustaka Brunei Cataloguing-in-publication ROSE Abdullah, Hajah Zakat Management in Brunei Darussalam: Funding Economic Activities of the Poor / Hajah Rose Abdullah. - Bandar Seri Begawan : Universiti Islam Sultan Sharif Ali, p cm x 25.4cm ISBN: (Paperback) (Hardcover) 1. Zakat 2. Islam Brunei Darussalam--Charities I. Title ROSABD (DDC 22) Cover Designed by Mohammad Ashadi bin Jaman, Awang iii

4 Dedicated to my beloved husband, mother and children for their endless support and understanding. iv

5 ACKNOWLEDGMENT In the Name of Allah, the Most Gracious and the Most Merciful. First of all, Alhamdulillah, with utmost thankfulness to Allah SWT that gave me the strength to complete this book and made things easy and smooth in its completion. My greatest gratitude goes to the Rector of Universiti Islam Sultan Sharif Ali, Dr Haji Serbini bin Haji Matahir/Md Tahir for his encouragement and support in the publication of academic and research books without which the publication of this book would not be possible. My greatest gratitude also goes to my supervisor during my Masters study, the late Dr Haji Zainuddin Haji Jaafar for his valuable expertise and guidance in finishing the case study, which was later updated, edited and produced as a book. My special thanks to Hajah Salma binti Haji Abd Latiff, for giving up her valuable time in reading through some of the chapters, and giving comments and suggestions, to Dr Sharifah Nurul Huda AlKaff and Dr Kathrina bte Dato Paduka Haji Mohd Daud for their patience in checking the language clarity and corrections, to my friends who helped and supported in many ways. May Allah reward their sincere involvement in the completion of this work, ameen! My special thanks also go to the officers concerned from the Ministry of Islamic Religious Affairs and Brunei Darussalam s Islamic Religious Council, the Community Development Department (JAPEM), the Department of Economic Development and Planning (JPKE), the Coordinator of Volunteers Unit of YSHHB, Shariah Officers of the Islamic Bank of Brunei Darussalam (BIBD, 2009), the Operation Officer of the Islamic Trust Fund of Brunei (TAIB), and to all the zakat recipients involved in this case study for their willingness to participate in the interviews. v

6 FOREWORD The zakat institution is one of the most important elements in Islamic socio-economics. It is one of the tools that can be used to overcome poverty through the redistribution of wealth. His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam s concern over the state of zakat affairs during the Majlis Ugama Islam Brunei (MUIB) annual meeting in January 2009, has attracted many researchers and studies regarding the management of zakat in this country. The study in this book investigated the role of the zakat institution in the socio-economic aspects of Brunei Darussalam. It studied the utilization of the zakat fund in helping the poor and the needy through capital aid as part of a long-term rehabilitation program. This book is concerned with the zakat institution in general and focuses on the disbursement of the zakat fund system in Brunei Darussalam. The focus is on how the zakat fund has been used to finance economic activities or projects run by the poor and needy as a long-term rehabilitation program. I am very glad that this book on Zakat management in Brunei Darussalam: Funding The Economic Activities of the Poor has been written by Hajah Rose binti Abdullah, a Senior Lecturer from Faculty of Business and Management Sciences, Universiti Islam Sultan Sharif Ali. It is being published at the right time and is in line with the government of Brunei Darussalam s objective to achieve zero poverty by Wassalam, Dr Haji Sebini bin Haji Matahir/Md Tahir Rector, Sultan Sharif Ali Islamic University vi

7 ABOUT THE AUTHOR Hajah Rose Abdullah is currently a Senior Lecturer at the Faculty of Business and Management Sciences, Universiti Islam Sultan Sharif Ali, since 4 January She is also currently the Deputy Dean of Faculty of Business and Management Sciences. She obtained a Masters in Islamic Banking and Finance from the University of Brunei Darussalam in 2009, postgraduate diploma in Islamic Banking and Insurance (Institute of Islamic Banking and Insurance, UK) in 2005, a Masters in Business Administration (Heriot-Watt University, UK) in 1999, a Bachelors of Arts in Economics (Hons), from Universiti Kebangsaan Malaysia in 1987 and a diploma in Public Administration, UiTM, Malaysia in Her early working experience was with the Marketing Unit, Department of Agriculture for three years ( ). In 1990 she started her career in education, teaching the Brunei National Diploma in Agriculture for eight years as a lecturer and was a training coordinator for small and medium enterprises with the Resource Centre, Ministry of Industry and Primary Resources ( ). She worked for over twelve years as a Senior Lecturer at the Institut Teknologi Brunei ( ). vii

8 PREFACE The increasing number of zakat recipients and accumulated applications for zakat assistance, large amount of accumulated zakat collections and the small number of capital assistance recipients is among the evidence that zakat management in Brunei Darussalam needs improvement. The agency which manages the zakat fund needs to be empowered to be able to not only handle the large numbers of applicants but also to reach out to those who really need help in the society. Empowerment is needed in the organizational structure, in order to establish better cooperation and coordination with other agencies and organizations, recruit more trained and experienced staff, involve volunteers, nongovernment organizations and other government or private organizations, implementation of a computerized system, and improve publicity and awareness. The accumulated amount of zakat collections should not be kept if asnaf still exist in society. However, MUIB has to make sure the recipients are really eligible persons according to the Shariah. It is the duty of MUIB to ensure that every zakat dollar is wellspent. The capital assistance from the zakat fund is to fulfill the purpose of zakat fund disbursement. However, there is evidence that the recipients of the capital assistance scheme were not monitored properly after receiving the assistance. As a result, this study concludes that there was more failure than success cases with regards to the recipients. This book is produced based on the case study research done as part of a Masters degree in Islamic Banking and Finance, in the Faculty of Economics, Business and Public Policy, in Universiti Brunei Darussalam in The contents and data have been updated to the recent data available in the year This book contains seven chapters. Chapter One covers two parts, first, the introduction which briefly gives the background information to the study. This section will discuss the importance of zakat in the Islamic socio-economic sphere, zakat as an obligation for Muslims to fulfill, followed by the definitions of the key words in the title of the book. In addition, this section also covers how the poor and needy are defined in several countries. This is seen as necessary as the case study focuses on the poor and needy sector of zakat recipients. Since a proper management of zakat needs the involvement of governments, the study will briefly examine the role of governments in the management of zakat. The second part of the chapter contains the statement of purpose, objectives, scope, significance and limitations of the study as well as a general outline of the case study report. Chapter Two contains the review of literature on innovation in zakat management in other countries, the collection and utilization of zakat funds, the determination of the needs of the poor and needy, the involvement of the private sector in zakat management and the extent to which zakat funds are utilized to finance the economic activities of the poor and needy. The review on zakat in other countries is taken as a comparative study as well as to consider the possibility of adopting the particular systems of zakat management. viii

9 Chapter Three contains information about the economic demography of Brunei Darussalam as well as a brief overview on Brunei s economy in general, and the current government programs to reduce the problem of poverty in this country. Chapter Four reviews the current zakat institution in Brunei Darussalam, the zakat management (collection and disbursement), how the poor and needy are defined and their needs determination in addition to current and future plans and programs to provide long term rehabilitation schemes for the poor and needy. Chapter Five explains the methodology used in this case study research. It also explains the selection of the target group surveyed and the administration of the sample, the questionnaires, the interviews and the analysis of data. Chapter Six discusses the findings of the survey and data analysis. The data analysis focuses on the basic profiles of the respondents and their motivational factors that contribute to the success or failure of the economic activities of the poor and needy after receiving capital aid from the zakat fund. Finally, conclusions are made in the last chapter, Chapter Seven, followed by some recommendations on general zakat management and the long-term rehabilitation program through capital supplement from the zakat fund. Hajah Rose Abdullah ix

10 TABLE OF CONTENTS ACKNOWLEDGEMENTS FOREWORD ABOUT THE AUTHOR PREFACE TABLE OF CONTENTS LIST OF TABLES, CHARTS AND APPENDICES Page v vi vii viii x xiii CHAPTER 1: INTRODUCTION 1.1 Introduction The importance of zakat to the Muslim socio-economic order About the study 4 Objectives The scope Significance of the study Limitations 1.4 Definition of the key words Zakat Funding economic activities Definitions of the poor and needy The role of the government in zakat management 9 CHAPTER 2: LITERATURE REVIEW 2.1 Introduction Overview of zakat institutions Previous studies on zakat Studies on the socio-economic aspects of zakat Academic research on zakat in Brunei Darussalam Disbursement of the zakat fund Innovations in zakat management (collection and disbursement) Estimation of the needs of the poor and needy The socio-economic impact of zakat on Muslims Conclusion 26 CHAPTER 3: THE ECONOMIC DEMOGRAPHY OF BRUNEI DARUSSALAM 3.1 Introduction Demographic overview of Brunei Darussalam 27 Location Population Services and facilities 3.3 Economic Background External trade GDP growth Inflation 31 x

11 3.3.4 Long-term development plan Employment Unemployment Rate of wages of the lowest income earners Issues arising from the demographic and economic conditions Agencies involved in providing assistance to the poor and needy Community Development Department (JAPEM) The Sultan Haji Hassanal Bolkiah Foundation (YSHHB) Dana Pengiran Muda Mahkota Al-Muhtadee Billah for Orphans (DANA) Conclusion 41 CHAPTER 4: ZAKAT INSTITUTION IN BRUNEI DARUSSALAM 4.1 Introduction The responsible agency and authority The procedure of processing the applications Eligible Asnaf to receive zakat in Brunei Darussalam Types of zakat assistance Collection of zakat Zakatable items Administrators Collection Challenges in zakat collection Zakat proportion to Gross Domestic Product (GDP) Computerized system in zakat management Disbursement of zakat Capital Assistances Program under MUIB Accumulated zakat fund The accumulated amount and investment Special committee Empowerment of zakat recipients program The program The participants selection End result of the first batch and continuous monitoring Conclusion 57 CHAPTER 5: METHODOLOGY 5.1 Introduction Collection of data Secondary data Primary data Method Respondents and samples Government officers Zakat recipients Questionnaires Questionnaires for the zakat assistance recipients 62 xi

12 5.5.2 Questionnaires for government officers 63 CHAPTER 6: SURVEY AND DATA ANALYSIS 6.1 Introduction Demographic information of the respondents The status of the respondents before receiving the zakat fund The current status of the respondents small businesses initiated with the zakat fund Recipients still receiving assistance The main problems faced by the respondents in running their businesses Consultancy services The needs of respondents in order to restart or 67 expand their businesses 6.9 The respondents readiness to use loan facilities if made available The success and failure factors of the recipients businesses Failure cases factors Success case factors The effectiveness of MUIB s promotional programs Conclusion 72 CHAPTER 7: CONCLUSION AND RECOMMENDATIONS 7.1 Conclusion The zakat management system in Brunei Darussalam The capital assistance scheme Recommendations Zakat management Organization/Management structure Public awareness Application processing Database Package of services 80 Education Housing Cooperation between MUIB, mosque and other agencies The Minimum income line Zakat to be deducted from tax Long term rehabilitation through capital assistance Selection of participants Group s project Sufficient capital assistance Guidance and monitoring Workers Marketing Single mothers Using the zakat fund for benevolent loan Conclusion 87 xii

13 LIST OF TABLES, CHARTS AND APPENDICES Table Title Page 3.1: GDP percent distribution by kind of economic activity at current prices : External trade : GDP per capita : Consumer price index 2006 June : Total labor force, number employed and unemployment rate : The rate of assistance given to the poor and needy from 1968 to : The rate of assistance with effect from October Number of applicants according to types of businesses : Number of amil (zakat collectors) from : Collection of zakat fitrah and zakat on wealth from 2001 to : Ratio of zakat collection to GDP from 2002 to : Number of zakat recipients from : Disbursement of zakat in Asnaf grouping from (BND$) : Total collection and disbursement of zakat BND$ : Capital assistance from 2001 until August : Accumulated zakat fund since 1956 until December 2007 by Asnaf : The income from accumulated zakat fund investment from 2000 to : History of 18 registered participants : Population and sample 61 Charts Titles Page Figure 4.1: The summary of Types of Assistance 54 Figure 6.1: The needs of the respondents in order to restart 68 or expand their businesses Figure 6.2: Loan preference 69 Figure 6.3: Source of information 71 References 88 Appendix 95 xiii

14 CHAPTER 1 INTRODUCTION 1.1 Introduction Allah created Man to be the vicegerent of Allah on earth (Surah Al-Baqarah 2: 30). To enable him to play such a role, Allah provided all the necessary resources, physically and mentally, for his material well-being. As for the poor and needy with limited resources, Islam has guaranteed the minimum standard of living through the form of zakat duty on the rich to be given to the poor and the destitute. The obligatory nature of zakat is firmly established in the Al-Qur'an and the Sunnah (or Hadith), was handled meticulously by the Companions and has been deliberated on thoroughly by Muslim scholars throughout the ages. The Al Qur an clearly mentioned, in many verses, the responsibility of the rich to pay zakat and in fact, this is always mentioned after the injunction of solat (prayer). In Dr Yussof Qardawi s study (Kahf s translation, 2005), he mentions that the word al-zakah occurs in the Qur an thirty times. In twenty-seven of them, the word al-zakah is associated with prayers in the same verse. In one place it is mentioned with prayers in the same sequence of verses, that is, those who humble themselves in their prayers (Surah Al-Mu minun 23:2) and who are active indeed in zakah (Surah Al-Mu minun 23:4). In the Qur an, Surah Al-Taubah 9:103, Allah ordered the Prophet to collect zakat: Take alms out of their property in order to cleanse and purify them, and invoke Allah for them; surely this is a relief for them. To those who refuse to pay zakat, Allah states the penalty in Surah Al-Taubah 9:34-35: O ye who believe! There are indeed many among the priests and anchorites, who in Falsehood devour the substance of men and hinder (them) from the way of Allah. And there are those who bury gold and silver and spend it not in the way of Allah. Announce unto them a most grievous penalty. On the Day when heat will be produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their flanks, and their backs: "This is the (treasure) which ye buried for yourselves: taste ye, then, the (treasures) ye buried!" Paying zakat is extremely important and is a duty that has to be fulfilled by wealthy Muslims. Those who disobey are considered apostates and the penalty is death according to Shafi ies scholars (Al-Qardawi, 2005). Malikies, on the other hand, are of the opinion that those who refuse to pay zakat should be declared rebels and should be fought until the due zakat is collected (ibid). These opinions were based on what had been done by Caliph Abu Bakar after the death of the Prophet Muhammad (Peace Be Upon Him). 1

15 For those who do not pay zakat, the Prophet Muhammad (PBUH) mentioned the penalty as reported in Sahih Bukhari, volume 2, Book 24, Number 486, as narrated by Abu Huraira: Allah's Apostle said, Whoever is made wealthy by Allah and does not pay the zakat of his wealth, then on the Day of Resurrection his wealth will be made like a bald-headed poisonous male snake with two black spots over the eyes. The snake will encircle his neck and bite his cheeks and say, I am your wealth, I am your treasure. Then the Prophet recited the holy verses: Let not those who withhold... (to the end of the verse). (Surah Ali-Imran 3:180). Some people may mistakenly perceive that the zakat system may encourage people to be idle and not work. However, in Islam, it is an obligation for men to work and look after themselves and their families. Furthermore, the Prophet Muhammad (PBUH) has emphasized that those who give zakat are better than those who receive it. This is mentioned in the translation of Sahih Bukhari, Volume 2, Book 24, Number 508, a hadith narrated by Hakim bin Hizam: The Prophet said, The upper hand is better than the lower hand (i.e. he who gives in charity is better than him who takes it). One should start giving first to his dependents. And the best object of charity is that which is given by a wealthy person (from the money which is left after his expenses). And whoever abstains from asking others for some financial help, Allah will give him and save him from asking others, Allah will make him self-sufficient. To give zakat, a person has to work and earn a living. Only after obtaining wealth or earning an income, which is more than sufficient for themselves and their families, can someone give to others. This clearly shows that Islam encourages and makes it obligatory for men to work and earn a living. 1.2 The importance of zakat to the Muslim socio-economic order Zakat is one of the important aspects in Islamic economics. Zakat has a direct impact on the socio-economic conditions of the poor and needy in Muslim communities. According to Mansoori (2002), zakat has two main objectives: first, to discourage the concentration of wealth and second, to alleviate poverty. These two main objectives can be achieved through the zakat system, as paying zakat is a religious obligation and people give zakat as a form of worshipping Allah. Observant Muslims, who can afford it, give zakat because they know that zakat is the right of the poor on their wealth. Muhammad Al-Sayyid Yusuf (2008) mentioned that although the Al-Qur an stated eight asnaf eligible to receive zakat, the consensus of Islamic scholars gives priority to the poor and needy. This means that poverty alleviation becomes the main objective in the Islamic economy. 2

16 According to Yusuf Ali s translation of Surah Al-Dhariyat 51:19, the following is mentioned: And in their wealth and possessions (was remembered) the right of the (needy,) him who asked, and him who (for some reason) was prevented (from asking). This indicates that zakat is not charity which is voluntarily given by wealthy people but rather the right of the poor on the wealth of the rich. It is a responsibility and a must for the rich to give zakat to the poor and destitute as well as other qualified recipients. The balance and equilibrium in economic resources created by zakat provides benefits for both the poor and rich. The zakat fund transferred to the poor enhances the purchasing power of the poor. This enables them to spend more and more money will circulate immediately in the economy. As a result the rich will become richer due to better business. In the Al-Qur an, Allah has warned that riba has many negative impacts while zakat has many positive impacts on the economy of the individual and the society as a whole. The translation of Surah Al-Rum 30: 39 says: Whatever riba you give so that it may increase on the wealth of people has no increase with Allah. And whatever you pay zakat and intend to seek through it pleasure of Allah, such are those who are multiplying. A hadith mentioned that paying zakat can bring growth to the payer. Sahih Al-Bukhari, Volume 9, Number 525B stated that the Prophet Muhammad (PBUH) said: If anyone gives in charity something equal to a date from his honestly earned money-for nothing ascends to God except good-then God will take it in His Right (Hand) and bring it up for its owner as anyone of you brings up a baby horse, until it becomes like a mountain...nothing ascends to God except good. The experiences of early Muslims proved that when zakat was collected and distributed in the right way, it led to effective elimination of poverty in society. The hadith in Sahih Bukhari, Volume 3, Page 81, stated: 'Amr ibn Shu'aib reported that the Messenger of Allah (PBUH), appointed Mu'azh ibn Jabal to a position in Jund where the latter remained until the death of the Prophet. At the time of this event, he came to 'Umar who reappointed him. He sent to 'Umar one-third of the sadaqat collected from the local people, but 'Umar turned it down and said: I did not appoint you to go there as a tax collector or as a tribute (jizyah) taker. I appointed you to collect sadaqat from the rich and then to return them to their poor. Mu'azh replied: I would not have sent you anything [from the collection] if I had found someone deserving [over here]. In the second year, he sent him half of the collected sadaqat, and they ran into the same issue again. In the third year, he sent him all of it, and 'Umar again argued with him. Mu'azh responded: I could not find anyone who deserved to receive anything from me. This was related by Abu 'Ubaid. 3

