Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of Zakat Fund in Malaysia

Transcription

1 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of Zakat Fund in Malaysia Norma Saad 1 Naziruddin Abdullah 2 Abstract Poverty is a serious problem in a majority of Muslim countries. The teachings of Islam, through the Holy Quran and the Hadith, stresses on the significance of zakat as a social tool to bridge the differences between the rich and poor Muslims. Zakat viewed in this context can play an important role in Muslim socio-economic development; if it is managed properly. Having said this, zakat institutions in Muslim countries had hitherto not only been seen as less successful in overcoming the problem but also eradicating poverty. One of the reasons can be attributed to how zakat institution is perceived to have been so engaged in its efforts to optimize the collection of zakat, which unfortunately at the expense of the disbursement side. It is against this backdrop that this paper is written. Specifically, this paper analyzes the current practice of zakat distribution in several states in Malaysia with an eye on examining how zakat fund is being distributed among the eight asnaf. It critically evaluates whether or not the current practice of zakat distribution in Malaysia is effective in alleviating poverty among the poor Muslim population in Malaysia. Based on the findings, the paper provides several relevant recommendations on how to improve the distribution of zakat fund so that it can be effectively used to help the poor and eliminate poverty. Keywords: collection of zakat; distribution of zakat; poverty alleviation; Malaysia; asnaf I. Introduction Zakat is a manifestation of one s obedience to God and a self-purification meant to prepare oneself for eternal happiness in the hereafter. Specifically, once zakat is paid: the zakat payer s heart is purified; soul is sanctified; and, wealth is decontaminated, s/he, in the eyes of Allah, is considered to have shown a full submission to HIS orders and obligations, hence becomes worthy of the joy of the afterlife, as mentioned in Surah Al-Fajr: 27-30: 1. Norma Md Saad, Professor, Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Gombak, Selangor, Malaysia. Tel: , Fax: ( norma@iium.edu.my) 2. Naziruddin Abdullah, Professor, UniKL Business School, Universiti Kuala Lumpur, 1016 Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: , Fax: ( naziruddin@bis.unikl.edu.my).

2 70 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 (To the righteous soul will be said:) O (thou) soul, in (complete) rest and satisfaction! Come back thou to thy Lord, - well pleased (thyself), and well pleasing unto Him! Enter thou, then, among My devotees! Yea, enter thou My Heaven the Garden". Indeed, in the Holy Qur an zakat is tied to prayer in twenty-eight places and tens of saying in the traditions of the Prophet (Sunnah). Such unbreakable bond of association between these two forms of worship makes them known as twin-sister. It is this aspect of zakat that Abu Bakr had in mind when he declared war against those who refused to pay it, stating, "By GOD, I shall indeed fight those who separate prayer from zakat." In fact, when the books of fiqh place chapters on zakat immediately after chapters on prayer in the parts devoted to worship, it suggests nothing but a clear testimony that zakat has a special position in the teachings of Islam. As Islam stands opposed to mammoth inequalities in the distribution of resources, many built-in instruments aimed at reducing, though not necessarily eliminating, socio-economic inequalities, such as sadaqah, infaq and waqf, are ready for deployment; each specifies in intricate detail how a person's wealth is to be distributed among the poor and needy. However, a more celebrated instrument that is designed to reduce income inequality among people is zakat. It is an annual (based on the Islamic calendar-hijri) tax on wealth and income generally understood to incorporate certain levies that have been collected under other names, like the agricultural tax ushr. The proceeds of zakat are earmarked mostly for assistance to specific categories of impoverished and downtrodden individuals. By tradition, it is levied on agricultural output, livestock, minerals and precious metals. But recently, it includes personal income and corporate profit. The rate varies between 2.5 and 20 percent, depending on the source and conditions of production, although there are various exclusions and exemptions 3. Also, by tradition and supported by the Holy Qur an, the beneficiaries of zakat include the poor, the needy, travelers in difficulty, debtors, dependents of prisoners, and the zakat collectors themselves. The proceeds are also used to free slaves and to assist people serving the cause of Islam (At-Tawbah: 60). From the Islamic economics perspective, a proper and transparent distribution of zakat will put direct impact on equitable distribution of income to the society, which ultimately satisfies the following goals: 3. This includes, among others, lists of several items that are either non-productive or primary necessities: dwelling-houses; wearing apparel; household utensils; slaves employed as servants; riding animals; arms kept for use; food used by one s self and family; articles of adornment, if not made of gold and silver; gems, pearl, rubies, emeralds, and the likes; coins of other than gold and silver, if intended for personal use; and, books and tools.