17 It is also stated in the hadith as narrated by Ibn Abbas: 1 When Allah's Apostle (PBUH) sent Muadh to Yemen, he said (to him), You are going to people of a (Divine) Book. First of all invite them to worship Allah (alone) and when they come to know Allah, inform them that Allah has enjoined on them, five prayers in every day and night; and if they start offering these prayers, inform them that Allah has enjoined on them, the Zakat. And it is to be taken from the rich amongst them and given to the poor amongst them; and if they obey you in that, take Zakat from them and avoid (don't take) the best property of the people as Zakat. 1.3 About the Study This study will investigate the zakat institution in general and focus on the disbursement of the zakat fund system in Brunei Darussalam. The focus will be on how the zakat fund has been used to finance economic activities or projects run by poor and needy people as part of a long-term rehabilitation program. This is in line with the government of Brunei Darussalam s objective to achieve zero poverty by Objectives The study in this book investigated the role of the zakat institution in the socio-economic aspects of Brunei Darussalam. It studied the utilization of the zakat fund in helping the poor and the needy through capital aid as part of a long-term rehabilitation program. Specifically, this study aimed: To review the minimum income line currently being used by the agencies concerned in Brunei Darussalam in processing applications for disbursement of zakat funds. To examine the system of zakat management in Brunei in terms of collection, distribution and monitoring. To study the needs analysis and progress of the poor and needy after receiving financial help. To gather information and study the capital aid recipients interest and motivation to engage in micro or small businesses. To assess the factors that lead to either the success or the failure of the micro businesses of the recipients of capital aid for business start-ups from the zakat fund. 1 Sahih Bukhari, Volume 2, Book 24, Number 537 4

18 The Scope The study covers less than half of the total number of zakat recipients who received help in the form of capital aid for establishing businesses. The subjects involved in this study were only those who received capital help from 2001 until August The study was conducted only in the Brunei Muara District. The Brunei Muara District was selected because it has the highest population density and the highest number of zakat recipients in Brunei Darussalam, compared to other districts, for easy communication in conducting the case study (refer to appendix). The selection of sample was biased from the initial stage in which only some recipients who were categorized as successful cases and those categorized as failures were surveyed. Significance of the Study This study is part of the requirement of the Masters in Islamic Banking and Finance program. It is hoped that the study will be able to highlight the socio-economic role of zakat institutions in Brunei Darussalam. At the same time, this study hopes to identify the factors that lead to the success of micro-businesses of the recipients of the current capital aid from the zakat fund program of the Islamic Religious Council of Brunei Darussalam. The findings of this research may be useful in designing policies, which are conducive for the effective utilization of zakat funds to improve the socio-economic welfare of the poor and needy in Brunei Darussalam. Limitations The study involved recipients of the zakat fund for business capital only. It investigated recipients from the Brunei Muara District only. There were forty nine (49) recipients of the zakat fund for business in the list from the Islamic Religious Council of Brunei Darussalam from 2001 until Selections were based on information given by the officers of the Council regarding their list of successful and failed businesses among the recipients of capital aid from the zakat fund. The survey only covered those who could be contacted. The main objective of the survey was to find out the factors that resulted in the success or failure experienced by the recipients in their income generating activities. This study did not cover the all the zakat recipients (zakat recipients for consumption) in the Brunei Muara District. Research to cover the general zakat recipients in a bigger sample size may enable an insight into the following: The potential entrepreneurs among the zakat recipients. The attitude of zakat recipients in getting out of poverty by running small businesses through the capital aid of the zakat fund. Therefore, there is a need to do a comprehensive study on the willingness of the poor and needy to conduct small businesses. There is also a need to study the readiness of the poor and the needy to take the opportunity to be involved in income generating activities. This information should be made available before the government introduces a long-term rehabilitation program by allocating a larger amount of zakat fund disbursement. 5

19 It is also important to study the profiles of the zakat recipients to find out how many of them actually can work and how many are not able to work due to illnesses, disabilities, accidents, old age etc. This information will be useful as part of a screening process of recipients to ensure the zakat fund is disbursed only to those who are eligible. It would have been more significant if the study could cover all four districts in Brunei Darussalam. This is because the nature of the problems and the social environment may differ in each of the four districts. As a result, the government policy or approach may need to be adapted for the needs of recipients from different districts. 1.4 Definition of the key words Zakat The word zakat means to grow and to increase, 2 growth and extension. 3 According to Al-Qardawi, when it relates to a person, it means to improve or to become better. He mentioned that in the Shariah the word zakat refers to the determined share of wealth prescribed by God to be distributed among deserving categories. The word zakat as known in the Shariah is also mentioned as sadaqah in the Al-Qur an and Hadith. Al- Qardawi also mentioned that sadaqah or zakat is an indication of truthfulness in faith and sincere belief in the Day of Judgment. This will be discussed at greater length in the literature review section. Abdul Aziz Muhammad (1993), in referring the meaning of zakat to the Al-Qur an, defines zakat as growth or increase and purity. 4 He mentioned further that zakat leads to the increase of prosperity in this worldly life and the growth of religious merit in the hereafter because its payment purifies the payers from their sins. According to Mohd Ma sum Billah (2007), zakat is a compulsory tax collected from the rich and distributed to the right recipients as described in the Al-Qur an. The purposes are not only to reduce or alleviate poverty but also to purify one s soul and wealth. Gilani (2006) stated that the literal meaning of zakat in Arabic is cleanliness, betterment, growth, blessing and praise. It is concerned with both material and spiritual aspects, as the voluntary transfer of funds from the rich to poor promotes social cohesion and a sense of brotherhood as well as reduces the likelihood of recession by keeping money in circulation. Sayyid Qutb (2000) defined the word zakat as purification and growth. It is the purification of one s self, soul and heart when Man gives of his dear possession that is money, to others. Man is purified, elevated and improved. He further explained that zakat is a right that the community claims from the individuals to guarantee a competence 2 Al-Qardawi, (2005), volume 1, pp. xxxix - xl 3 Farishta G. de Zayas, (1960, 2003) 4 Al-A la 87:14, Al-Taubah 9:104. 6

20 of some of its members. This is because Islam disapproves of people being in poverty; it decrees that every man earn his living by his own work so long as he can, but that he receive his share from the public monies when for any reason he is unable to work or earn sufficiently. F.S.A. Majeed (1991) wrote that the literal meaning of zakat is growth (in goodness) or increase, purifying or making pure. He concluded that when someone gives zakat, he is purifying his wealth to gain Allah s blessing to make it grow in goodness Funding economic activities The second key word is economic activities. According to the online Farlex Financial Dictionary (2011), economic activity is an act that requires the use of resources or time. Examples include buying a stock or making a product to sell. The level of economic activity throughout an economy can be measured in a number of ways, with perhaps the most common being GDP. On the Blurtit website (2012), economic activities are defined as the production and distribution of goods and services at all levels. Wikipedia, the free online encyclopedia, defines funding as the act of providing resources, usually in the form of money (financing), or other valuables such as effort or time (sweat equity), for a project, a person, a business or any other private or public institution. Sources of funding include credit, donations, grants, savings, subsidies, and taxes. Funding such as donations, subsidies and grants that have no direct requirement for return of investment are described as soft funding or crowd funding. So, funding economic activities in the context of this study means providing funds as capital aid for the poor and needy to start their income-generating activities. The fund is given to the poor and needy as a grant in order to help them to be self-employed and earn for their family. This case study looks into the role of zakat, which is the transfer of wealth from the rich to the poor and needy, as a source of funding the economic or income-generating activities of the poor and needy in Brunei Darussalam. As the focus of this case study will be on the poor and needy, it is necessary to see how the poor and needy are defined. Furthermore, the disbursement of the zakat fund in many countries goes mostly to the poor and needy or asnaf. This will enable a comparison to be made on the way zakat fund is distributed to the poor and needy in other countries with how the zakat fund is distributed to the poor and needy in Brunei Darussalam Definitions of the poor and needy Clearly mentioned in Surah Al-Taubah 9:60, are the people who are entitled to receive zakat: Alms are for the poor and the needy, and those employed to administer (the fund), for those whose hearts have been reconciled (to the truth), for those in bondage and in 5 FSA Majeed, (1991), p. 15 7

21 debt, and for Allah s cause, and for the wayfarer, a duty imposed by Allah. And Allah is all Knower, All Wise. From this verse, it is clear that the emphasis is more on those who need help in order to alleviate poverty. There are eight categories of deserving persons mentioned in this verse. Among the eight categories are those who are in long-term poverty - the poor, the needy and the slaves. There are also those who are temporarily poor such as those in debt and wayfarers who need help. The other two categories (fi sabilillah and muallaf) are for protection and propagation of Islam (jihad and da wah/preaching) and one category is for financing the zakat institution s administrative costs (amil). In Arabic, the word for poor is faqir (fuqara is the plural) and for the needy is miskin (masakin is the plural). Al-Qardawi (2005) defined the poor and needy according to the satisfaction of essential needs. A poor person is defined as one whose wealth and income are far from satisfying his or her essential needs, while a needy person is one whose wealth and income fall not much short of the satisfaction of essential needs. According to these criteria, Al- Qardawi defined a person who deserves zakat, either as a poor or needy person, as follows: 1. A person who has no property or income at all. 2. A person whose wealth and income satisfy a little bit of his/her essential needs. 3. A person whose wealth and income satisfy more than half of his/her essential needs but still falls short of fulfillment of those needs. The property mentioned in this definition must be property that is under the control of the owner. Property that is not under the control of the owner or cannot be used or utilized should not be accounted. There are some differences in opinion on the issue of the satisfaction of needs, whether it is based on one year s satisfaction of needs or the expected life of the poor and needy person (ibid). As the people who fall under the poor and needy category may differ in conditions and reasons for falling into poverty, the assessment on the satisfaction of needs should depend on specific conditions and reasons. For example, if the poverty is due to a permanent disability, the satisfaction needs re for the entire expected life. If the poverty is due to a temporary illness, then the satisfaction needs may be for one year s needs only. The other definitions of the poor and needy are based on the laws of zakat in some Muslim countries. The zakat laws in some Muslim countries use simple and flexible definitions of the poor and needy. Al-Abdin (2002), referring to Qanun al-zakat al- Sudani, (1990), mentioned that the Sudanese law defines al-fuqara as those who do not have enough food for one year, and the family breadwinner who does not have enough income to support his family. This includes full-time students who cannot meet the expenses of their studies. The al-masakin are defined as the needy who do not get enough nutrition. They include the disabled, the sick who cannot afford medicine for their illnesses and the victims of natural disasters. 8

22 Al-Abdin continued by examining the Libyan law (1971) which says: faqir means that who does not possess his nutrition for one year and miskin is the one who does not possess anything. The Pakistani law used the general sense to say that the zakat fund shall be utilized for the following purposes: assistance to the needy, the indigent and the poor, particularly the orphans and widows, the handicapped and the disabled are eligible to receive zakat under shariah for their subsistence or rehabilitation. The Zakat House in Kuwait distributes the shares of al-fuqara and al-masakin to orphans, widows, the old, the sick, the families of jailed or missing guardians, poor students and those with low income. He mentioned that the Nasir Bank of Egypt has followed the same approach since the early 1970s. In Brunei Darussalam, currently, the zakat fund is distributed to only six groups or asnaf: the poor, needy, amil, muallaf, al-gharimin, and wayfarers. The other two asnaf mentioned in the Al-Qur an, that is, slaves and those who struggle in the cause of Allah are not considered as applicable in Brunei according to the fatwa issued by the Mufti of Brunei Darussalam. The poor are defined as those who have no source of income or wealth or have an income that does not fulfill even half of their and their dependent family members basic needs. The needy, on the other hand, are defined as those whose income or wealth can only cover half or more but not all their and their dependent family members basic needs. The guidelines used by the Islamic Religious Council of Brunei Darussalam in distributing zakat funds to the poor and needy will be discussed in detail in Chapter Four. 1.5 The role of the government in zakat management Almost all researchers and authors in their reports and writings brought up overwhelming evidence indicating that the government had a pivotal role in the collection and distribution of zakat during the life of the Prophet in Madinah. They include scholars like Ibn Taimiyah and prominent contemporary researchers like Al-Qardawi (Kahf s translation, 2005), Kahf, (2000), Mahmud Ra ana, Irfan (1991) and many others. Al-Qardawi (2005) mentioned that zakat institutions in Islamic economics are social welfare institutions whose management should be supervised by the state. However, he further urged that if the state does not collect it, Muslim individuals are called upon to perform this essential obligation of Islam. This is because the payment of zakat is in itself a form of worship, which is required by the faith and by the Al-Qur'an. Islahi (1988) stated that Ibn Taimiyah emphasized the redistribution of income on the basis of justice and equity as a duty of the state. Furthermore, in the primary source, the Al-Qur an, Allah ordered the Prophet to collect zakat in Surah At-Taubah (9:103): Take alms out of their property in order to cleanse and purify them, and invoke Allah for them; surely this is a relief for them. The word take in this verse indicates Allah s order to the Prophet as head of the Islamic state to collect zakat (Al-Qardawi, 2005). Al-Qardawi (ibid) also mentioned the opinions of the Prophet s Companions on the role of the state in zakat. He quoted that Sahl bin Abi Salleh narrated that his father said I 9

23 accumulated a zakatable amount of wealth. I asked Sa ad bin Abi Waqqas, Ibn Umar, Abu Hurairah, and Abu Sa d al Khudri whether I should distribute zakat myself or give it to the government. They all ordered me to pay it to the government, none of them disagreed. He also quoted another version reported by Sa id bin Mansur, I said, don t you see what this government does? It was at the time of the Umayyads. Should I still give it my zakat? They all answered Yes, you must. With regards to the administration of the zakat fund, Monzer Kahf, (2000) mentioned that zakat funds should be a separate entity from other government funds and revenues, requiring separate records and bookkeeping accounts and very often different employees as well. The funds should not be mixed especially on the disbursement side. He quoted a hadith about the sayings of Al-Hasan, the grandson of the Prophet (PBUH) when he put one date of zakat in his mouth and the Prophet removed it. It shows that not even a single item of zakat proceeds can be used for non- zakat purposes. It is very important to note that zakat payments made to the government are done to enable the zakat funds to be managed properly for the social development of the society. However, there are different opinions about paying zakat to oppressive governments who do not obey Allah or who use the zakat funds for wrong purposes. Some say the payments should still be made to such governments while some said they should not go to these governments (Al-Qardawi, 2005). Qardawi is of the view that zakat should still be paid to unjust governments as long as they collect and distribute it justly to those who deserve it, as in accordance with the Shariah. In Brunei Darussalam, the government plays an important role in managing the zakat institution. All the activities of collection, distribution, assessment of zakat recipients and monitoring are done by the officers of the Islamic Religious Council of Brunei Darussalam, a government agency under the Ministry of Islamic Religious Affairs. The salaries of the officers involved in the management of zakat are paid by the government except for the wages of the amil who collect zakat al fitri for the zakat al fitri fund. The role of the government in establishing a proper and efficient system in managing the zakat is very important as the requirement of the ummah is not just at the level of the individual country but also globally. Recently, Malaysia took the initiative to form an international body to govern all issues pertaining to zakat at the international level. Malaysia has agreed to allocate RM$4.2 million to the organisation s fund to ensure it is set in motion. Brunei was invited to become a joint founder of this International Zakat Organisation. According to the proposal, the formation of this organization will be discussed among MABIMS (an international association consisting of Brunei, Indonesia, Malaysia and Singapore) ministers from Indonesia and Singapore. 6 6 Borneo Bulletin, 3 July,

24 The formation of this international body is inline with the global need to strengthen the Muslim ummah. Through this organization, Muslim countries can share their experiences in managing the zakat institution in each country, in the areas of training, technology, information, administration and so on. It can play a role as a forum for Muslim countries to discuss optimum strategies and procedures of collection and distribution of the zakat fund. According to Al-Abdin (2002), some Muslim countries, especially in Sub-Saharan Africa, will not succeed in eliminating poverty if they depend only on their own zakat revenue. The importance of mutual solidarity among Muslims at the global level is obvious. It calls for the transfer of zakat surplus from the rich countries to the poorer ones. He quoted Dr Fuad al-umar, who reported that the average zakat potential for the year 1988 in Saudi Arabia, Kuwait and United Arab Emirates was US$593 million, which is equivalent to all the assistance provided by industrial countries and international organizations to seven relatively poor Muslim countries; Comoro Islands, Djibouti, the Maldives, Gambia, Afghanistan, Sierra Leone and Lebanon (Al-Umar (1995), as cited in Al-Abdin (2002). Al Abdin (ibid), further highlighted the benefit of having an international organization for zakat which can assist Muslim countries in establishing a zakat system, sharing mutual experiences in developing zakat administration, the training of workers, coordinating the transfer of surplus zakat from some rich Muslim countries to poor ones and making a collective response in times of calamities and hardships that befall any Muslim country. 11