3 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of Purification of soul and wealth Zakat purifies the soul of the contributors from the evils of miserliness. By discharging this religious duty a Muslim, in the eyes of Allah, is seen to be humble and God-fearing. 2. Narrow down the economic inequalities Zakat narrows down the economic inequalities in the community. The rich may not grow richer and the poor poorer. 3. Social security and minimization of unemployment, fair distribution of income, wider circulation of wealth and economic stability Zakat fund does not only protect the poor and the disabled, but it also provides social security to the underemployed and unemployed individuals. In other words, zakat is a vital instrument for removing unemployment where the money received by all categories of poor can be used to start a business Major source of income Zakat occupies a central position in the financial structure of a Muslim economy, because it provides reasonable amount of fund to the government/zakat institution. Kahf (1987), for example, in his study of the dynamism of zakat in eight Muslim countries had estimated that zakat proceeds from livestock, agriculture, mining and monetary holdings in these countries would be between 0.9 % and 7.5% of the GDP; depending on the fiqh positions in matters pertaining to zakat collection. For ease of reference, Appendix 1 shows the figures for each fiqh position as exhibited in his work. 5. Mobilization of resources, capital accumulation and self reliance Individuals who received income in the form of zakat are in a position to utilize the available resources. In this way, maximum use of resources becomes possible. This in turn will allow people to use their liquid assets to promote capital formation in the country. They, for example, will invest their assets in sectors that contribute most to the growth rate of the economy. Thus, zakat helps eliminate poverty and brings prosperity 4. This suggests that zakat can be engineered in such a way that it can be used as a start-up capital. Zakat, perceived from this perspective, is an important vehicle for spreading and distributing wealth. It guarantees that wealth of a country will not be concentrated in a few hands. Rather, it moves very rapidly among different groups of society, which consequently increases the speedy circulation of wealth and at the same time discourages hoarding and provides an automatic mechanism for the flow of wealth from the rich to the poor. Hence, it widens the circulation of wealth among the community and concurrently overcomes the problem of instability in an Islamic economy.

4 72 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 to the society/ummah, such that it enables the poor and marginalized not only to be self-reliant but also becoming promising zakat payers. In relation to the above-mentioned distributional aspects/goals of zakat, one pertinent question may arise: has zakat distribution in Malaysia adequately met most of the goals, if not all? Or precisely put, is zakat capable of alleviating poverty in Malaysia? Before we address this issue, perhaps, a glance at the statistics pertaining to the collection of zakat in Malaysia might shed some light on the plight of its distribution side. A.Collection Side Historically, due to somewhat restrictive coverage of zakatable items and substantial evasion of payments among zakatable persons, zakat yields, to some extent, is constrained. As of 1988, the rate of compliance was just 8 percent. More interesting is the fact that the zakat burden falls almost exclusively on rice growers, of whom most live below the country's poverty line. In the state of Perlis, for instance, the rice growers accounted for 93 percent of the zakat collection in 1985 (Kuran, 2010). Ceteris paribus, the data tends to imply that zakat does not necessarily transfer resources to the poor; rather, it transfers resources away from them. Meanwhile, in one village in Kedah, Scott (1979) found that the rate of compliance between 1977 and 1979 was merely 15 percent, which means that the farmers evaded 85 percent of their obligations. Evasion took a variety of forms: disguising or under-declaring one's cultivated acreage, under-reporting one's crops, and handing over to the zakat collector spoiled or adulterated grain (Kuran, 2010). Given this, an argument ensues as to whether the zakat administration (collection and disbursement) should be centralized and enforced (the so-called obligatory mode) or decentralized and unforced (the so-called voluntary mode). Since the Qur'an itself is mute on issues of administration and enforcement, the ruling on either of the two options becomes a matter of ijtihad (it is left for the jurists to opine). It is worth mentioning at this juncture that each mode has a basis in historical precedent. In the earliest years of Islam, when the Muslim community lived in Mecca, assistance to the poor was unregulated and strictly voluntary. Zakat became a formal and compulsory transfer system shortly after the community migrated (hijra) to Medina, at a time when it was expanding very rapidly. Thus, during Prophet Muhammad's last few years zakat came to be administered by state-appointed agents and enforced where if deemed necessary military might was exercised. However, barely two decades after the death of Prophet Muhammad (saw) the Islamic state's ability to administer zakat crumbled in the course of violent leadership struggles. From then on, zakat was up to the individual Muslim's discretion, although in certain times and places local bodies played a role in collection and disbursement. In sum, while zakat formed a centrally administered, obligatory system during a brief but important