25 CHAPTER 2 LITERATURE REVIEW 2.1 Introduction Chapter Two will highlight some studies on zakat, zakat management and related issues in some countries. The purpose is to learn from experiences of innovative and creative ways of collecting and distributing the zakat fund. The focus is on using the zakat fund for long-term rehabilitation programs to uplift the poor and needy from poverty even to the extent of giving benevolent loans from the zakat fund. This literature review refers to works as far back as the 1960s, including works on the Shariah law of zakat written by Farishta G. de Zayas in 1960 and republished in The views of contemporary prominent Islamic scholar Al-Qardawi are referred to in many aspects related to zakat management. Al-Mawardi s work in 1996 is also examined. The basic Shariah law on zakat fiqh seems not to have changed much except for new interpretations on the disbursement of zakat in the form of business capital and the idea of giving out benevolent loans from the zakat fund. The literature review takes into account opinions from researchers such as Monzer Kahf, Al-Abdin, Atiquzzafar Khan, Gilani, Hassanuzzaman, Waheed, Al-Fitri, Shahatah, Manjoo, Akhtar M Ramzan Muhtada, Rulindo, Murtada, Nazifah and so on. The case study also examines some academic research from different universities such as the International Islamic University of Malaysia, the University of Malaya, and Universiti Brunei Darussalam. It also examines the innovative approaches in zakat disbursement practiced in Malaysia and Singapore. 2.2 Overview of zakat institutions In Brunei Darussalam, the duty and responsibility to collect and disburse the zakat according to the Shariah is in the hands of government. This is clearly stated in the Laws of Brunei, 1/194, Religious Council and Kadi Courts, Chapter 77. According to Monzer Kahf (2000), the contemporary zakat management (collection and disbursement) in Muslim countries can be divided into three types. The first is through specialized voluntary committees, which are set up by private individuals without government interference. Secondly, where zakat management which is run by the State under the supervision of one of the ministries although the zakat collection is still not made obligatory by law. It is paid voluntarily after individual self-assessment. Thirdly, where the management of zakat is carried out by the government on a mandatory basis enforced by the law. 12

26 During the era of Prophet Muhammad (PBUH), the collection and distribution of zakat was performed by the state. Islamic history shows that this role was continued by the caliphates and their successors during the era of the Umayyads, Abbasiyahs and Othmaniyahs. Most Muslim countries in the world today consider zakat a voluntary and not a compulsory obligation on individuals. However some countries such as Malaysia, Kuwait and Pakistan have started institutionalizing zakat management. In Malaysia, the collection and distribution is done by government organizations. Zakat is managed by the Islamic Affairs Councils of the various states and the Federal Territory of Kuala Lumpur. The distribution of zakat includes monthly payments to the destitute and poor, especially the old and invalid. The zakat fund is also used for the running of various aid programs and the setting up of homes and centers for the poor and needy 7. The Malaysian Tax Law allows the tax liability of an individual resident to be reduced by rebates. These rebates are granted to the equivalent of amount paid in respect of any zakat, fitrah or other Islamic religious dues, which are obligatory 8. However, zakat institutions in Malaysia have not played a significant role so far, as the zakat collected in the country is minimal. In 2003, zakat collection amounted to about RM$408 million as compared to the government s tax and other revenues of about RM$89.2 billion 9. In Kuwait, according to Kahf s research (2000), the implementation of compulsory zakat started in the early 20 th century. Zakat was charged to livestock owners and farmers in accordance with the Shariah while a tax was imposed on fishing products at the same rate of zakat. He commented that the present zakat law in Kuwait is the first systematic package of zakat administration in the modern history of the country. Kahf (ibid) mentioned a number of projects introduced by the Zakah House of Kuwait. These include an orphans social security project, a permanent charity fund, a rehabilitation training project, a student support fund, a mobile unit to provide door-todoor services to users, a loan project, a project for publicizing the Al-Qur an and a sacrificial meat distribution project, amongst others. There is also a fund allocated for the poor in other countries, including African ones, which encompass such initiatives as a fund for poor African students. However, in Pakistan, it was reported by Atiquzzafar Khan (2002) that 92% of total zakat in 1998 (Rs 12,797 billion out of Rs 13,781 billion) was given directly to individuals as opposed to organizations. On the other hand, 58% of the non-zakat donations were given to organizations. However, the system has since been improved. According to Gilani (2006), the Zakat and Ushr Ordinance made clear references to the obligation of zakat 7 Pusat Pungutan Zakat, Kuala Lumpur 8 The Chamber of Tax Consultants 9 Pusat Pungutan Zakat, Kuala Lumpur 13

27 and recognizes the role of the state in its administration. The zakat collection was made by the banks and other financial institutions. It was also mentioned that the Zakat and Ushr (Amendment) Act of 1997 made it mandatory that disbursement of zakat could only be made through a bank, a post office or a financial institution approved by the Central Zakat Council and not in cash. In the year 2000, the amendment further restricted the disbursement, which now has to be made through crossed cheques only. 2.3 Previous studies on zakat There have been a number of studies done on the accounting of zakat, zakatable items and the rate of zakat, nisab and various aspects of zakat management. Researchers like Akram Khan (2002), for example, wrote about zakat accounting and auditing which covered the principles, rules and experiences in Pakistan. Hasanuzzaman (2002) studied the development and innovations of zakat by the caliphates and their successors during the Umayyad era. The innovations were necessary due to new sources of income and greater economic activity during that time as the Muslims conquered more areas and countries. Waheed (2002) wrote about the rules of fiqh al-zakat which include zakat payers, conditions of zakat and zakatable wealth, including both traditional and modern wealth like shares, securities, bills, real estate for trade, current assets and fixed assets of business. However, most of the studies mentioned above discussed only the traditional way of zakat management, especially the disbursement of zakat as a direct transfer payment for the consumption of the poor and needy. The distinguished contemporary scholar, Dr Yussof Al-Qardawi, wrote two volumes of a book on zakat which provided a comprehensive account of zakat management. It includes discussions on giving loans from the zakat fund. Borrowers are seen as an analogy to those who are in debt. Al-Qardawi agreed with the opinion that giving free interest loans from zakat is consistent with the broad objectives of zakat itself. Al-Mawardi (1996) in his writing about the ordinances of government, touched the administration of alms and discussed the sources of zakat, which can be divided into two kinds: seen and unseen. Seen properties are those which hard to conceal such as crops, fruit and livestock and unseen properties are those which are easy to hide such as gold, silver, and so on. The calculation and rate of zakat for each type of zakatable item was discussed. Another author, Farishta G. de Zayas (1960, 2003) wrote about the law and institution of zakat. She covered zakatable items and rates. She also discussed the legitimate recipients and the rules of zakat. One of the rules governing the administration of zakat is that the zakat fund should not be invested in any kind of business enterprise due to the risks faced by businesses. She stressed that the zakat fund is meant for helping the people who 14

28 deserve it. 10 However, she did not suggest that the zakat fund couldn t be used to help the poor and needy in the form of capital for businesses run by them. Al-Abdin (2002) commented that the fiqh books mostly discuss zakat regulations, its sources, the amount to be paid, its expenditure, etc but Muslim economists give priority to its socio-economic significance for the poor. 2.4 Studies on the socio-economic aspects of zakat Most researchers are now investigating zakat disbursement for long-term rehabilitation programs. Zakat funds are distributed in the form of business capital to the poor and needy in order to generate economic activities that can help them to earn some income. Some of the studies on the socio-economic aspects of the zakat of a country are discussed below. Al-Fitri (2006) studied the possibility of reducing unemployment in Indonesia if zakat funds were delivered to SMEs and its significant effect on macroeconomics. There is a need for regulations that better facilitate the non-governmental zakat institutions involvement. This would maximize the mobilization of zakat funds and their immediate redistributive economic impact. Shahatah (2000) proposed various ways and means of wider utilization of zakat proceeds by the community at large including preparation of annual zakat budgets within the framework of a five-year plan, expenditure on education, health, vocational training for the poor and indigent, establishment of cottage industries, utility and trade projects, productive facilities, and housing, amongst others. Syed Muhammad Ali 11 reported on an organization named Akhuwat, which provides flexible microfinance to poor people by charging minimal operating and transactions costs for its lending operations. It considered tapping into zakat funds to secure access to more funds. However, he argued that the principle of zakat being used for lending purposes seems controversial due to bureaucratic problems. The Consultative Group to Assist the Poorest (CGAP) believes that microfinance or financial services for the poor is one of the most powerful ways of alleviating poverty. Giving access to financial services such as savings, credit, transfer payments and insurance can help the poor to take control of their financial lives which empowers them to make critical choices about investing in businesses, sending their children to school, improving healthcare for their families, covering the cost of social obligations such as marriages and protecting themselves from crises like sickness, death and natural disasters (Rulindo, 2007). 10 Farishta G. de Zayas, Rule number 76, p DailyTimes.com, , pg3-6 15

29 The study on zakat in relation to the usage of the zakat fund for the empowerment of the poor was done by Mustafa Murtala Oladimeji Abioye (2008). He studied the empowerment scheme as a new strategy against poverty practiced by two zakat institutions, the Islamic Religious Council of Singapore and the Islamic Religious Council of Selangor (Zakat Authority of Selangor). The driving force of this new strategy is skill development and the provision of business capital to the poor and needy. In Indonesia, Rumah Zakat Yogyakarta managed an empowerment program for peasants. However, there was evidence that the program did not solve the fundamental problems of the peasantry due to the implementation of a scriptural-conservative paradigm of zakat and a reformation paradigm of social transformation. The organization did not look at the exploitation and unfair system as the fundamental root problem in the community and the whole economic system including the farmland ownership system. The organization was also following a rigid definition of eight asnaf and the way the assistances should be delivered according to fiqh opinion (Muhtada, 2007). More proactive opinion expressed that a proper zakat organization should be designed within a legislative ethos in order to be an economic stimulus for poverty alleviation. Financial transactions should be bound by legislation where people have to declare their financial assets (Manjoo, 2007). 2.5 Academic Research on Zakat in Brunei Darussalam This researcher found that three academic researchers at Masters level studied zakat management in Brunei Darussalam. Hajah Saadiah Haji Tamit (1993), studied zakat administration in Brunei Darussalam. She focused on the zakat administration system available during that time; the collection, the zakatable items, the committee who handled zakat administration, the distribution, and those eligible to receive zakat. Hajah Mahani Haji Musa (2007) studied the delay in processing applications for obtaining financial aid from the zakat fund. She recommended the empowerment of the agency, improvement of the administration system, restructuring the organization, as well as improving the working environment and skills of the staff. Sri Anne Sarmila Haji Masri, (2008) wrote a Critical analysis on zakat management in Brunei Darussalam focusing on poverty alleviation. She studied the administration of the zakat fund and conducted a survey on public awareness of zakat. She criticized the zakat administration and recommended the Islamic MicroGrant Project to empower the poor through microfinancing. Until 2010, this researcher has not found any studies (in English or Malay Language) done regarding the needs of the poor and needy and their problems in running or operating income-generating projects. It is hoped that this study will contribute to this gap and fill the lack of information on the poor and needy. It is a demanding job to meet and interview the poor and needy. However, understanding their conditions, problems and needs are important in designing any policies related to them. 16

30 2.6 Disbursement of the zakat fund Neither the Al-Qur an nor the Hadith of the Prophet (PBUH) specified how to distribute the zakat amongst the eight groups nor the portion of the zakat to be received by each group. Al-Shafi i is of opinion that zakat should be distributed to all the eight categories if they exist, otherwise to those who are available of them. Some of the Hambalites agree with the Shafi i point of view but Imam Malik and Abu Hanifah said that it is not necessary to cover all groups. Abu Ubayd narrated an opinion of Ibn Abbas, which says that zakat can be given even to one group of the eight (Al-Abdin, 2002). Shahatah (2000) quoted Abu Ubaid (in al-amwal) in saying that the Prophet (PBUH) initially mentioned only one category to receive zakat in his hadith as follows: The zakat is to be collected from the rich and paid back to the poor. However, when the Prophet received more money/wealth, he mentioned another category that was those whose hearts are to be reconciled. As more and more money was received, he added another category - that was those who are in debt. Following this discussion, Abu Ubaid stressed that the distribution of the zakat fund is to be left to the discretion of the ruler. Al-Qardawi (2005) is of the opinion that the funds of zakat should be distributed to all eight asnaf if the funds are in abundance and the degree of their needs is similar. The share of each one should not necessarily be equal but should be according to their number in society and conditions of need. Al-Qardawi (2005) mentions that Imam Abu Ubayd held a similar view. He urged that since equality of dividends is not necessary, the biggest share should go to the poor because it is clear that the emphasis of the Al-Qur an and the traditions of the Prophet (PBUH) are in favor of the poor. Al-Qardawi also quoted that Ibn Shihab al-zuhri advocated the same when he said The most deserving of them (to be given zakat) is the greatest in number and the most in need. The aim of zakat according to Muhammad b. Hassan al-shaybani, the famous Hanafi jurist, is to satisfy the needs of the poor and if the fund of the zakat cannot meet their needs, the Imam should take from other sources of treasury to satisfy every poor person and his family. As most scholars are of the opinion that preference should be given to the poor in distributing the zakat fund rather than covering all the deserving categories, it is found that most countries give a greater percentage of the zakat fund to the poor. For example, Al-Abdin (2002) mentioned that the Pakistani zakat law gives 90 percent of the collected funds to the poor and the government pays the salaries of the employees from its own resources. The Sudanese zakat law adopts the view that zakat should be distributed to all the eight groups but the zakat administrator s organization has decided to give priority to the poor and needy by giving 50 percent of the whole revenue to them. In Kuwait, more than 85 percent of the zakat fund is distributed to the poor and needy. 17

31 Earlier scholars were in favor of direct payments to the recipients. However, many cases have shown that direct payments dampen the incentive to work and end up adding to the army of beggars (Akhtar, 2002). Although the contemporary scholars allow direct payments, they recommend that the utilization of payment be undertaken through projects owned by the recipients. Therefore, many Muslim countries have adopted an approach of combining long-term rehabilitation to enable the poor to possess a source of continuous income in addition to an immediate but limited amount (Al-Abdin, 2002). For example, the Central Zakat Council of Pakistan has ordered that no less than 45% of the zakat fund should be given to poor families as a permanent rehabilitation grant while another 45% should be given as a monthly subsistence allowance to poor persons. Similarly, in the Sudan, 65% of the zakat fund is distributed as immediate assistance to the poor and the remaining 35% is distributed for purchasing means of production, to be transferred to needy families. This practice is similar to that adopted by the Zakat House in Kuwait and the Nasir Bank in Egypt. A popular hadith of Prophet Muhammad (PBUH) regarding the way he provided a solution to a beggar was narrated by Anas Ibn Malik. A man of the Ansar came to the Prophet (PBUH) and begged from him. He (the Prophet) asked: Have you nothing in your house? He replied: Yes, a piece of cloth, a part of which we wear and a part of which we spread (on the ground), and a wooden bowl from which we drink water. He said: Bring them to me. He then brought these articles to him and he (the prophet) took them in his hands and asked: who will buy these? A man said: I shall buy them for one dirham. He said twice or thrice: Who will offer more than one dirham? A man said: I shall buy them for two dirham. He gave these to him and took the two dirham and giving them to the Ansari, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me. Then he brought it to him. The Apostle of Allah (PBUH) fixed a handle on it with his own hands and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. The man went away and gathered firewood and sold it. When he had earned ten dirham, he came to him and bought a garment with some of them and food with the others. The Apostle of Allah (PBUH) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment. Begging is right only for three people: one who is in grinding poverty, one who is seriously in debt, or one who is responsible for compensation and finds it difficult to pay. 12 Evidence was found in the report on SMEs in Brunei Darussalam (Islam, et al, 2002) that SMEs face difficulties in terms of both availability and access to finance. This is due to difficulties in meeting the requirements of financial institutions in rendering the loan such as the securing of collateral and guarantors. The difficulties are more for the poor and needy who do not have assets to be used as collateral in order to get the loan. The current banking system is not in favor of helping the poor and needy without security or collateral for paying back the loan. The current banking system is set up to support the capitalist system, which focuses more on protecting depositors and shareholders money. 12 Sunan Abu Daud, Book 9, Number

32 Therefore, the zakat fund should play an important role in providing the capital for them either as zakat disbursement or as a benevolent loan. The Shariah ruling regarding the use of zakat funds for benevolent loan refer to the discussion which took place in Egypt in 1950 when answering a question posed by the government of Pakistan on this matter. 13 The answer was as follows: If a debtor died and his heirs are not capable of repaying his debt, it is possible that the debt be repaid from zakat funds. To Malik, Al-Shafi i and Ahmad, the balance of the debt must be paid from his property of funds left his death. If the inheritance was sufficient, the debt is duly paid, otherwise, it becomes a bad debt. Under Islam, fair debts are to be paid back from the zakat fund. In this matter, Islam has been by far the forerunner of all other faiths. It suffices to know that in some states the Roman Law had given the creditor the right to take the debtor as a slave. But the Law of Allah, the Subtle and Aware, ordains that the debt of an insolvent should be paid by the state on his behalf. In so doing, people are encouraged to do more acts of benevolence and chivalry and to grant more of riba-free loans. Since the fair debts are paid back from zakat funds, loans may be granted from the zakat funds so that they may be repaid later. 2.7 Innovations in zakat management (collection and disbursement) In Egypt, the collection and distribution of zakat involves voluntary workers and committees. The network of zakat consists of four major organizations that are voluntary committees unaffiliated with any public body, the ministry of awqaf and its affiliated voluntary committees, the Nasir Social Bank and its affiliated voluntary committees and the Egyptian Faisal Islamic Bank and its affiliated voluntary committees. Zakat is paid voluntarily to these organizations and is distributed to deserving persons according to the discretion and decision of the volunteers (Kahf, 2000). Zakat management by the banks has its advantages as banks have branches which cover huge areas throughout the country. Banks also have access to the capital and profits of the shareholders. The flexibility procedure in establishing the voluntary committees helps the banks to reach either the zakat s payees or the deserving people. As an example, the Nasir Social Bank s voluntary committee can be formed at any place like at a mosque, a school, a factory, a government office, a village, a quarter or section of a city or any area where there are people who have the time and energy to volunteer. The Nasir Social Bank has the advantage of diversifying its services and inventing new ideas and projects to cater to a variety of needs of the deserving categories as its resources are not limited to zakat alone (ibid). According to Kahf (ibid), besides catering to the needs of the poor and destitute, the organization provides training services, medical services in zakat-sponsored clinics and hospitals, Al-Qur an memorization support, private classes to enhance the academic 13 Abu Zahrah, Mohamed, Liwaa Al-Islam magazine (Question No. 29) Issue No.11, Vol.IV, April, 1951, p 838 as cited in Shahatah, Shawki Ismail, (2000). 19

33 advancement of poor students, nursery schools for the small children of poor working women, the construction of mosques, foreign language teaching, burial services and camping and sports facilities for poor children and youths, amongst other things. In addition, it also provides breakfast during the month of Ramadan to the poor and to travelers, a mobile caravan for zakat awareness and disbursement, an annual exhibition for the products of the zakat-sponsored training centers, a haj group trip as well as sponsorship for a series of international and cultural lectures. In Malaysia, Islamic religious affairs are governed under each state authority. Each state has an agency to manage the zakat fund. Pusat Pungutan Zakat Selangor is considered the largest agency in terms of the amount of zakat collected. The zakat distribution to the eight asnaf by Pusat Zakat Selangor can be summarized as follows 14. Poor and needy: The zakat funds are used for assisting the poor and needy in the form of capital assistance for those who have abilities or skills. This capital assistance can take the form of such things as carpenting tools for carpenters, farm machines and plant seeds for farmers, money for merchants, etc. It is also given as monthly or annual fund assistance for Muslims in need, such as senior citizens, the disabled, and orphans, amongst others. It is also given to needy Muslims to build houses as well as poor Muslim students whose parents are unable to finance their education. Amil: The zakat fund is also used to pay the wages of those who perform the zakat administrative tasks such as zakat collecting, zakat distributing, zakat accounting, zakat warehouse keeping, and so on. Muallaf: The zakat fund is also used as funding for muallaf foundations, that is, for example, to build mosques for muallafs who live in Muslim minority areas or countries, provide scholarships for Muslim convert students, humanity assistance for Muslims who are threatened by Christianity or other religions, Muslims who live in poor regions and humanity assistance for Muslims in conflicted areas such as in parts of Africa or Iraq. Riqob: The fund is also used to release Muslim prisoners who are arrested because of their da'wah activities, to release Muslim women employees who are under pressure from their employers and to finance the jihad of Muslims who are striving to achieve independence from non-muslim rule. Gharim: To pay the liabilities of Muslims who are trapped in their obligations for their basic needs and provide humanity assistance for Muslims who have been the victims of disasters such as fires, floods, robberies, etc,. Fisabilillah: To finance the Islamic jihad to protect Muslims from being attacked such as Muslims in Ambon, Indonesia or Palestine; to finance the Islamic mass media such as Islamic newspapers, Islamic magazines, Islamic television and other Islamic publication media; and scholarships for Muslim students who have shown good academic performance. 14 Pusat Zakat Selangor 20

34 Ibnu Sabil: The fund is used to provide scholarships for deserving Muslim students who study abroad, to finance programs to eradicate begging and relieve homeless persons, to help abandoned children, to help merchants whose merchandise is borrowed by others and cannot be collected as well as to help Muslims who are chased away from their countries because of their religion. Pusat Zakat Selangor, which is now known as Lembaga Zakat Selangor (Zakat Authority of Selangor) also introduced an innovative program called the Empowerment Scheme (Mustafa Murtala, 2008). The Empowerment Scheme provides financial facilities in the form of business capital for the poor and needy from the zakat fund. In Singapore, an innovative way of managing zakat through the Empowerment Partnership Scheme (EPS) was introduced in July Majlis Ugama Islam Singapura (MUIS) or the Islamic Religious Council of Singapore disburses on average of $300,000 each month to about 1,800 zakat recipients. Their policy is to ensure that every zakat dollar is well-spent and can help to improve the quality of life of zakat recipients so that in the long run they can be self-reliant. Hence, 400 empowerable families were selected to undergo the intensive three-year scheme, under the close supervision of agencypartners. By year 2008, 231 families out of the 400 families had graduated from the scheme. These families no longer receive zakat assistance from MUIS. From January 2008, another 200 families from the zakat database were selected to participate in the new batch of EPS. 15 MUIS zakat assistance aims to achieve the following (MUIS, 2008): a. To help needy Muslim Singaporeans to achieve self-reliance through sustainable program at the community level, thereby building social capacity for self-help over time. This is also done through partnerships with national agencies such as CDCs and other social service providers at the community and grassroots level. In implementing zakat assistance, MUIS tries to avoid creating a welfare mentality or a sense of entitlement among those who are helped. b. To educate needy Muslim Singaporeans and deliver help more efficiently and effectively. With the revised zakat assistance, the assistance scheme is simplified so that Muslims will find it easier to understand, thus making sure that needy Muslim Singaporeans know where to turn to if they need assistance. Zakat assistance is administered by MUIS as an authorised organisation to collect and disburse zakat, under the Administration of Muslim Law Act (AMLA). The programs under zakat Assistance will be administered by Enhanced Mosque Clusters (EMCs), with the help of national agencies, grassroots organisations and voluntary welfare organisations (ibid). The EMCs, as local administrators in their districts, determine the people who need help, and what kind of help they need. The EMCs will means-test the applicants by visiting 15 Majlis Ugama Islam Singapura (MUIS),

35 their homes and looking into their families circumstances including the number of people in each family, family income, savings, availability of a support network, employability and other needs. The EMCs conduct this process to make a fair assessment of the type and of assistance to be provided to each family (ibid). MUIS s zakat assistance is categorised into three program pillars (ibid): ZakatEmpower which focuses on helping the needy to achieve self-reliance ZakatProgress which focuses on the developmental and educational needs of children of zakat recipients, so as to help them break out of the poverty cycle and ZakatUplift The program focuses on helping the needy who require long-term assistance to integrate into the community, such as the elderly and people with disabilities. Currently, 127 trained Befrienders in mosques island-wide help the program s implementation. The Befrienders help to guide and sustain low-income families on the path of self-reliance by lending emotional support and motivation (ibid). For the long-term zakat recipients with chronic illnesses who form the largest group of long-term recipients, MUIS has introduced a health-management program as part of the package of core program for all categories of recipients such as the illnesses prevention and good dietary practices programs. MUIS has also introduced financial management programs to encourage good and prudent financial management among the poor and needy (ibid). The Educational and Training Support Scheme is targeted at young school-going children whose families are MUIS zakat recipients but are not on the Empowerment Partnership Scheme. These children will get the opportunity to participate in education and personal enrichment programs aimed at improving their educational performance and life skills. 16 Under the Empowerment Partnership Scheme, needy families can receive a package of financial assistance, social, educational and development programs and religious counseling, specially tailored to their needs. The scheme is delivered through a partnership between MUIS and voluntary welfare organizations as well as the mosques. 17 One of the voluntary welfare organizations is AIN Society, which is currently managing 85 families. More than 400 participants have benefited from the various programs related to social, economic and religious components that aim to equip the clients families with various knowledge and skills as well as empowering them to better manage their problems and address their financial difficulties with greater work opportunities. Those families who need assistance from the EPS register with AIN Society to participate in various empowerment courses that have been conducted by AIN. The client under the 16 Ibrahim Yaacob, ibid 22

36 scheme receives financial assistance from MUIS and AIN then assists them in management and marketing strategies. 18 One encouraging case example was of a 39-year old single parent who signed up for the Empowerment Partnership Scheme. She lives in 2-room rental flat with 2 school-going children, aged 12 years and 9 years. Since joining the scheme, she has decided to participate in a support group for single parents and works with her counselor to develop a plan to become more financially secure. She encourages her children to sign up for tuition to improve their grades and to participate in enrichment programs. She also requested for her children to be enrolled in Al-Qur an recitation classes. 19 More examples of programs practiced by other countries can be adapted to Brunei Darussalam s situation and environment. However, for the purpose of this case study, observation has been limited to only a few countries, as discussed above. 2.8 Estimation of the needs of the poor and needy Al-Qardawi 20 is of the opinion that absolute inability is not a condition for receiving zakat. An able person can receive zakat if his income is insufficient. However, someone who is able but insists on remaining idle despite the availability of jobs is prohibited from receiving zakat. He concludes that a capable person is prevented from receiving zakat under the following conditions: a. He finds a job b. The job is lawful in the Shariah c. The requirement of the job is within the person s ability d. The job is suitable for the person, his social status and physical and spiritual ability e. The job earns him income sufficient for personal and family needs Thus, it can be concluded that people who are unemployed due to lack of job opportunities because of a weak economy are eligible for receiving zakat. The matter of how much the poor and needy should be given from the zakat fund has drawn different opinions. Mansoori (2006) discussed two opinions of Muslim jurists. Maliki, Shafi i and Hanbali are of the opinion that the poor and needy should be given a sufficient amount to satisfy the essential needs commonly known in the society. Shafi i and Hanbali state further that the poor and needy should be given a sufficient amount to satisfy their lifetime needs so that they will be to lift themselves away from poverty permanently. This opinion is based on a ruling of Khalifah Umar (RA) when he said: When you give, make the recipient rich and self-sufficient. Repeat giving them even if one has to get hundred camels AIN Society website 19 Ibrahim Yaakob, Kahf s translation, 2005, vol. 2 p Abu Ubaid, kitab al Amwal, as cited in Mansoori,

37 Another way of interpreting the concept of sufficiency of sustenance is by providing the poor with tools and equipment or machines to enable them to use the skills they have. If the poor is a craftsman, he should be provided tools of his craft, and if he is a farmer, he should be given sufficient farming land area for cultivation. If he knows how to run a small business then he should be helped by giving sufficient capital to run a business by which he can earn enough for him and his family. The Maliki jurists hold the view that self-sufficiency means providing the poor and needy with one year s basic needs. This is based on the practice of the Prophet (PBUH) to store food for one year for his family. However, the Hanafi jurists suggested that the poor and needy should only be given a definite amount that is two hundred dirham maximum. However, this opinion is not popular as the Al-Qur an and Hadith have not fixed any limit (Mansoori, 2006). Imam al-nawawi is of the opinion that the poor and the needy should be given what could bring them out of poverty to sufficiency on a permanent basis. This is consistent with Al-Shafi i s opinion (Al-Abdin, 2002). Abdul Aziz Muhammad (1993) wrote about the principles governing the distribution of zakat. One of the principles is that the amount of zakat given to a particular person should be sufficient to fulfill his needs. The amount given to the poor and needy should be enough for his basic needs such as food, clothes, and shelter. For the wayfarer, it should be enough to continue his journey and for the debtor, the amount should be enough to clear his debt. He also mentioned that according to the Shafi i school of thought, the mode of the distribution of zakat depends on the condition of the person. To the old, handicapped etc, the zakat should be given continuously for the rest of their life. If the person is young and healthy, he should be given zakat in the form of sufficient capital to enable him to earn a livelihood. The jurists opinions regarding the needs of poor people are in a relative sense according to the conditions of different societies. The needs of a poor person include items like lodging, clothing, food, books for students, domestic animals for transport and a servant if his status justifies that (ibid). That means the definition of poverty according to the Islamic scholars is broader than that specified by the United Nations Development Program (UNDP), which touches only on food, medicine, education, and clothing (UNDP Poverty Report, 2000). 2.9 The socio-economic impact of zakat on Muslims The history of early Muslims experiences proved that when zakat was collected and distributed in the right way, it led to the effective elimination of poverty in society (Al- Abdin, 2002). The Hadith in Sahih Bukhari, Volume 3, page 81 stated: 24

38 'Amr ibn Shu'aib reported that the Messenger of Allah (PBUH), appointed Mu'azh ibn Jabal to a position in Jund where the latter remained until the death of the Prophet. At the time of this event, he came to 'Umar who reappointed him. He sent to 'Umar one-third of the sadaqah collected from the local people, but 'Umar turned it down and said: I did not appoint you to go there as a tax collector or as a tribute (jizyah) taker. I appointed you to collect sadaqah from the rich and then to return them to their poor. Mu'azh replied: I would not have sent you anything [from the collection] if I had found someone deserving [over here]. In the second year, he sent him half of the collected sadaqah, and they ran into the same issue again. In the third year, he sent him all of it, and 'Umar again argued with him. Mu'azh responded: I could not find anyone who deserved to receive anything from me. This is related by Abu 'Ubaid. It is also stated in the Hadith, 22 narrated by Ibn Abbas: When Allah's Apostle (PBUH) sent Muadh to Yemen, he said (to him), You are going to people of a (Divine) Book. First of all invite them to worship Allah (alone) and when they come to know Allah, inform them that Allah has enjoined on them, five prayers in every day and night; and if they start offering these prayers, inform them that Allah has enjoined on them, the zakat. And it is to be taken from the rich amongst them and given to the poor amongst them; and if they obey you in that, take zakat from them and avoid (don't take) the best property of the people as zakat. Beside its impact on the socio-economics of Muslim society, zakat also has an impact on the individual. According to Al-Qardawi (2005), the primary objective of zakat is to raise the spirit of human beings above the love of material acquisition. Thus, Islam does not view the zakat payer as a source of funds or a financier, but as a person who always needs purification and sanctification, both spiritually and materially. The Al-Qur an mentioned this purpose in Surah At-Taubah 9:103: Out of their wealth take sadaqah, that by it thou might purify and sanctify them. This brings us to the question of why poverty has not been eradicated in many Muslim countries although the zakat system is available to alleviate poverty. The answer to this puzzling question can perhaps be attributed to weaknesses in the administration of zakat institutions. Akhtar M Ramzan (2002) is of the opinion that the governments of Muslim countries should tap the enormous potential of zakat. A sizeable amount of zakat can be collected if all sources approved by the Shariah are implemented and enforced. The zakat law should provide enough funds for rehabilitation such as meeting the training and skills needs of the zakat recipients and providing them with capital for setting up businesses. The success of the rehabilitation of poor programs depends on the package of the assistance provided including financing, training and education, marketing, capacity building, technology and monitoring input delivered to the doorstep of the zakat recipients (ibid). 22 Sahih Bukhari, Volume 2, Book 24, Number

39 2.10 Conclusion As zakat is a religious obligation, it should be made compulsory by law and governed by the government. However, involvement of volunteers in the management and administration of zakat may help the government to manage more effectively especially in reaching and guiding the poor and needy. Zakat should be able to be used as an effective tool to reduce poverty by using it as capital for income-generating activities for the poor and needy. Countries like Singapore, Malaysia and Indonesia have started to explore and introduce renewed and innovative ways of zakat disbursement through their empowerment programs. However, the poor and needy need to be educated on how to manage their finances as they are likely to mismanage capital assistance given. The eradication of poverty is not an easy task. Any program which aims to eradicate poverty must come together with a support system for the poor and needy, solving the causes of poverty and establishing a mechanism that enables the poor and needy to be economically self-supporting (Mohammed Abdul Wahab et al, 1995). The zakat management institution in Brunei Darussalam should learn from the experience of other countries in providing capital assistance to the poor and needy who have their own unique problems. To provide context for the poverty problem in this country, the economic demography of Brunei Darussalam will be discussed in the next chapter. 26

40 CHAPTER 3 THE ECONOMIC DEMOGRAPHY OF BRUNEI DARUSSALAM 3.1 Introduction This chapter introduces the demographic and economic conditions of Brunei Darussalam. The aim of this chapter is to provide the context so that the main issue of zakat can be appreciated within Brunei Darussalam. 3.2 Demographic Overview of Brunei Darussalam Location Brunei Darussalam is a small sultanate located on the northwest coast of the island of Borneo. The size is 5,765 square kilometers and it is divided into four districts: the Brunei Muara district, the Tutong district, the Belait district and the Temburong district. Bandar Seri Begawan, the capital of Brunei Darussalam, is located in the Brunei Muara district. Population Brunei Darussalam has a small population size. The total population was estimated to be 398,000 in 2008, 406,200 in 2009, 414,400 in 2010 and 422,700 in The population consists mainly of Malays who form the largest ethnic group (more than 85%), followed by the Chinese (about 10%) while the rest are from other races. 23 About 70% of the population lives in the Brunei Muara district. The second most populated district is the Belait district followed by the Tutong district while the smallest district in terms of population size is the Temburong district. The population annual growth rate was 2.1% for the year This growth rate declined from 2.1% in 2009 to 2.0% in 2010 and This decrease was due to a decrease in the birth rate. 24 Services and facilities The people of Brunei Darussalam enjoy free education, which is provided through government schools and institutions. In 2008, there were 261 educational schools, colleges and institutions. These include 89 private schools and tertiary institutions throughout the country. 25 Since 2008, there have bee four universities in the country. The 23 Brunei Darussalam Key Indicators, ibid 25 Brunei Darussalam Statistical Year Book

41 government, however, continues to award scholarships to qualified Brunei citizens to pursue courses overseas which are not available at the local universities. The government has a school feeding scheme whereby meals for students are given to rural schools and light meals for students to those in the urban areas. Students who come from economically disadvantaged families but are not eligible for hostel accommodation and who stay more than five kilometers from school, are provided with free transport to and from school. Medical and healthcare services are also provided free of charge at the government hospitals, health centers and health clinics throughout the country. In remote areas that are inaccessible by land or water, primary healthcare is provided by the Flying Medical Services. Patients who require specialized treatment are sent abroad and health expenses for Brunei citizens are borne by the government. Brunei Darussalam also has a national housing scheme for citizens. The first development of the national housing scheme was initiated under the 3rd National Development Plan, The cost of houses under this scheme ranged from as low as $62,880 to about $100,000 per unit. 27 The size of the land lot was 0.25 acres. Now the size has been reduced to 0.16 acres and will be reduced further to acres due to the shortage of land available (Asiah, 2005). Another on-going government housing project is the Landless Indigenous Citizens Housing Scheme (LICS), which has eight sites in different parts of the country. In addition, the Sultan Haji Hassanal Bolkiah Foundation also provides housing for eligible citizens. 3.3 Economic Background Brunei Darussalam s economy is still heavily dependent on oil and gas. Oil and gas production, which is the main component of the mining sector, contributed 57.2% to the total GDP at the current price in It remained at 70% in 2008, decreased to 47% in 2009 and was 50.82% in The changes in the contribution of oil and gas sector to the GDP were influenced by the changes in the price of crude oil. The government sector contribution increased from around 11.0% to 13.7% from 2008 to The agriculture, forestry and fishery sector s contribution to GDP at current prices increased from 0.64% in 2008, 0.9% 2009, and declined in 2010 to 0.76%. 26 National Development Plan, The housing project tender was given to United Engineers (Singapore) Pte. Ltd 28