5 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of segment of early Islamic history, for most of the religion's life it has been administered in a decentralized manner, the agents of enforcement being peer pressure, fear of God, and the individual's own conscience. B. Distribution Side Historically, in Malaysia, particularly in Kedah, the system shows that the voluntary mode does not treat the needy equitably (Scott, 1979). Apart from the religious establishment, it benefits primarily those with connections, tending to bypass the truly destitute, the unemployed, and the handicapped. Against this background, there was a mission to recentralize or reinstitute the administration of zakat. The proponents of obligatory mode argue that this will augment the funds available for distribution and prevent their disbursement on the basis of personal ties. They remind us that the Prophet (s.a.w) himself made zakat obligatory and also that the currently dominant voluntary mode took hold after the Prophet's death. To a large extent, the mission was accomplished whereby in all states in Malaysia zakat institution has been fully institutionalized and operationalized. However, it would be intriguing to investigate whether such institutionalized agency was succeeded in its mission to distribute the zakat funds to the most deserved recipients. Having said that, it is with this curiosity and concern this paper is written. Specifically, it will focus its discussion and analysis on the distribution side; leaving the collection side for other researchers to explore. The plan of the paper is as follows: Section 2 deals with the literature review. While Section 3 talks about the methodology and data, Section 4 provides the analysis. Finally, Section 5 is devoted to conclusion and policy recommendations. II. Literature Review To begin with, Malaysia's federal structure assigns the administration of zakat to an office at the state level. In each state, collected funds are forwarded to the zakat office for disbursement. An example of how the zakat office in Alor Setar disbursed its proceeds in 1970, according to its own official report was as follows: of the total, 53 percent went toward "commendable measures" (which generally means religious education), 6 percent to people making a pilgrimage to Mecca, 2 percent to converts, and 22 percent as commissions to the zakat collectors and central administration, leaving a mere 15 percent for the poor (Kuran, 2010). While figures from the early 1980s show that disbursements to the poor ranged between 11 and 13 percent, with zakat officials and various religious causes claiming much of the remaining percent. About the same period, in Perlis, close to 12 percent of the annual zakat revenue went to the poor, the lion's share being set aside for zakat officials, the ustazs and students of

6 74 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 Islamic schools and pilgrims. The amounts given to the indigent were minuscule. Those included in the list of recipients received between U.S. $3 and $19 a year (Kuran, 2010). If the cost of traveling to the zakat office to collect the money is deducted from the amount received, the actual amount of zakat received would have been pretty much less! Understandably, it was for this cause that many Malaysian Islamic economists now consider the established system an embarrassment to those who have strong faith in zakat as a supremely effective measure against poverty. Some are now advocating a drastic reorientation of expenditures toward rehabilitation. One proposal is to use zakat funds for providing the very poor with resources to start their own businesses (Zuhairah and Fahme, 2011). Another, in order to suit modern needs, one more item under the recipients list: those trapped in prostitution has been proposed to be included (Hasan, 2006). As recent as 2009, the fi-sabilillah's 5 stake in zakat has been far greater than that of the fakir and miskin, combined together (see Table 5), where helping the poor appears as a convenient pretext for advancing broad Islamic objectives and for lining the pockets of religious officials. Malaysia's state-administered zakat system has generated resentment among the peasantry, which tends to view it as just another tax with lesser impact felt by the poor. A study by Ghazali (1990) has shown that about 60 percent of the respondents participated in his survey had indicated that they prefer to choose the beneficiaries of their zakat payments on their own, as opposed to leaving the decision to the government. In another study, Hairunnizam et al (2009) found that only 52.4 percent of the respondents paid zakat, although reluctantly, and dissatisfied with the way zakat was distributed. While the remaining 47.6 percent, probably due to 5. The phrase fi sabilillah ( fĩ sabĩli llãhi) is an Arabic expression meaning "in the cause of God" The phrase is found frequently in the Qur'an, e.g. in surah 9, verse 60: Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to Truth); for those in bondage and in debt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah, and Allah is full of knowledge and wisdom." (trans. Abdullah Yusuf Ali)From the above context it is closely associated with almsgiving or charity, as in, meaning "he dedicated the revenue or profit to be used in the cause of God", i.e. "he gave to charity". A classical example discussed by Lane in his Arabic-English Lexicon of 1863 is that of Umar who decided to give the revenue of a palm grove of his to charitable use. Because of these connotations, the phrase is closely associated with the concept of zakah in fiqh (Islamic jurisprudence). The 14th-century manual Umdat al-salik associates the phrase with jihad. In Islam, the phrase al-jihad fi sabil Allah is the equivalent of the western notion of bellum justum or just war. Such a "just war" or "war in the cause of God" has been propagated in modern Islamic fundamentalism beginning in the late 19th century, and notably in the mid-20th century in Islamic revivalism. (Wikipedia, Sept, 2011).