42 Table 3.1: GDP percent distribution by kind of economic activity at current prices Kind of economic activity Total (BND $million) 20, , ,867.3 Agriculture, forestry & fishery sector Industrial sector: Mining Manufacturing Construction Electricity and water Services sector: Other services Private services Government services Source: Brunei Darussalam Key Performance Indicators External Trade Crude petroleum is the major domestic export commodity of Brunei Darussalam, followed by gas and garments. The export of crude oil in 2008 was 53.2% of the country s total export and it decreased slightly to 47.7% in 2009 and increased again to 50% in The export of gas contributed 44.6% percent to total exports in 2008 and it remained more or less at the same rate of 44.6% percent in 2010 while the export of garments decreased from 0.5% in 2008 to 0.07% in 2010 (Table 3.2). On the import side, the major imported item was machinery and transport, which comprised 41% of the total amount of imports (BND million) for the period from January to June Manufactured goods followed this at 24% (BND million), and food at 13% (BND million) (Table 3.2). Brunei Darussalam s economy has been dependent on oil and gas for many years. This fact has had an impact on the standard of living and lifestyle of the population, especially after independence in The contributions from agriculture, fishery and other primary resources sectors have been declining. Economic diversification has been slow to develop and the economy is heavily influenced by the government s expenditures. 29

43 Table 3.2: External Trade EXTERNAL TRADE (BND Million) Exports f.o.b 14, , ,117.6 Imports c.i.f 3, , ,349.3 Total Trade 18, , ,466.9 Balance of trade 11, , ,768.3 Imports by commodity section: Food Chemicals Manufactured goods Machinery and transport equipments 1, , ,158.8 Miscellaneous manufactured articles Others Source: Brunei Darussalam Key Indicators, GDP growth The growth of the Gross Domestic Product (GDP) has been inconsistent for a period of time. During the early 1990s, Brunei s economy showed some signs of weakness, especially after the Asian financial crisis. However, in 2007, Brunei Darussalam s nominal GDP was BND$18.5 billion and her GDP per capita was around BND$47,000, which was 47% higher than the GDP per capita during the year 2000 (around BND$32,000). However, the real GDP growth rate was inconsistent, fluctuating from 1.3%, to 10.5%, (23.5) and up again to 8.0% in the year 2007, 2008, 2009 and 2010 respectively per annum. The GDP growth has influenced the GDP per capita growth rate. The GDP per capita of Brunei Darussalam is one of the highest in Asia. The GDP per capita at current prices was around BND$47.3 thousand in 2007, increasing to around BND$51.3 thousand in 2008 and decreasing to BND$40.7 thousand in The inflation rate had an impact on the GDP per capita growth rate at constant prices. The GDP per capita at constant prices actually declined during the period from 2007 to 2010 (Table 3.3). Besides other factors, the slow growth rate of GDP and GDP per capita has had an impact on the total zakat collections. This will be discussed in detail in Chapter Four. 30

44 Table 3.3: GDP per capita Year Current prices GDP (BND million) 18, , , ,867.3 GDP growth rate (%) (23.5) 8.0 GDP per capita 47, , , ,702.9 GDP per capita growth rate (%) (0.5) 8.3 (25.0) 5.9 Constant prices GDP (BND million) 11, , , ,846.5 GDP growth rate (%) 0.2 (1.9) (1.8) 2.6 GDP per capita 30, , , ,587.1 GDP per capita growth rate (%) (1.7) (3.9) (3.7) 0.6 Source: Brunei Darussalam Statistical Year Book Inflation The inflation rate in Brunei Darussalam has been relatively low over the past two decades. In 1995, the inflation rate was about 6%, which was mainly caused by the increase in import duties, especially for motor vehicles. In 2002, the rate decreased to 2.3% due to a downward revision in import duties of cars. However, in 2005, the rate increased again due to a rise in the price of oil. 28 The Brunei Darussalam Statistical Yearbook 2010 Consumer Price Index (CPI) showed that the inflation rate of CPI for the year 2010 decreased to 0.4% compared to 1.0% in 2009 and 2.1% in The index of food and non-alcoholic beverages has increased over the last few years. This increase has been driven by the rise in almost all sub-group indices, in particular rice and cereal products, dairy products, eggs, cooking oil and fats. The increase in the price of oil and bio-fuels had a significant impact on almost all sub-group indices of food and non-alcoholic beverages. It was reported that higher costs for corn had caused an increase in the price of chicken feed by about 23% since This directly affected the price of chicken eggs and meat because the feed constitutes 60% to 70% of the production costs. 29 Inflation in food prices has become a global phenomenon since Brunei Darussalam has not been able to completely shield itself from the global food crisis as Brunei Darussalam imports almost all its food requirements. The increase in the prices of food has had a very significant impact on the population, especially the lowest income group, the poor and needy. 28 Brunei Darussalam Long-term Development Plan, Brunei Economic Bulletin, September

45 Table 3.4: Consumer price index 2006 June 2008 PRICES (Jan-Jun) Consumer price index (2002=100) All groups Food & non-alcoholic beverages Clothing & footwear Housing, water, electricity, & maintenance Household goods, services & operation Transport Communication Education Medical & health Recreation & entertainment Miscellaneous goods & services Percentage change over previous period Source: Brunei Darussalam Key Indicators, Long-term development plan Brunei Darussalam s vision is that in 2035, it will become a country which is recognized globally for the accomplishments of its well-educated and highly skilled people, its quality of life and its dynamic and sustainable economy. It is believed that these aims can be achieved by maintaining the population s loyalty to the Sultan and country, belief in the values of Islam and traditional tolerance and social harmony 30. One of the strategies in achieving the long-term development plan is the social security strategy. The policy directions under this strategy are first, to provide an economically sustainable social system for those who are least able to cater for themselves, second, to strengthen the programs that could help to foster the spirit of entrepreneurship and selfreliance among the Bruneian and third, to provide opportunities for workers in the private sector to enjoy a similar sense of security as those in the public sector. His Majesty the Sultan of Brunei Darussalam decreed that the ability of this country to reduce the poverty level would be based on the efforts of the country to improve its per capita income. As mentioned in his royal address, the country's vision is to achieve zero poverty level by year 2035 and to attain a developed status in terms of standards in paddy plantation. The per capita income of the population has been encouraging for the last ten years after independence. In 1994, the per capita income was BND$23,502 which rose to BND$47,964 in Based on this data, the poverty level should be brought down Brunei Darussalam Long-term Development Plan, Brunei Times, March

46 Some of the issues that are currently being discussed by the public are social security issues including pensions, the Employees Trust Fund or Tabung Amanah Pekerja (TAP), and the retirement age. The Tabung Amanah Pekerja (TAP), literally translated as Employees Trust Fund, was introduced on 1 January The main initial purpose of introducing TAP was to help make private sector employment more attractive (Hj. Abd Wahab Juned, 1993). With the introduction of TAP, the gratuity pension system has been abolished except for certain sectors such as the army and police. Under the new TAP scheme employees will only receive a lump sum amount of savings at the end of their employment. This means that the attractive gratuity that was normally given to government employees after retirement will no longer be offered. This scheme has had a deep impact on the lower income people after retirement. The total savings plus the contributions from the employer for low-income employees is normally just enough to support their needs for a short period of time after retirement and is too negligible an amount to be used as capital for doing business. There is also a possibility that employees with high incomes will also face similar problems if they mismanage their funds. Starting businesses will not be easy for those who are used to working with the government and who have enjoyed many privileges offered by the government. Social security in the form of a pension is still relevant in order to help people after their retirement despite the savings under the TAP system as a replacement of gratuity. Realizing the effect of these changes, another new pension scheme was declared to accompany the existing Employees' Trust Fund (TAP). The announcement made by His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam in his 63rd birthday royal address regarding the scheme entitled Supplemental Contributory Pension (SCP). The SCP was considered to be especially encouraging by many as it involves mandatory contributions by both employers and employees. From the funds collected under the SCP scheme, a retiree will receive a minimum monthly annuity after he or she reaches the mandatory retirement age. His Majesty also consented to extend the mandatory retirement age by five years to reach 60 years old. The SCP scheme applies to citizens and permanent residents in the public and private sectors Employment Based on the Brunei Darussalam Statistical Yearbook 2010, the 2001 census showed that of a total of 146,254 employees, 54,865 (35%) were working in the public sector and 91,389 (65%) were in the private sector. It also showed that out of 107,322 people employed in the private sector during 2006, 69% were foreign workers, while the remaining 31% were locals and permanent residents. Most of the foreign workers were employed in construction (35%), and mining (other than petroleum and gas), quarrying and manufacturing (18%). Large percentages of local and permanent resident workers were employed in the financial, insurance and commercial sectors. 32 Laws of Brunei, Chapter

47 The statistics from the Labor Department in 2007 showed similar trends. Out of 113,621 workers employed in the private sector, 69.2% were foreigners while only 30.8% were locals and permanent residents Unemployment Brunei Darussalam has a high rate of unemployment among its youth. The number of active jobseekers registered with the Labor Department decreased from 7,300 (4%) in 2006 to 6,300 (3.4%) in 2007 but it increased again to 7,000 (3.7%) in 2008 although in 2010 there has been a declining rate of unemployment to 2.7%. The rate of unemployment among females was higher than for males, 3.8% and 2.9% for 2009 and 2010 respectively compared to 3.0% and 2.4% for males during the same period (refer to table 3.5). Table 3.5: Total labor force, number employed and unemployment rate LABOUR Labor force (thousand) Male Female Employed (thousand) Male Female Unemployed (thousand) Male Female Labor force participation rate (%) Male Female Unemployment rate Source: Brunei Darussalam Statistical Year Book, Rate of wages of the lowest income earners Based on the Brunei Darussalam Statistical Year Book 2010, the lowest wage earners are those in the construction sector. 34 They are laborers, bricklayers, and masons, amongst others. Working for seven hours per day and seven days a week, a laborer earns an average wage of $ per month, a bricklayer $ per month and a mason $ per month. Another sector of low wage receivers is vehicle drivers who earn an average of $ per month. 33 James Kon, Unemployment may affect stability, Borneo Bulletin, 6 January Excluding domestic sector 34

48 Almost all of the employees in the construction sector are foreigners. The construction workers live in quarters built at the construction site. These workers are willing to accept small wages, a poor standard of living, and distance from family due to Brunei s high currency exchange rate compared to their own countries currencies. Statistics have shown that not many Bruneians want to work in sectors like the construction sector due to low wages. A monthly income of BND$ to BND$ received for working seven days a week may be sufficient to support a single person but it is certainly not enough to support a family. 3.4 Issues arising from the demographic and economic conditions Some issues arise from the demographic and economic conditions laid out earlier which are related to poverty in Brunei Darussalam. Some of the measures adopted to assess poverty in developing countries are safe food supply, health services, education, clean water supply, sanitation, security and so on. According to the United Nation Poverty Report, 2000, there are two ways of measuring poverty. First, the US$1 per day income measure of poverty, which measures the percentage of people who live on less than US$1 per day. Second, the Human Poverty Index (HPI). The HPI measures deprivation in basic human development. It takes into account: % of people expected to die before age 40 % of adults who are illiterate % of population without access to health services % of population without access to safe water % of children under five who are underweight In Brunei Darussalam, there is no extreme poverty - the problem is with relative poverty. Absolute or extreme poverty is defined as the inability to purchase the very basics of daily necessities. In Brunei Darussalam every member of the population has access to a safe water supply. Services like health and education are provided free by the government. Welfare assistance is also given to various categories of the population in this country. However, relative poverty happens when a household earns less than 50 percent of the average income of the population. 35 It happens due to the high living standards of Brunei Darussalam. Major factors that contribute to poverty are unemployment, low education, rate of divorce and drug abuse. Long-term unemployment is one of the major factors that cause poverty. This worrying trend of unemployment has forced the government, with the consent of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam, to form a committee to tackle unemployment issues in January Among its aims are to examine the real situation in the job market; to identify the causes of unemployment among locals; to prepare policies and action plans as well as the mechanisms to tackle unemployment; to prepare 35 Rosli, Sobrina, Councilmen take up housing issues, The Brunei Times, March 11,

49 and organize courses or programs and activities that are more comprehensive as well as effective. 36 One of the factors that cause unemployment for long period is drug addiction. In Brunei Darussalam, cases of drug abuse have almost doubled from 162 persons in 2006 to 308 persons in 2007 (ibid). Those involved in drug abuse often continue on to become unproductive and a burden to society. Government servants who test positive for drug addiction have their services terminated and are barred from government employment in the future. They will then find it difficult to seek employment in the private sector. This situation also applies to those who are convicted of other crimes such as corruption. The difficulties of finding a new job and the negative perceptions of society often result in them applying for welfare or zakat assistance. Another factor contributing to unemployment is low levels of education and unskilled labor. A household expenditure survey conducted in 1997/8 showed that 7% of households were earning less than BND$1, a month. Among these low-income households, most of the breadwinners had a low level of education. Only 0.3% had a technical qualification, 2.4% had an upper secondary education, 7.9% were educated up to lower secondary while 13% never had any form of formal education at all. In addition, 19% of the lowest income households were unemployed. 37 This factor is still relevant now as figures obtained from the Labor Department showed that in August 2008, 92.9% out of 6,025 of total jobseekers registered with the Labor Department held qualifications below 'O' Levels. 38 Divorce also contributes to the problem of poverty. The number of Muslim divorces in 2005 was 358, which was 18% of the total Muslim marriages in the same year. The number increased to 501 in 2008, 566 in 2009 and 483 in 2010, which was 23.7%, 25% and 20.3% of total marriages in those years respectively. More than 70% of Muslim divorces were from the Brunei Muara District as the population density is higher in this district, compared to the other three districts in Brunei. 39 Women who are divorced often have to raise their children alone, as single parents. The situation is worst for non-working women. The majority of applicants for the zakat fund and welfare fund are unemployed, single parent women. 36 James Kon, Unemployment may affect stability, Borneo Bulletin, 6 January Brunei Darussalam s Millennium Development Goals, James Kon, Unemployment may affect stability, Borneo Bulletin, 6 January Brunei Darussalam Statistical Yearbook

50 3.5 Agencies involved in providing assistance to the poor and needy Community Development Department (JAPEM) The Community Development Department s (JAPEM) main target groups are children, problematic teenagers, family, women, special needs individuals, the elderly and the poor and needy. The number of poor and needy receiving assistance from JAPEM has increased every year. The total number was 3,871 in 2002, which increased to 4,115 in 2006 and increased further to 4,301 in Table 3.6: The rates of assistance given to the poor and needy from 1968 to 1998 Changes in rates over 30 years August May July Breadwinner $30 $37 $50 $100 $150 $200 Wife $20 $25 $30 $50 $80 $200 Dependents (maximum 4 children) Education allowance Maximum rate Source: JAPEM $15 per child $18 per child $25 per child $40 per child $65 per child $110 $137 $180 $310 $490 $65 per child (Number of children is not limited) $60/person (5-18 years old) No Maximum Rate The rates of assistance for the poor and needy have been revised several times since 1968, as shown in table 3.6 above. For example, the breadwinner was entitled to receive $30.00 per month in The rate was increased to $ after Brunei Darussalam gained independence in 1984 and the current rate is $ per month, which has been effective since Wives are also entitled to receive $ per month while $65.00 is given to each child, regardless of the number of children. Each child is also allocated $60.00 per month for educational needs. There is currently no limit to the number of family members receiving assistance. Before, it was limited to four children only. Besides giving assistance to the poor and needy, JAPEM also governs the pensions and allowances for different categories of recipients under the Old Age Pension and Disabled Act, The rates of old age pensions and other allowances have been increased from BND$ to BND$ per month (Table 3.7) since October The policy of 40 JAPEM 37

51 JAPEM is to give only a token amount to the recipients, as JAPEM wants to encourage them to be financially independent. Table 3.7: The rate of assistance with effect from October 2006 Dependents (Children) Dependents 15 year 15 year Maximum (Wife) above below Assistant Old age pension (age of $250 $ years old and above) Handicap pension $250 $250 Blind pension $250 $188 $188 $113 Mental illness pension $250 $188 $188 $113 Hansen/leprosy disease pension $250 $188 $188 $113 Source: JAPEM The number of recipients for the pensions and allowances has increased every year for all categories. For example, the number of old age pensioners has increased from 16,576 in 2006 to 18, 375 in August The illness pension is given until they recover or for the entire lifespan. In June 2006, JAPEM established the Job and Entrepreneurship Division. The Employment Section provides services like issuing recommendation letters for those who are applying for jobs and finding jobs for those who have difficulties finding one. Most of their clients are those with poor academic qualifications and pensioners. 3.8 Number of applicants according to types of businesses Sectors Total Number of participants Agriculture 9 Fisheries 7 Snack food, food stall and catering 30 Tailoring and embroidering 7 School s canteen 4 Retail shop 1 Grass cutting 2 Saloon and facial 2 Car wash 1 Direct selling stockist 1 Total 64 Source: JAPEM The aim of the Entrepreneurship Section is to enable their clients to achieve self-reliance through their own economic projects. It provides a microfinancing scheme to the poor and needy. A maximum amount of $3,000 is granted and there is no interest or service 41 JAPEM 38

52 charge imposed as well as no collateral or guarantor required. In addition, there is no fixed repayment period. The minimum repayment amount is BND$50.00 but the enforcement is flexible depending on the income of the project. Once the loan is repaid in full, the recipient is entitled to another loan. The source of funds for these loans is the National Welfare Fund. The Employment and Entrepreneurship Division of JAPEM has an overall aim of reducing the number of recipients for assistance by 10% in twenty years time, which it hopes to do by making recipients financially independent through income-generating projects, in cooperation with non-government organisations, the private sector and cooperatives. The services provided to the participants of their programs include continuous supervision and monitoring, training and development in basic business management and entrepreneurship skills such as financial managment, marketing, as well as planning motivational visits and talks. Since the establishment of the Entrepreneurship Section in 2006 until 15 August 2008, 152 applications have been received by JAPEM of which 64 applications have been approved (Table 3.8). Most of them (more than 50%) were involved in businesses related to produce or packing snack foods and operating food stalls, school canteens as well as providing catering services. 16 applications were involved in the agricultural and fisheries sectors. The total loan approved was $127,691.00, out of which $99, has been granted. The latest figures obtained show that JAPEM has received $26, in total repayment (26.2% from the total loan issued) The Sultan Haji Hassanal Bolkiah Foundation (YSHHB) The Sultan Haji Hassanal Bolkiah Foundation (YSHHB) was established on 5 October There are several divisions that are involved in rendering services to the poor and needy such as the Welfare division, the Education division and the Volunteers Unit. The Welfare division provides assistance to the unfortunate like the poor and needy, the disabled and victims of natural disasters, amongst others. It also provides assistance to youths to gain skills and to patients who are not eligible for free health services from the government. One of the projects implemented by the Foundation was the housing scheme at Kampong Ayer: Kampong Bolkiah A and Kampong Bolkiah B for the victims of a fire catastrophe which occurred in the Water Village in houses were built in these two villages. Another project under the supervision of the division includes providing housing assistance for the poor and destitute. Since 1996 until 2008, 132 houses have been built for the poor and needy and muallaf. The Foundation also provides help to the poor and needy in the form of cash, capital for income-generation activities like sewing machines, boats and equipment for fishing as well as chicks for poultry, seeds and fertilizer for farming, and so on. The Education division, on the other hand, provides assistance to students who come from poor and needy families, in the form of coupons valued at BND$30.00 or/and BND$ These coupons can be redeemed for books, stationery and other study 39

53 materials. The number of applicants for this assistance has increased every year. It started with 49 students in The number of recipients increased to 912 students in 2008 and increased again to 1,413 students in The Volunteers Unit was established in This unit supports the other divisions in implementing their projects and activities through the help of volunteers. Up to January 2009, more than 600 volunteers have registered with this unit. 43 The volunteers consist of professionals and non-professionals. The projects organized by this unit include the Community and Emergency Assistance Project for natural disaster victims, the Education Intervention Program for students from poor families at Kampong Bolkiah A and Kampong Bolkiah B, the Practicing to Care Project for the elderly and the Assistance Program for Socio-Economic Development towards Poverty Alleviation. The Education Intervention Program was started in It provides free tuition classes for Primary Education Certificate (PSR) candidates from both Kampong Bolkiah A and B. More than 50% of the PSR students under this program have managed to pass the examination since Tuition classes were also held for candidates who were going to sit for the lower secondary certificate of education examination in The target group of the Assistance Program for Socio-Economic Development towards Poverty Alleviation is villagers from Kampong Bolkiah A and B. From a survey of 430 families from these two villages in May 2008, 70% (315 families) had an income of less than $ per month. From this total, 51 families received assistance from MUIB, 22 families received assistance from JAPEM, while another 15 families received assistance from both MUIB and JAPEM Dana Pengiran Muda Mahkota Al-Muhtadee Billah for Orphans (DANA) Dana Pengiran Muda Mahkota Al-Muhtadee Billah for Orphans (DANA) was established under the Dana Pengiran Muda Mahkota Al-Muhtadee Billah for Orphans Act (Chapter 185) on 25 August DANA gives assistance to all orphans registered with DANA. The orphans must be below 18 years old, according to the Hijrah calendar. In 2008, the total number of orphans registered with DANA was over 1, coming from all over the country including orphans from the poor and needy sector. The source of funds is donations from private individuals, groups, companies, schools, nongovernment associations and others. The assistance provided to the orphans include a DANA savings account for every orphan with an initial deposit of BND$ (since 30 August 1999), the Takaful Plan (since 29 February 2000) which is insurance for orphans 42 Education Division of SHHB Foundation 43 Dyg Sufinah Hj. Sulaiman, coordinator, Volunteers Unit, 28 January, Volunteer Unit, SHHB Foundation 45 ibid 46 ibid 40

54 below the age of 18 years old and assistance in the form of educational items and other schooling needs to all registered orphans. 3.6 Conclusion Economically, Brunei Darussalam is a rich country and the per capita income is one of the highest in Asia. However, the economy is heavily dependent on the petroleum sector, although the contribution of the oil and gas sector to the country s GDP is slowly declining. The rate of economic diversification is also very slow. Although Brunei Darussalam has a high per capita income, the number of Bruneians receiving assistance from various agencies is also increasing. In fact, the number of applicants has increased dramatically over the years. This worrying trend has resulted in the government paying more attention to the problem of poverty in Brunei. Some services such as education and health are provided free of charge by the government. Another important aspect is housing. The demand for the government s housing scheme is very high. To cater for the increasing demand, it was suggested that the government should review the criteria of people who were eligible to receive houses under this scheme and improve the procedure involved in processing the applications. 47 Priority should be given to those who have difficulties in getting their own houses due to low income or who cannot afford to buy land for building houses. The issue of unemployment must be addressed by providing Brunei people with skills and encouraging an entrepreneurial spirit rather than an attitude of expecting assistance. People who have a high desire to improve and have the right attitude will normally succeed. The government should also provide a microfinancing scheme for micro and small businesses with a comprehensive package program of guidance and assistance. Several agencies are, at the moment, providing assistance to the destitute such as JAPEM, the SHHB Foundation, DANA Pengiran Muda Mahkota al-muhtadee Billah and the MUIB. However, all the various kinds of assistance by different agencies need to be coordinated because there is some duplication of the types of assistance given. For example, some recipients receive monthly basic needs assistance from MUIB and children school assistance from JAPEM. It would be more efficient if the recipients could receive all assistance from the same agency in terms of administration costs, focus of services, reduction of the number of applicants to each agency and so on. The next chapter will discuss in detail the role of the zakat institutions in Brunei Darussalam in helping the destitute. 47 Rosli, Sobrina, Councilmen take up housing issues, The Brunei Times, March 11,

55 CHAPTER 4 THE ZAKAT INSTITUTION IN BRUNEI DARUSSALAM 4.1 Introduction This chapter discusses in detail the zakat institution in Brunei Darussalam - the agency responsible for managing zakat collection and distribution. It also determines those who are eligible to receive zakat, zakatable items and the types of assistance funded by zakat fund. This chapter also includes an analysis of the trend of number of applicants, amount of zakat collected, the accumulated zakat and the capital assistance provided as part of a long-term rehabilitation program for the poor and needy. Zakat management in Brunei Darussalam has recently attracted the attention of His Majesty and the public. This is due to the increase in the number of applicants for zakat assistance as well the increase in the number of recipients in the list held by the Islamic Religious Council of Brunei Darussalam (MUIB). On the other hand, the collection of zakat has shown a reduction since His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam called for researchers to study this phenomenon and urged for the improvement of zakat management in the country The responsible agency and authority In Brunei Darussalam, the management of zakat is governed by the MUIB under the Ministry of Religious Affairs. The MUIB is given authority by the Laws of Brunei, 1/1984, Religious Council and Kadi Courts, Chapter 77, Section 114, to collect and distribute the zakat fund on behalf of His Majesty according to the Shariah. The Laws state that, The Majlis shall have the power, and shall be under the duty, to collect on behalf of His Majesty and to dispose of as His Majesty may, subject to the provisions of this Act direct, all zakat and fitrah payable in Brunei in accordance with Muslim law, and shall do so to the extent and in the manner provided in this Act. This role of managing the zakat fund is the responsibility of the Division of Zakat Collection and Disbursement under the MUIB. This division has 18 staff and is divided into four units namely the Administration Unit, the Collection Unit, the Application and Disbursement Unit and the Meeting Secretariat. The Application and Disbursement Unit is involved in the process of receiving the applications, investigating the applicants and in making the necessary recommendations for submission to the higher committee for their approval and subsequently the disbursement of the zakat fund. 48 Borneo Bulletin, 13 Oct

56 4.3 The procedure of processing the applications The procedure for the processing of the application forms is comprised of the following four stages: It is important to note that the Application and Disbursement Unit faces limitations in processing the applications. Staff are multi-tasking, doing several jobs at a time. About 15% of the staff have at least two tasks, 19% of them have three tasks, 19% of them have four tasks and 47% have more than four tasks (Hajah Mahani Haji Musa, 2007). The severe shortage of staff has resulted in the accumulation of more than 1,000 applications (since 2006 until 2008) yet to be processed. The findings from the interviews showed that staff are frustrated with the attitude of some of the applicants who are taking advantage of the zakat assistance. The staffs are also not assigned to a specific area. Therefore, there is no sense of responsibility in making sure clients are progressing as all the staff share the same clients and areas to be visited and investigated. However, since February 2009, a new initiative has been introduced to speed up the applications process. The tasks given to the staffs have been reduced so that they will be more focused. The Unit targets the completion of at least forty applications per week. However, the same procedures still apply. The staff commented that although they are speeding up the process, the new applications received are about the same number as the number of applicants being visited. 43

57 4.4 Eligible asnaf to receive zakat in Brunei Darussalam In Brunei Darussalam, there are six asnaf (categories of people who are eligible) to receive zakat assistance. These categories are: The poor: The poor are those who have no source of income or wealth or who have income but cannot fulfill even half of his and his dependent family members basic needs. The needy: The needy are those who have only a little income or wealth which can only cover half or more but cannot fulfill all of his and his dependent family members basic needs. However, in the practice of distribution, the poor are not differentiated from the needy category. Both are given zakat based on what they have or earn per month, and their minimum needs. Amil: The amil are people who appointed to collect zakat on behalf of MUIB. Muallaf: The muallaf are people who have converted to Islam. Al-gharimin: The Al-gharimin group is made up of those who have run into debt on building projects for the public such as the construction of mosques or schools. An issue on the definition of Al-gharimin was raised by His Majesty recently - to consider those who are in debt for basic necessities such as in debt for purchasing government houses. 49 Ibn al-sabil (the wayfarer): People who are travelling for purposes not against the Shariah and who are in need of help due lack of available funds. There are another two asnaf mentioned in the Al-Qur an: the slaves and those who struggle in the cause of Allah. According to the Mufti s fatwa (reference number: 14 MKB 3/1969, dated 1 September 1970), these groups do not exist in Brunei Darussalam. However, a Think Tank Committee to review the position of these two asnaf has been formed under the Ministry of Islamic Religious Affairs. 4.5 Types of zakat assistances Assistances provided specifically for people living in poverty are fundamental needs such as basic food necessities, education and accommodation (rental, repair and construction), medical assistance, higher education institution fees, disaster relief and assistance to others who are entitled to asnaf zakat. 49 The Brunei Times, 15 January

58 The guidelines applied by MUIB for the poor and needy are as follows: Monthly basic needs: i. $ for the head of family ii. $ for the wife iii. $65.00 per head of family members (for food) iv. $60.00 per head (for children s school expenses) Accordingly, the need of a family with five members (the husband, wife and three children who are still schooling) will be calculated as follows: i. Husband - $ ii. Wife - $ iii. Food ($65.00 X 5) - $ iv. School ($60.00 X 3) - $ Total - $ If the family s total earnings are $500.00, this family is considered poor and can receive $ from the zakat fund. Annual assistance: i. The head of family - $1,300 ii. Dependent family member - $ per head Since 2005, this annual assistance is no longer given in a lump sum amount but is divided over 12 months. This is due to many reported cases where the zakat recipients spent the money unwisely unnecessarily. Accommodation for the poor, needy and muallaf: The zakat fund is also being used to help those without houses. They will be provided with rental payments of not more than $ per month including electricity and water bills. If the zakat recipients have a piece of land, a suitable house can be built for them. Other aid given is in the form of repairing their houses or providing the material and equipment required to improve their housing conditions. This type of assistance is very important for the muallaf (converts) as their decision to convert may not accepted by their family and as a result they may be evicted from their family home and therefore need accommodation for protection. Education: Assistance is also provided in the form of payments for school fees, stationery, textbooks and transport to the school. This is in addition to the sum of $60.00 per head for the children s monthly school expenses. 45

59 Capital for business: The capital aid for businesses is provided in the form of machinery and equipment such as a fishing boat complete with fishing equipment, a taxi boat and engine, a sewing machine, equipment and material for cultivation, equipment for food processing, inventory and other equipment needed for businesses. Emergency relief (for victims of fire, natural disaster etc.) Emergency relief is provided for victims of fire and natural disasters such as strong winds, floods and landslides in the form of cash of $ per head in addition to school uniforms, stationery, books and other necessities. Health: The assistance on health expenses covers health services fees. For those who require overseas medical attention, air tickets for the patient and the accompanier, accommodation, transportation and pocket money of $30.00 per person per day are provided to finance the duration of their stay abroad. The same guideline is used by the Welfare Department (Table 3.7 in Chapter 3). The only difference is that the rate for the wife is BND$ under JAPEM and only BND$ under MUIB. It seems that this rate has been used since Given the inflation of the price of food, the rate of monetary assistance should be increased immediately to help the poor and needy in their everyday needs. 4.6 Collection of zakat Zakatable items There are two types of zakat: zakat on wealth and zakat fitrah. Zakat on wealth as mentioned by the Laws of Brunei, 1/1984, Religious Council and Kadi Courts, Chapter 77, Section 116 states that: Zakat shall be payable by every Muslim who rears any animals, or cultivates any crops, or carries on any enterprise, from which zakat shall be payable at the rate and in such manner as may be determined by the Majlis from time to time in accordance with Muslim law. Zakat on wealth collected in Brunei Darussalam include zakat on savings, business, gold and silver as well as a zakat on paddy, which was introduced in Section 117 of the same legislation states that zakat fitrah is liable on all householders in Brunei except those who are very poor. Zakat fitrah is paid once a year during the month of Ramadan and before the offering of the Eid ul-fitri prayer on first of Shawal. The collected zakat fitrah is distributed to eligible recipients before Eid ul-fitri to enable them to celebrate. The amount due is the market value of kilograms of rice. In Brunei Darussalam, there are two types of rice normally consumed as staple food; 46

60 fragrant rice and Siamese rice. In 2008, the market value of the rice had a cash equivalent of $2.84 for fragrant rice and $1.93 for Siamese rice Administrators Amils are selected individuals who can be imams, members of the mosque committee, or those are known within the community such as army personnel, a well-known person in remote villages and those working in Islamic financial institutions. The payment of zakat can also be made directly to the division of Zakat Collection and Disbursement, MUIB. The depositors of the Brunei Islamic Trust Fund (TAIB) and the Brunei Darussalam Islamic Bank (BIBD) can pay their zakat through their financial institutions respectively. Table 4.1: Number of amil (zakat collectors) from Year Number of Amil Number of Area Source: Islamic Religious Council, Brunei Darussalam The number of amil appointed to collect zakat fitrah and zakat on wealth from is seen to be increasing (Table 4.1). This is to facilitate the growing number of people in fulfilling their responsibility to pay zakat. The majority of amil are imam and they normally receive the zakat payment from public at the mosques. Since mosques are scattered all over the country and are very close to the community, they are considered a suitable location for the public at large. Therefore, the mosque is an institution that not only can collect zakat but also can play role in distributing zakat to the deserving Collection The number of zakat payers on wealth increased drastically in 2002 compared to the previous year (Table 4.2). The number increased from 956 persons in 2001 to 3,454 persons in The amount collected also doubled during these periods. The number continued increasing gradually until The increase was due to the participation of the bank s depositors of the Islamic financial institutions in the country. However, the data for 2006 and 2007 showed a sharp decline in the number of payers and the amount collected. These numbers increased in subsequent years. 47

61 Table 4.2: Collection of zakat fitrah and zakat on wealth from 2001 to 2010 Year Zakat Fitrah Zakat on Wealth Total Zakat Zakat Amount (BND$ 000) No. of Payers Zakat Amount (BND$ 000) No. of Payers Amount (BND$ 000) ,421 5, $ 6, ,855 10,271 3,454 $11, , ,205 11,375 3,556 $12, ,116 13,478 4,112 $14, ,504 18,956 4,569 $19, ,929 8, $ 9, ,920 11, $11, ,003 11, ,160 $12, ,981 19, ,122 $20, ,155 16, ,703 $17,376 Source: Islamic Religious Council, Brunei Darussalam 52 The sharp decline in the number of payers and the amount collected was due to several factors. The first factor was the merger of the Islamic Bank of Brunei (IBB) and the Islamic Development Bank of Brunei (IDBB) in the year These two banks merged and officially became the Brunei Darussalam Islamic Bank (BIBD). It is important to note that IDBB s shares were 100% owned by the Brunei government, while IBB s shares were 57% owned by Yayasan Sultan Haji Hassanal Bolkiah (a charity organization), 14% owned by the Mizuho Private Limited Company with the remaining 29% owned by the public. There was an opinion that government and charity organizations did not have to pay zakat. The decision was made to pay BIBD s zakat for 2006 and 2007 in 2008 based on the public shares proportion while waiting for confirmation about the other portion of shares. The Mizuho Private Limited Company is excluded from zakat payment as it belongs to non-muslim shareholders. 53 In addition to the delay in BIBD s zakat payment, the zakat payment of BIBD s depositors for 2006 and 2007 were also retained. Before merging, IBB was appointed officially by MUIB as an amil to collect zakat from the depositors of this bank. After merging, there was no new appointment of BIBD to become an amil. However, BIBD is still deducting zakat from the depositors account automatically. This includes depositors who have authorized BIBD to pay zakat on their behalf. Therefore the BIBD depositors zakat was only paid in The number of payers for 2006 was 128 (about BND$200 thousand), for 2007 was 214 (around BND$160 thousand) and in January to September 2008 was 178 payers (BND$175 thousand). 50 The amount doubled due to Eid ul fitr which happened two times in this year. 51 The bank s depositors are excluded from the number of payers in 2006 and Note: The figures for have been audited and the figures for have not yet been audited. 53 Mohd Khairul Azrin, Shariah Officer, BIBD,