7 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of dissatisfaction with the way it was distributed, refused to discharge the religious duty as zakat payers, although their wealth and income was above the nisab level. This implies that the degree of confidence in the way in which the government sanctioned zakat agency discharging its responsibility to alleviate poverty among the poor in Malaysia is no longer trendy. In short, by successfully raising its yield alone is insufficient to guarantee that the distribution side is well looked after. Therefore, coupled with the increase in the collection side there is also a need to increase the share of the proceeds channeled to the poor. The latter objective requires the establishment of social and legal sanctions to check any diversion of funds away from the deserving poor, who, in the context of Malaysia, fall into three different groups, known as Low-income Households (LIH) (Malaysian Business, August 16th, 2011). They are: 1. Extreme poor (Faqir) This group of people is defined as one who has no property whatsoever. They are poor and destitute and need other people s help to survive, either because of their physical inability, old age or others 6. The levels of income are: i. Peninsular Malaysia: RM440 per month and below. ii. Sabah: RM540 per month and below. iii. Sarawak: RM520 per month and below. 2. Poor (Miskin) This group of people is defined by Hughes (1985) as people with property below the nisab threshold 7. If appropriate assistance is extended to them the chance for them to be out of zakat recipients list is high. The levels of income are: i. Peninsular Malaysia: RM750 per month and below. ii. Sabah: RM960 per month and below. iii. Sarawak: RM830 per month and below.3. Low-Income i. Peninsular Malaysia: RM2000 per month and below. ii. Sabah: not available. iii. Sarawak: not available. 4. In the context of Malaysian income measurement, the poverty line income (PLI) is RM 661 a month per household (4-6 people) in Peninsular Malaysia and RM 691 a month in East of Malaysia. According to the 9th Malaysia Plan, the household income for the faqir is below than food consumption which is RM 400 a month (Economic Planning Unit, JPM (2006), RMK 9 ( ). 5. It consists of the poor whose incomes are between RM 400 RM 691 for every household in the Malaysian context (RMK9).

8 76 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 To be concise, the faqir and miskin include anyone who is in need of financial or material assistance, which of course include also the prescribed beneficiaries as dictated by the authoritative governmental and non-governmental agencies that deal with welfare of the people. As far as the distribution of zakat is concerned, the fiqh view on it goes as follows. First and foremost, zakat distribution should aim at altering the lives of the poverty stricken by making them well-provided. Al Kasani, for example, is of the opinion that the distribution of zakat serves to cater for the needs of its recipient (Abu Bakar and Abd.Ghani, 2011). For this purpose, zakat does not necessarily be given to all asnaf if there are those who need more zakat. Specifically, he elaborates, the ruler s discretion could be used in identifying ways to distribute zakat. Moreover, much of the views that has its root in Imams Abu Hanifah and Malik was made based on the fact that there has been no specific Quranic verse that determines the proportion of zakat that must be given to the poor and needy (Abu Bakar and Abd. Ghani, 2011). Another interesting question that related to the distribution of zakat is: how much the deserving asnaf, namely the poor and needy, should receive? In one saying, the Prophet (s.a.w) says such a person may ask "until he secures sufficiency of sustenance" (Kuran, 2010). This undoubtedly differs from one person to another, depending on factors such as the general standards of living, size of family, and social status. For a merchant whose inventory is burned, for example, securing sustenance of living may require purchasing a minimum amount of inventory sufficient for his type of business. Some jurists even argue that such people must be given amounts sufficient to put them back on their feet at the level they had before the accident took place. In Malaysia, a number of studies have attempted to analyze the role of zakat towards poverty alleviation. Patmawati (2006) examines the role of zakat in reducing income inequalities and poverty in the state of Selangor. Employing purposive sampling method and the Lorenz curve and Gini coefficient, she finds that zakat distribution has positive contribution in reducing income inequality, whereby the bottom 10 percent of population receive almost 10 percent of the total income and the income share of the top 10 percent of the population is reduced to 32 percent. Before zakat is distributed, the bottom 10 percent of the population enjoys only 0.4 percent while the top 10 percent of the population enjoy percent. Recently, Suprayitno, Abdul Kader, and Harun (2013) investigate the impact of zakat on aggregate consumption in Malaysia. They apply the Keynesian absolute income hypothesis to examine the impact of zakat distribution on aggregate consumption in Malaysia. The study uses panel data of states in Peninsular Malaysia published by the Department of Statistics, Federal Territory Zakat Collection Centre, the National Audit Department and the Central Bank of Malaysia. The finding of the study suggests that zakat distribution produces a positive impact on aggregate consumption, but it is small and short run in nature.

9 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of Zakat fund distribution cannot be uniformed in terms of the proportion of zakat fund given out to each recipient as it should take into consideration the needs of the asnaf. For the poor and impoverished, zakat fund should provide them relief from hardship. Zainal Abidin (2001) argues that all zakat funds that are collected must be spent within the current year. Indeed zakat fund should not be kept as savings as the monthly installment given to the recipient is as low as RM250 for a family in the Federal Territory. The monetary aid needs to be increased to ensure recipients are freed from poverty, and at the same time they are provided with expert support to help recipients sustain themselves independently. Abdul Monir (1994) and Parid (2001) pointed out that the zakat distribution proportion for the poor and need must be made at certain levels in which they are given enough to get basic necessities to get on with their lives. Apart from that, zakat distribution must be enough to provide comfort for the recipient and his dependents and ensures that the standard of living is more than satisfactory. Hence, to ensure the continuity of comfort life through zakat distribution, the allocation of zakat proportion for zakat recipients must not only suffice to cater for their basic necessities but it must also be enough to help the recipients expand their zakat fund. Otherwise, the zakat recipient will carry on receiving zakat in the following years. Al Fanjari (1988) suggests that the role of zakat security must take into consideration the economic environment of specific locations apart from social and political changes. There are some needs that become necessities such as food, clothing, shelters and others. Other needs such as consuming nutritious food such as milk, butter and others serve only to give good living and comfort. In summary, the discussions above have shown that zakat distribution can take place in two situations. The first is direct distribution in the form of lifelong support given to those who are not productive because they are not capable of working and finding means to sustain their lives. The second situation is in which the funds become resources to run activities that can bring in income and hence, improve the lives of the recipients. Irrespective of the forms of zakat fund distribution, the funds must support the recipients, in particular the poor and needy. They must be able to upgrade their lives to at least a minimum level of quality living. Zakat provided must cater for the recipients basic needs (daruriyyat) and comfort (hajiyyat). If the recipients have not achieved such level of quality life, then the goal of obligatory zakat (Maqasid al Syariah) has yet to be fulfilled and the true meaning of zakat practice has not been realized. Finally, the approaches of Ijtihad, Istihsan and Urf must be taken into account in decision-making in zakat management to further highlight the role of the institution. Muslims are highly advised to utilize their wealth appropriately, as Islam does not renounce wealth but excessive wealth, as vividly spelt out in Surah al-maidah verse 87:

10 78 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 O ye who believe! Make not unlawful the good things which Allah has made lawful for you, but commit no excess: for Allah loves not those given to excess. To sum up, while zakat collected and distributed by the zakat institutions at state level in Malaysia has obviously eased the living conditions of the recipients, albeit selective, it has not conferred substantial benefits on the poor as a group. Even in the best of circumstances the distributional impact of zakat distribution in Malaysia would be rated as modest. However, if poor management is counted in, then the disappointment is compounded! III. Research Methodology And Data Zakat collection and distribution in each state in Malaysia is handled by the respective State Islamic Religious Council. Some states such as Pulau Pinang, Pahang, Negeri Sembilan, Melaka, Sabah, Sarawak, Wilayah Persekutuan, and Selangor have privatized either collection or distribution of zakat or both. There are fourteen zakat institutions responsible to administer zakat collection and distribution in Malaysia. These zakat institutions are: 01. Islamic Religious Council and Malay Customs, Perlis 02. Zakat Department, Kedah 03. Zakat Management Center, Pulau Pinang 04. Islamic Religious Council and Malay Customs, Perak 05. Islamic Religious Council, Kelantan 06. Islamic Religious Council and Malay Customs, Terengganu 07. Zakat Collection Center, Pahang 08. Zakat Center, Negeri Sembilan 09. Zakat Center, Melaka 10. Islamic Religious Council, Johor 11. Zakat Center, Sabah 12. Baitul Mal, Sarawak 13. Zakat Collection Center, Wilayah Persekutuan 14. Zakat Council, Selangor In this study, we analyze the current practice of zakat distribution in several states in Malaysia with an eye on examining how zakat fund is being distributed among the eight asnaf. Data used in this study are compiled from annual reports as well as websites of various zakat institutions. The zakat data were collected for the period

11 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of IV. An Analysis On The Distribution Of Zakat Fund In Malaysia Zakat plays an important role to redistribute income and wealth within the society so that each and every individual is guaranteed a minimum means of livelihood. Part of the zakat funds could be given to the recipients to involve them directly and actively in productive activities, according to their capacities. This in turn builds self-employment and independence. As like other Islamic organizations, zakat institutions in Malaysia are expected to play a significant role in alleviating poverty. Zakat institutions are capable of carrying out this duty given the awareness of paying zakat among the Muslims has increased. This is evident from the steady increases in the zakat funds collected in almost every state in Malaysia. Table 1 exhibits the statistics on zakat collection in fourteen states in Malaysia from The table shows that the amount of zakat collected in Malaysia was RM408.4 million in 2003, steadily increased to RM473.3 million in 2004 and five years later, the amount collected in 2009 was RM1,196.9 million, approximately triple the amount collected in In 2003 and 2004, Wilayah Persekutuan was the leading state in terms of amount collected; however, starting 2005, Selangor had taken over the position with the largest amount of zakat collection. In 2009, Selangor managed to collect RM283.7 million and followed closely by Wilayah Persekutuan with collection of RM248.8 million. Sabah and Perlis registered the smallest collection, despite the fact that the amount of zakat collected in both states follows a similar upward trend as with other states. The total collection of zakat in 14 states in Malaysia shows an impressive increase of 193% over a seven-year period. This remarkable growth in zakat collection can be attributed to, among other things, the initiatives or efforts taken by zakat authority to professionally manage zakat institutions. In addition, the following factors have also contributed to the steady growth of zakat collection in Malaysia: i. Natural increase in the number of zakat payers. ii. Zakat paid is deductible from the income tax. iii. Awareness among Muslims concerning the importance of purifying their income and wealth. Table 2 displays figures on collection, distribution, and percentage of zakat funds distributed in Malaysia in the year With the exception of Melaka, Pulau Pinang and Perlis, statistics show a gap between collection and distribution of zakat funds in Malaysia. The states of Sarawak and Pahang show the most disappointing performance with only percent of the zakat funds collected in these two states were distributed to the beneficiaries. An investigation on zakat distribution in Malaysia in 2007 and 2008 also showed the same trend, i.e., there is a persistent gap between zakat collection and distribution in Malaysia (Annual Report, Zakat Collection Center,

12 80 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 MAIWP, various issues) Statistics on zakat distribution over a longer period of time in selected states show irregular pattern in disbursing zakat funds. A state may record a high percentage of distribution in a particular year, but similar pattern could not be observed in the following year. The data on zakat distribution in Selangor in 1994, 1995, and 2005 are puzzling because the state reports that more than 100 percent of zakat fund collected was distributed. Logically, zakat intuitions can only distribute 100 percent of what is collected. The state of Pahang once again shows an unsatisfactory performance with the percentage of zakat fund distributed ranging only percent. Johor shows an equally discouraging performance with an average of only 81 percent of zakat fund collected from was distributed. Data on zakat distribution over a longer period of time in selected states are shown in Tables 3-5. Subjects to further investigation, perhaps, one explanation can be extended to justify why in some years, namely 1994, 1995 and 2005, the zakat disbursed in Selangor had far exceeded the amount collected. This could be attributed to the amount of zakat collected in the previous year(s) was (were) not fully disbursed. As a result, the preceding undisbursed year s collected zakat funds had been overspent in the current or subsequent years, as shown in Table 3. The persistence in the gap between zakat collection and distribution in Malaysia could also be due to several other factors. According to Mohd Nor et al (2011), one of the main reasons given by zakat institutions in explaining the gap between zakat fund collected and distributed was the practice of paying zakat at the end of the year. As much as 50 percent of zakat fund was paid in the final weeks of a year. Understaffing is another factor reported by zakat managers affecting the task of distributing zakat funds. However, in the case of Pahang (Table 4), the situation was quite unnatural, where in all observation years the amount of zakat disbursed was far below the amount collected. Hence, it would be intriguing to conduct an in-depth study to understand why this had taken place in Pahang for six consecutive years. Our conjecture would be as follows: i. No qualified recipients. ii. iii. iv. The poor were not well informed about the availability of zakat fund. Under-staffed. The funds were used to cover administration costs. v. The funds were disbursed to non-eligible zakat recipients.