62 The other Islamic financial institution that had an impact on the amount of zakat collected and the number of zakat payers was TAIB. The zakat of TAIB s depositors for 2006 and 2007 was only paid in 2008 due to administrative changes. In 2006, 3,696 depositors paid zakat (BND$2.247 million), 4,027 depositors in 2007 (BND$2.428 million) and 3,973 depositors (BND$2.743 million) in The exclusion of the depositors from these banks caused a sharp depression in the number of zakat payers in those years. The decrease in zakat collection also has some relation to the slow growth in the economy as discussed in the previous chapter. The slow growth in GDP affected the profit of businesses. The lower the businesses profit, the less the zakat being paid. For example, the number of depositors of IBB who paid zakat in 2003 and 2004 was 37 persons, which increased to 55 persons, but the amount paid was around BND$34,000 which increased to around BND$39,000 only during said years Challenges in zakat collection The current concern of MUIB is to increase the zakat fund collection especially from business entities. MUIB has identified 40 established companies to constantly pay zakat by Awareness creation activities have yet to be conducted, such as road shows, exhibitions and so on in order to educate society about zakat payment and the duty of the rich to pay it. Another group of people who need knowledge about zakat payments are pensioners and those who have savings in the Trustee Workers Fund (TAP). Within the organization, MUIB has to train amils on how to calculate zakat and guide the public on the calculation of zakat Zakat proportion to Gross Domestic Product (GDP) From 2002 to 2005, the total zakat collection in Brunei Darussalam in proportion to GDP was constant at 0.1%, although the GDP increased every year. The proportional rate dropped to 0.05% in 2006 due to the decrease in the total collection of zakat in that year but increased again in 2009 (Table 4.3). A study carried out by Al-Abdin (2002), which was collective based on the research of Abdullah al-tahir (which covered 18 countries) and Monzer Kahf (which covered 8 countries) showed that none of the countries managed to collect one percent of the country s GDP. However, some studies showed that the full potential of zakat is estimated to be between 3% and 4.3% of GDP (ibid). Brunei Darussalam s zakat collection is still far from the full potential of zakat. Therefore, more efforts and campaigns should be conducted to promote the level of zakat payment. Zakat payees should also be convinced that the zakat they contribute is distributed according to the Shariah and received by the right people. A good and efficient system will boost public confidence. 54 Awg Azlani, The Operation Officer of TAIB,

63 Table 4.3: Ratio of zakat collection to GDP from 2002 to 2010 Year Total of zakat Collection* Gross Domestic Product** Per cent (BND$ 000) (BND$ 000) 2002 $11,060 $10,463, % 2003 $12,782 $11,424, % 2004 $14,243 $13,305, % 2005 $19,737 $15,864, % 2006 $ 9,620 $18,370, % 2007 $12,105 $18, % 2008 $12,652 $20,397, % 2009 $20,762 15,611, % 2010 $17,377 16,867, % Source: * Islamic Religious Council, Brunei Darussalam **Brunei Statistical Year Book Computerized system in zakat management During the period of this study, MUIB was in the process of implementing a computerized zakat collection system. The system will allow direct communication between amils (including banks) and MUIB s district offices with the main office. The use of a computerized zakat collection system will enable the involvement of a wider range of the community, is expected to be more secure and will provide an improved monitoring mechanism. The use of the computerized system in processing the applications for zakat assistances will speed up the processing time. It is useful especially as it can also monitor the submission of multiple application forms from the same applicants either for the same assistance or for different kinds of assistance. It is also helpful in filtering the applications of husbands and wives who submit the forms separately. 4.7 Disbursement of zakat In Brunei Darussalam, the zakat fund is distributed to six asnaf, namely the poor, the needy, amils, muallafs, al-gharimin and wayfarer. The poor and needy are given monthly and annual assistances while the others receive assistance once only. There has been a drastic increase in the number of zakat recipients since 2004 (Table 4.4). The total number of zakat recipients for both monthly and annual assistances increased considerably from 3,347 persons to 13,298 persons. This drastic increase was due to the number of dependent family members. For example, the zakat recipients for monthly aid, the head of family increased by about 100% but the dependent members increased at a rate of 300%, from 491 persons to 1,520 persons. 50

64 Table 4.4: Number of zakat recipients from Monthly Yearly (for Eid ul-fitri) Year Head of Dependent Total Head of Dependent Total Total family members family members , ,625 3, , ,895 3, , ,645 3, ,520 1,935 2,718 8,645 11,363 13, ,116 2,714 3,780 12,926 16,706 19, ,010 3,875 2,991 9,885 12,876 16, ,107 3,976 2,885 9,349 12,234 16, ,993 3,865 2,948 9,637 12,585 16, ,080 3,912 2,914 9,552 12,466 16, ,031 2,218 3,249 3,695 6,460 10,155 13,404 Source: Islamic Religious Council, Brunei Darussalam In the annual assistance category, the head of family increased from 2,595 persons to 2,718 persons (4.7%) but the dependents increased from 50 persons to 8,645 persons (17,190%). This drastic increase was due to changes in the format of assessment. Before 2004, priority of assistance (especially annual assistance) was given to the breadwinners. In other words, not all dependents were given assistance. However, in 2004, the policy changed so that all the dependents were included as recipients. This change in policy caused the number of recipients to increase by about 10,000. The change was introduced in order to reduce the burden of the poor and needy that have many children. The total number of zakat recipients dropped to 13,404 in 2010 from 16,378 in This was due to batches of zakat recipients being given a lump sum amount of zakat funds, which covered them for a certain number of years according to their needs. Once received, they would be declared rich and no longer eligible as the poor and needy. The total amount of zakat distributed also increased in line with the number of zakat recipients (Table 4.5). A large percentage of the total zakat disbursement went to the poor and needy. For example, in 2006, a sum of BND$13.5 million (73% of the total BND$16.4 million) was distributed to this group. Zakat recipients received the zakat cash disbursement through their bank account. During 2008, a total of $11.6 million of zakat funds were distributed to about 16,000 people living in poverty throughout the country, consisting of 3,728 breadwinners and 12,258 dependents 55. In 2009, the total of $106.7 million was distributed to 16,378 zakat recipients and about $ million from it was for the poor and needy. This amount included the distribution of the accumulated zakat funds, which was distributed in lump-sum form to the recipients. Since there was a reduction in the total collection of zakat in 2006 (Table 4.6), the total collection was less than the total disbursement. The total collection in 2006 was about 55 The Brunei Times, 26 Sept.,

65 BND$9.6 million while the disbursement was about BND$16.4 million. The figures in 2007 showed a similar trend between the amounts collected and disbursed. Table 4.5: Disbursement of zakat in asnaf grouping from (BND$) Year Poor & Needy (BND$ 000) Amil (BND$ 000) Muallaf (BND$ 000) Al-gharimin (BND$ 000) Musafir (BND$ 000) Total (BND$ 000) , , , , , , , ,577 1, , , ,686 2, , , ,069 1,600-14, , ,848 1, , , ,400 1,284-16, , , , , ,178 1,471-15, , ,070 3, , , ,610 6, ,974 Source: Islamic Religious Council, Brunei Darussalam Table 4.6: Total collection and disbursement of zakat BND$ Year Total Disbursement (BND$ 000) Total Collection (BND$ 000) ,787 $ 6, ,705 $11,060, ,442 $12, ,811 $14, ,547 $19, ,371 $ 9, ,411 $11, ,849 $12, ,729 $20, ,974 $17,376 Source: Islamic Religious Council, Brunei Darussalam 4.8 Capital Assistances Program under MUIB Besides monthly and annual assistances, MUIB also gives assistance in the form of capital for business. The Collection and Disbursement Division also handle this capital assistance. There has been no specific unit formed under MUIB to take charge of this program. Therefore, no proper monitoring and guidance program has been given to the recipients. Monitoring is only carried out as and when the need arises. 52

66 From 2001 until 2008, 47 persons received different forms of capital assistance (Table 4.7). Figure 4.1 gives a summary of types of assistance. 23 (49%) of them were given fishing boats and fishing equipment, 16 (34%) persons received capital for business, 4 (9%) were given boats to be used as taxi boats, 3 (6%) were given grass-cutting machines and 1 person (2%) received assistance in the form of seeds, fertilizer and pesticides for agriculture. The total amount of about $309,000 was disbursed under this program from 2001 to This amount is very small compared to the potential of this approach in uplifting the poor and needy from poverty. The findings of the study on the recipients of capital assistance from zakat fund will be discussed in Chapter Six. Table 4.7: Capital assistance from 2001 until August 2008: Year Number of Total Amount Types of aid Recipient for (BND$ 000) Capital Aid Capital for business 6 persons Fishing boat and equipment 13 persons Taxi Boat 3 persons Capital for business 4 persons Fishing boat and equipment 2 persons Grass cutting machine 1 person Taxi Boat 1 person Seeds, fertilizer and pesticide 1 person Fishing boat and equipment 1 person Fishing boat and equipment 1 person Grass cutting machine 1 person Capital for business 5 persons Fishing boat and equipment 5 persons Grass cutting machine 1 person Fishing boat and equipment 1 person 2007 None Nil Capital for business 1 person Total Source: Islamic Religious Council, Brunei Darussalam 53

67 Figure 4.1: The summary of types of assistance 4.9 Accumulated zakat fund The accumulated amount and investment The accumulated zakat fund since 1956 until December 2007, is about BND$262 million (Table 4.8). The accumulated zakat fund is invested in certain Islamic financial institutions like TAIB and BIBD. The profit income from this investment was around BND$6.5 million to BND$8.3 million each year from 2000 to 2007 (Table 4.9). This income is used to gain income for futures purpose as the current zakat disbursement is more than the zakat collection. Table 4.8: Accumulated zakat fund since 1956 until December 2007 by asnaf Asnaf Total Amount (BND$ 000) 56 Fakir Miskin 55,981 Muallaf 46,883 Amil 43,288 Ibnu Sabil 62,737 Gharimin 53,208 Total 262,097 Source: Islamic Religious Council, Brunei Darussalam 56 The amount has not audited yet 54

68 His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam raised concerns over the state of zakat affairs in the country during the MUIB annual meeting in January He referred to the 2004 figure of accumulated zakat funds, in which the amount stood at $239.6 million. His Majesty was of the opinion that zakat is collected as a means to be distributed to the existing asnaf. He further expressed that if zakat was distributed in a more systematic way, problems such as the fear of (fund) depletion would not arise as this system would boost the public confidence and encourage them to be more consistent in giving zakat. 57 Table 4.9: The income from accumulated zakat fund investment from 2000 to 2007 Year Amount (BND$ 000) , , , , , , , ,566 Source: Islamic Religious Council, Brunei Darussalam It is implied here that public is reluctant to pay zakat if they do not have confidence that the zakat fund is being properly managed in terms of collection and disbursement. However, overcoming poverty is an issue that cannot be solved just by providing financial assistance as people living in poverty have a myriad of other problems. Giving a lump sum of money to the poor and needy may lead to unwise spending and would not be helpful in overcoming the poverty in the long term Special committee In 2005, His Majesty instructed the Ministry of Religious Affairs to conduct research on the use of zakat funds to overcome the poverty problem. A committee was created in 2005 to consider ways of utilizing the accumulated zakat funds. This main committee is divided into three other committees namely; A Think Tank Committee to review the two asnaf which are not considered available in Brunei Darussalam A Think Tank Committee on the poverty line and A Working Committee to plan the assistance programs for the poor and needy in the form of providing skills training and job opportunities to overcome poverty. This working committee is led by the Permanent Secretary of the Islamic 57 The Brunei Times and Borneo Bulletin, 14 January

69 Religious Affairs Ministry. This committee came up with the Empowerment Zakat Recipients Program Empowerment of zakat recipients program The program On 5 November 2007, the Empowerment Zakat Recipients Program was launched. This was a new program run by the Ministry of Islamic Religious Affairs directly under the Permanent Secretary. The objective of the program was to provide skills training for the poor and needy. The goal was that after completing the training, the participants would have the opportunity to get jobs with the attachment employer or start their own business. They were assisted in obtaining suitable business premises, license and capital from the zakat funds. The program was organized in collaboration with the Brunei Islamic Religious Council with the Youth Development Centre of Ministry of Culture, Youth and Sport. The conditions and criteria of participants were very simple. The participants had to be from one of the poor and needy asnaf groups and had to be willing to develop and improve their standard of living. The training was of a three month duration plus six months of work attachment. The training ran 5 days a week for full-time trainees and once a week for part-time trainees. The first batch consisted of 15 participants of ages ranging from 27 to 47 years old. They were the heads of families with multi-marital statuses and were selected on a random basis. The participants were offered skills in using computers and office administration, cooking and catering, saloon and hairdressing, car-repair and welding and basic sewing and embroidery. Facilities were provided for transportation, an allowance for stationery, uniforms, training equipment, a refreshment allowance and pocket money. An amount of BND$32,400 was allocated for the pocket money allowance of 18 participants who underwent the nine month program (MUIB). The program, through the Zakat Distribution Committee, has allocated $1.1 million to cover a five-year period commencing from 2008 to The participants election The participants of this special program were selected from the zakat recipients list. The initial target of the survey was 102 recipients but only 31 persons were reached and given the form. The committee received only 22 forms. An interview was conducted to identify the logistic needs of participants. However, only 18 of them were registered to the program. Of these 18 participants, three later withdrew (Table 4.10). One of them withdrew due to no family support from parents who might have felt satisfied with the monthly cash assistance received from zakat and another participant had a court case. There was no information about the other participant who. Six of the other participants chose to become entrepreneurs. The ministry is still monitoring the progress of these six 58 The Brunei Times, September 26,

70 participants. The second batch of the program involved another 23 participants and this cohort completed their training by August Table 4.10: History of 18 registered participants No. of participants Progress of the participants 9 Attended training for various kinds of skills 6 Decided to become entrepreneurs and underwent further entrepreneurship and business management training 3 Withdrew from the program due to following reasons: - No support from parents - Involved in a court case - Unknown Source: MUIB Based on the findings, it is noted that introductory programs to set the right mindset is needed for the poor and needy. These people face difficulty and hardships in life and are not exposed to external environments. They need to be exposed and led to opportunities End result of the first batch and continuous monitoring The Ministry of Islamic Religious Affairs also helps the participants to find suitable jobs. Some of the participants who have completed the work attachment program were employed by established companies. Those participants who chose to become entrepreneurs underwent entrepreneurship development at the Ministry of Industry and Primary Resources. They were expected to come up with a viable business plan for further processing. However, guides had to be given to them to help them meet these requirements. The procedures have had to be as simple as possible because the poor and needy normally have very little education and might not be able to prepare all the working papers required Conclusion Innovative and creative approaches to the collection and distribution of zakat funds to the eligible individual are very crucial. It is important to make this religious obligation effectively contribute to poverty alleviation. The zakat fund is not only to be distributed by direct transfer payment but should also be used for long-term rehabilitation programs. Long-term rehabilitation programs involve the disbursement of zakat funds as capital assistance so that recipients can have their own income-generating projects, which will help to lift them out of poverty. However, the efficient management of zakat fund needs to be supported by dedicated and experienced staff to monitor the program together with a comprehensive assistances package. The current accumulated zakat fund has to be distributed in such a way that will help the poor to be sustained in the long-term by having income-generating activities or projects. 57

71 The following chapter will provide the basis of the data and information collection from the recipients of the capital assistance. It will provide the methodology of the research, sample and questionnaires. 58

72 CHAPTER 5 METHODOLOGY 5.1 Introduction In the previous chapter, this study discussed the institution of zakat in Brunei Darussalam. It described the current zakat disbursement policies implemented by the Islamic Religious Council of Brunei Darussalam, which includes extending business capital to the poor and needy. Based on this background information, this chapter will explain in detail the surveys carried out on the recipients who received zakat funds for business capital. This chapter will describe how the data and other information in this study were gathered. This includes methods, respondents, samples and questionnaires. 5.2 Collection of data The data and information collected were secondary and primary data Secondary Data Secondary data was collected from: i. published materials/reports (including news releases) and unpublished reports of different agencies involved in the collection and disbursement of zakat funds in Brunei Darussalam ii. conference proceedings, both national and international, in addition to various publications on zakat management Primary Data Primary data was obtained through i. personal interviews with the respondents the capital assistance recipients. The interviews were conducted using structured and semi-structured questionnaires, both close-ended and open-ended ii. interviews with officers from relevant government departments. 5.3 Method This case study used qualitative methods. In-depth personal interviews were conducted at the respondents residences or on their business premises. The primary data gathered was analyzed using EXCEL software as the number of respondents was small. 59

73 Qualitative data was obtained from semi-structured interviews with respondents who received business capital. This included data on personal and demographic information of the recipients, the respondent s status before receiving zakat, the progress of the business established by the capital supplied from the zakat funds, the factors that motivated the respondents to establish their business, the factors that contributed to the success or failure of the business, the source of information about the availability of zakat funds for capital assistance, the respondents attitude, willingness and others. Some respondents may have found that some questions were difficult to answer candidly. Some questions may have required them to reveal information that they were reluctant to reveal. For example, a question asking them about the possible cause(s) of their poverty, can perhaps be quite difficult to solicit a frank response, if the possible cause(s) was due to factors such as: - lack of motivation to work - difficulty in finding suitable jobs as the respondents were too choosey or they had been involved in drug abuse or had been subject of legal action for alleged criminal acts - the respondents previous lifestyles that resulted in them incurring many debts. Furthermore, some respondents may have had a unique life experience from others. Such detailed rich information can only be attained by using qualitative methods, such as questionnaires with open-ended questions. 5.4 Respondents and samples Two samples of respondents were interviewed for this case study. One sample group comprised officers from government departments involved in helping the poor and needy people and the other consisted zakat recipients who received zakat fund for business capital Government Officers The first group of respondents consisted of officials from the Islamic Religious Council of Brunei Darussalam. They were officials from the middle and junior levels. The purpose of the interviews was to deduce information from the officers concerned regarding the policies, systems and programs of zakat management as well as the challenges faced in managing zakat; in particular, the utilization of zakat funds for small businesses. The study also gathered information from middle management officers from the Welfare Department of the Ministry of Culture, Youth and Sports who were also involved in extending assistance to the poor and destitute in this country. The officers concerned were as follows: The Secretary of the Islamic Religious Council of Brunei Darussalam; 60

74 The head of the Zakat Collection and Distribution Division of the Islamic Religious Council of Brunei Darussalam; The head of the Zakat Distribution Unit of the Islamic Religious Council of Brunei Darussalam; The Assistant Financial Officer of the Islamic Religious Council of Brunei Darussalam; Counter staff of the Zakat Distribution Unit of the Islamic Religious Council of Brunei Darussalam; The Secretariat of the Special Program Division of the Ministry of Religious Affairs; and Officers from the Welfare Department of the Ministry of Youth, Culture and Sports Zakat Recipients Another group of respondents were the recipients of the zakat fund for business capital from 2001 until August The study interviewed the recipients of the capital aid of the zakat fund from the Brunei Muara District only, as mentioned previously in Chapter One. The samples were selected on the basis of convenience, that is, only those who could be contacted and interviewed during the survey were selected as respondents. This method of selecting respondents was utilized due to difficulties in contacting the respondents as most of them did not have telephones. This researcher also had to make multiple visits to the respondents as many were not available during the initial visits. There are 47 zakat recipients of business capital in the list provided by the Islamic Religious Council of Brunei Darussalam (Table 5.1). Only thirty one (31) out of forty seven (47) of the recipients addresses were traced due to the lack of staff at the Council and time constraints in searching for the required files. Out of these 31 recipients, 26 were from the Brunei Muara District and the other five were from other districts. Four of these 26 recipients, had moved and their new addresses were not known and another recipient had passed away. Table 5.1: Population and sample No. of recipients Sample 31 recipients with address - 5 recipients were from outside the Brunei Muara Districts - 4 recipients moved and the new address is unknown - 1 recipient passed away - 15 recipients were interviewed as sample - 6 recipients were not selected in the survey 16 recipients without Due to a shortage of MUIB staff and the limited time of this address study, the addresses of some recipients could not be traced. 61

75 5.5 Questionnaires The survey in this study involved both close-ended and open-ended questionnaires. Close-ended questionnaires were used for the purpose of easy data analysis. Open-ended questionnaires were also used to obtain more detailed information regarding the status of the respondents before receiving capital aid, the factors that encouraged the respondents to run their micro or small businesses and the obstacles faced by the respondents in managing their businesses. The open-ended questions were used to allow rich information to be revealed in giving flexibility to the respondents Questionnaires for the zakat assistance recipients The questionnaires covered three sections; Section A contained four questions, which were designed to obtain basic demographic information about the respondents. Section B contained two questions, which were employed to gather information about the status of the respondents before receiving zakat funds. These questions included the queries about respondents marital status, educational level and number of dependents. The other questions were intended to solicit information about the respondents status before receiving the zakat fund, in terms of jobs and any income generated. Section C aimed to study in detail the income-generating activities of the respondents after receiving capital assistance from the zakat fund, the current status of respondents small businesses initiated with the zakat fund received, that is, whether or not the businesses still exist and information about the factors that could have contributed to the success or failure of their businesses. The survey also wanted to get information on the main problems faced by the respondents in running their businesses. It aimed to check whether the respondents are still receiving zakat or have managed to free themselves from poverty. This will indicate the success or failure of the program. The questionnaire was also designed to get the respondents opinions on whether the amount of zakat received was sufficient or otherwise. The interview aimed to reveal the needs of respondents in order to restart or expand their businesses and the respondents readiness to use loan facilities if made available, to expand their business. Finally this researcher hoped to use the questionnaire to reveal the effectiveness or otherwise of MUIB s promotional programs. The second part of the questionnaire consisted of open-ended questions. These openended questions were designed to get detailed information on the life history of the respondents with a specific focus on the reason/s for being poor. The questions in this part will also gather detailed information on how the respondents have progressed or otherwise after receiving zakat funds for business capital including the problems encountered. 62

76 5.5.2 Questionnaire for government officers A list of questions was used to interview government officers from the relevant departments. Different questions were used for officers of different ranks. The first part was for high-ranking officers like the Permanent Secretary of the Ministry of Islamic Religious Affairs and the Secretary of the Islamic Religious Council of Brunei Darussalam. The second part was for the heads of Zakat Collection and the Disbursement Division and Section while the last part was also used to solicit the opinions of the counter staff. The information from the interviews with the government officers was used to outline the zakat institution in Brunei Darussalam, which was included in Chapter Four. The following chapter will analyze the data gathered from the survey of zakat recipients. 63

77 CHAPTER 6 SURVEY AND DATA ANALYSIS 6.1 Introduction This chapter presents the analysis of primary data gathered from the survey. It highlights the demographic information and the status of the respondents before receiving capital assistance from the zakat fund. This chapter also discusses the progress of the small businesses run by the respondents, as well as the problems, needs and the factors which contributed to the success or the failure of the businesses. The survey involved 15 respondents who had received capital assistances in 2001 (60%), 2002 (20%), 2004 (7%) and 2005 (13%). The recipients in 2006 and the latest recipients were not included in this survey as the shorter period of receiving assistance may not yield significant results during assessment. Furthermore, there was only one recipient in 2006, no recipients in 2007 and one recipient in The respondents were selected on the basis of convenience and the survey was conducted through personal interviews. 6.2 Demographic information of the respondents The respondents consisted of 13 males and two females. Their ages ranged from 35 to 56 years old. Almost all of the respondents were considered fit and healthy with only one person having health problems. Only two of the respondents were not working due to poor health, and therefore unable to find a suitable job. However, from the researcher s point of view, the one that claimed not to be able to find a suitable job had fallen prey to the dependency mindset, that is, a dependence on assistance and donations from rich or high-ranking people. This conclusion was made based on the conversation during the interview in which the respondent mentioned that he was trying to elicit help from highranking government officers and from His Majesty himself. This conclusion was supported by the head of the village where the respondent lives. About 40% of the respondents had less than 5 dependents while nearly half (47%) had between 6 to 9 dependents. 13% had more than 10 dependents. For most of the respondents, the number of dependents was larger when they first received assistance. Dependents who had reached adulthood and had obtained jobs led to a reduction in the number of dependents. The larger the number of dependents the harder it is to support the family. 6.3 The status of the respondents before receiving zakat funds The majority of the respondents were married before they received assistance (87%), 6.6% were widowed while 6.6% were divorced. Both sets of single parents consisted exclusively of women who were unemployed. This factor is one of the causes of poverty, as discussed in Chapter Three. 64

78 The information on the respondents educational level shows that 47% had a primary school education while 53% had a secondary school education. Out of the 47% of respondents who had a primary school education, only 13% had specific skills such as carpentry and making boats. The rest often had to resort to becoming fishermen or fishmongers due to a lack of skills in other areas. The respondents who had a secondary school education had different reasons for being poor. At least 13% of them had form five education but they were not working. They needed assistance from the zakat fund after becoming single parents (widowed and divorced). The rest who had a secondary education up to form four had once been employed but had lost their jobs due to a number of reasons including drug abuse, habitual job-hopping and business downsizing. One respondent lost his business after building a bad reputation, being accused of rescinding on a loan and subsequently being sued in a court of law, although eventually he was found not guilty. 6.4 The current status of the respondents small businesses initiated with the zakat fund More than half of the respondents (53%) had continued doing business but 47% had ceased their business operations. Several reasons were given to account for ceasing their business operations. One respondent cited poor health while another had obtained a job and preferred to be a salaried worker. Two respondents had sold their fishing boats in order to settle their outstanding debts. Three respondents talked about insufficient cash capital for buying raw materials for various enterprises such as cake making and maintaining the costs of fishing boat engines. Those who had been given a fishing boat, equipment and engines mentioned that these assistances did help them to earn enough for their family s daily needs but the amount earned was insufficient for maintenance costs which were often very high, or for buying new equipment or engines. For those who lived on land, their main problem was to get suitable transport for towing their boats. All of them had old and unreliable cars and could not afford to buy newer second-hand cars. Often they had to sell their boats and equipment and practice fishing by following their friends or relatives to sea and sharing the catch. It seems that the assistance provided to the poor and needy has to be comprehensive and it has to look at various aspects of their lives. The use of the zakat funds under the algharimin category should also be considered to settle their outstanding debts when necessary. 6.5 Recipients still receiving assistance About 67% of the respondents admitted that they were still receiving assistance either from MUIB or the Welfare Department or from both of these agencies. 33% did not receive any assistance any longer. This was due to a number of reasons including 65

79 businesses deemed as successful (one respondent) and adult children who were no longer dependent (one respondent). Another three respondents (20%) had never received any monthly assistance once given the capital assistance. One capital assistance recipient said she no longer needed any assistance as her business was considered quite successful. She has used the profit generated from her business to open another branch. According to this recipient, what she needed next was to get a foreign labor quota to hire more workers. Another respondent talked about the need to have labor quotas to hire full-time workers. This respondent had a part-time job as a property broker. According to him, his children were also mostly grown-up and had their own businesses. The study s findings indicate that the majority of the recipients still depend on the zakat assistance and those who do not receive the monthly assistance actually do need it. About 20% of the recipients did not receive a monthly assistance after receiving the capital assistance. The study also looked at the problems faced by the recipients in operating their businesses. 6.6 The main problems faced by the respondents in running their businesses The majority of those who were still running their small businesses either on a full-time or part-time basis faced several difficulties. Some of the difficulties were as follows: Insufficient cash for stock of materials: The boat maker did not have enough cash to buy a stock of material. The materials for making boats are limited in supply. The type of wood which is suitable to make boats is short in supply and buyers have to pay a deposit to ensure that they get the materials they need. Without cash in hand, respondents have had to depend on deposits from clients to buy materials. They can only do business with clients who can wait and do not need the boats urgently. This means that clients who need boats urgently will buy them from other producers. Declining market size: The taxi boat business is facing a declining market as the population of the Water Village is declining. The respondent who voiced this concern could not take advantage of the opportunity to taxi tourists as this required things such as insurance for the clients, complete safety equipment etc. These requirements make it difficult for small taxi boat entrepreneurs to participate in this niche market. However, the respondent has had to continue the operation of a taxi boat as his main source of income. He therefore has high hopes for his children to succeed in education and help out in the future. Insufficient cash capital: One respondent received assistance in the form of equipment for making cakes and pastries. The problem faced by this particular family was insufficient cash to buy raw materials. The initial cash capital of BND$ ran out after a period of time. This respondent however had to support a wife and a daughter with an income of only BND$50.00 per month 66

80 received for cleaning a mosque and BND$ per month received for a job as a security guard he had recently been offered. He also received BND$ from MUIB and JAPEM as monthly assistance for his daughter s school expenses. His savings were depleted after being unemployed for a long period. The only way to continue his business was by taking a deposit from his clients to buy the materials or to impose a service charge for baking cakes and pastries. No savings for replacing old machines: One fisherman is now using a friend s engine boat after his old one broke down and he had no money to buy a new one. He could not go far out to sea with his friend s boat so the income he receives from catching fish and small prawns was barely sufficient for his daily needs. He was reluctant to get a loan from the private sector as the interest rate is very high. It is the policy of MUIB not to give assistance to the same recipients more than once. Therefore, assistance in the form of benevolent loans by using the zakat funds may be able to help them. Other kind of loans with charges, regardless whether the charges are high or low, may be a burden to the poor and needy. 6.7 Consultancy services About 93.4% of the respondents informed this researcher that they had never been given any consultancy, guidance or advice in any form after receiving the assistance. Only 6.6% received some form of advice and guidance from the Agricultural Department when they bought seeds, fertilizers and pesticides at subsidized prices. Officers at MUIB admitted that there was no consultancy or specific monitoring program provided to the recipients due to the lack of skilled manpower among the staff. Managing a small business is not an easy endeavor as competition is often very keen. In addition, the recipients need moral support and guidance in managing their funds. Therefore, assistance in the form of a consultancy and a monitoring service are vital factors in order to minimize the recipients problems. Monitoring by MUIB can also lead to a reduction in the mismanagement of funds by the recipients. Experts from different government departments, especially those responsible for promoting small and medium enterprises, can provide consultancy and advice. 6.8 The needs of respondents in order to restart or expand their businesses Besides stating the problems in managing their small businesses, the respondents also mentioned what was needed to restart businesses that had ceased operations and to expand existing businesses. The majority (67%) of the respondents mentioned that ready cash was the main obstacle they faced currently (Figure 6.5). Other respondents talked about the need for requirements such as labor quotas for foreign workers to work fulltime, licenses for selling vegetables and a market channel for the products produced by single parents collectively. 67

81 Figure 6.1: The needs of the respondents in order to restart or expand their businesses 6.9 The respondents readiness to use loan facilities if made available This case study further investigated the respondents reactions to the use of loan facilities if these were made available to them. The results showed that 40% of the respondents firmly preferred not to commit themselves to any loan (Figure 6.6). The main reason given was that they were afraid of not being able to repay their loans as some already had existing debt commitments. They hoped instead to be given another form of assistance, similar to previous ones they had received. However, 13% of the respondents said that they would not mind a loan if it was an interest-free loan or a benevolent loan. They would also have to consider the terms and conditions of the loans such as repayment rate, period of repayment, necessity of a guarantor and so on. The remaining 47% of the respondents stated a preference for a loan. 68

82 Figure 6.2: Loan preference Loan Preference Not prefer 40% Yes 47% Yes without interest 13% 6.10 The success and failure factors of the recipients businesses Failure cases factors Negative cash flow due to insufficient capital for raw materials: The recipients were given assistance in the form of capital goods and equipment. They were not given cash in order to avoid abuse of funds. However, the funds afforded by MUIB were inadequate to meet the financial needs of the recipients. Due to insufficient capital for buying materials, the poor and needy who received this form of assistance often faced problems in maintaining their businesses. A sufficient cash flow is very important for the survival and success of a small business. The small amount of cash capital received can easily run out especially for the poor and needy who often receive only enough for their daily needs. No skill and experience: One case was found where the respondent was recommended to start a business that he possessed no existing skills in. A respondent who had no skill and experience in going out to sea was given a boat, engine and equipment for fishing after advice from an MUIB officer. However, this might have been an isolated case because 93% of the respondents were given capital assistance according to their skills and experience. However, it is important to note that in another case there was a respondent who mentioned that he was given a big boat and engine instead of the smaller one that he had requested. This created a problem as his old car could not tow the big boat and he could not fish in a narrow part of the river, which he had aimed to do. The assistance given only once: Another respondent was given equipment and material for making cakes and Malay kueh. These materials were destroyed due to floods just a few days after receiving them. Yet another respondent ceased to do business because he did not obtain approval from the authority concerned. 69

83 When investigating this matter, hygiene appeared to be one possible reason why he could not get permission to sell processed food anymore. The respondent then became a fishmonger. He now sells fish to workers at construction sites. Other debt: Another factor was other loan burdens. About 13% or two of the respondents mentioned that they had to sell their boats and engines to settle their debts. The burden from old debts forced them to sell the capital assistance given and in the process, they lost the trust of the agency concerned. Dependent attitude: There is one extreme case of this. One of the respondents sold his boat and engine just within one month he received it. The reason given for selling the boat was that he was under pressure to settle his debt. Prior to the visit to this respondent, this researcher obtained information from the village headman that this recipient is always trying to borrow money from anyone he can but never makes any effort to pay back the loan. In the interview with this respondent, he mentioned that he was trying to elicit help from high-ranking government officers. He kept saying that he needs a lot of money to start a business on a large scale as a small scale would not be economical. He did manage to get some donations from high-ranking government officers but not enough for starting the big project he was aiming for. Although he applied for capital assistance for a taxi boat business, he said that this business has a limited market as the water village population is getting smaller. He is currently still receiving monthly assistance from MUIB and JAPEM. This researcher concluded that this respondent s attitude is dependent on assistance and donations. However, this one extreme case should not over shadow the other respondents cases Success case factors Persistence and opportunity: Only one out of 15 respondents can be deemed a successful entrepreneur. A tailoring shop business, which started in 2005, has since expanded which resulted in the owner opening another branch in Dayang Hasimah, a divorced single mother, had received monthly assistance for about seven years. She raised her four children with the assistance from the zakat fund. She has better academic qualifications than the other respondents (up to form five education). Besides better academic qualifications, she has other distinctive characteristics, which differentiated her from the other respondents. She is the only divorcee case in this survey, has tailoring skills and she is used to being independent as she grew up in a big family of twelve siblings. She does not like to work for others but prefers to run her own small business. She got an opportunity to open a small tailoring shop with a foreign partner. She applied for capital assistance from MUIB and was willing to stop receiving monthly assistance. However, it was not easy for her to convince the MUIB 70

84 officers about her seriousness and ability to run a business. She had to prove it by starting the business with BND$ to pay for the rental deposit for the premise, two old sewing machines, a table made from unused wood, old chairs and a little stock of material required for tailoring work. Only after she started this small business, did she gain the trust of the MUIB officers. She was then given three brand new sewing machines. Without cash to buy material and having to pay a deposit to hire foreign workers, she had to continue her business slowly. Her hard work and determination to achieve a higher standard of living and a desire not to receive any more assistance enabled her to open another branch after three years The effectiveness of MUIB s promotional programs Figure 6.3: Source of information Imam 7% Source of Information Friend 20% VIP 13% MUIB 20% Headman 40% The last part of the survey explored the channels of information regarding the capital assistance provided by MUIB. It aimed to reveal how respondents received information on the capital assistance offered by MUIB. It was noted that the village headmen were the main sources of information. Other than relaying the benefits of the MUIB scheme to the poor and needy, the village headmen also played a role in recommending applicants to MUIB or the Welfare Department (Figure 6.7). Other sources of information included MUIB itself, friends, suggestions or recommendations from government officers and imams (at the mosque). It is important to note that mosques can play a major role in the collection and disbursement of the zakat funds. At the same time, mosques can play a role in educating the recipients and making them close to the mosque. The role of imams or the mosques committee members in zakat management will be discussed further in the next chapter. 71