13 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of TABLE 1. STATISTICS ON ZAKAT COLLECTION IN MALAYSIA States (RM) % (RM) % (RM) % (RM) % (RM) % (RM) % (RM) % Selangor 283,648, ,409, ,193, ,836, ,121, ,826, ,200, W.Persekutuan 248,803, ,364, ,815, ,587, ,141, ,631, ,380, Johor 109,231, ,737, ,321, ,732, ,357, ,052, ,959, Terengganu 73,524, ,200, ,442,341, ,870, ,365, ,147, ,058, Kelantan 66,552, ,167, ,199, ,641, ,372, ,440, ,140, Pahang 71,868, ,935, ,487, ,971, ,032, ,917, ,616, Perak 67,189, ,962, ,276, ,848, ,543, ,724, ,698, Kedah 67,578, ,202, ,692, ,227, ,185, ,205, ,559, Pulau Pinang 47,952, ,764, ,085, ,589, ,000, ,288, ,317, N.Sembilan 42,275, ,409, ,356, ,821, ,098, ,037, ,520, Sarawak 36,915, ,099, ,132, ,548, ,299, ,566, ,264, Mela ka 30,721, ,905, ,067, ,464, ,692, ,238, ,037, Sabah 25,388, ,799, ,514, ,648, ,314, ,784, ,102, Perlis 25,253, ,134, ,699, ,874, ,564, ,406, ,573, TOTAL 1,196,871, ,038,092, ,284, ,636, ,088, ,269, ,430, Source: Annual Report, Zakat Collection Center, MAIWP, 2009.

14 82 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 TABLE 2. STATISTICS ON ZAKAT COLLECTION AND DISTRIBUTION IN MALAYSIA 2009 State Collection (RM) Distribution (RM) % of Fund Distributed Selangor 283,648, ,191, W.Persekutuan 248,803, ,986, Johor 109,231, ,419, Terengganu 73,524, ,578, Kelantan 66,552, ,478, Pahang 71,868, ,753, Perak 67,189, ,965, Kedah 67,578, ,000, Pulau Pinang 47,952, ,816, N.Sembilan 42,275, ,211, Sarawak 36,915, ,640, Melaka 30,721, ,157, Sabah 25,388, ,365, Perlis 25,253, ,754, Source: Annual Report, Zakat Collection Center, MAIWP, Collection (RM) Distribution (RM) % of Fund Distributed Year ,531,382 14,044, ,895,318 19,428, ,626,866 25,247, ,350,150 24,293, ,368,301 30,746, ,265,475 31,673, ,346,871 32,045, ,432,750 52,529, ,906,126 66,843, ,294,232 85,240, ,820, ,937, ,156, ,170, ,934, ,905, ,089, ,979, ,472, ,998, ,787, ,191, Total TABLE 3. STATISTIC ON ZAKAT COLLECTION AND DISTRIBUTION IN SELANGOR ,557,746,168 1,419,275, Source: Annual Report, Selangor Zakat Management, 2009

15 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of TABLE 4. STATISTIC ON ZAKAT COLLECTION AND DISTRIBUTION IN PAHANG: Collection Distribution % of Fund Year (RM million) (RM million) Distributed Total Source: Zakat Collection Center, Pahang, TABLE 5. STATISTIC ON ZAKAT COLLECTION AND DISTRIBUTION IN JOHOR, State Collection (RM) Distribution (RM) % of Fund Distributed 36,277, ,831, ,432, ,474, ,735, ,053, ,959, ,546, ,052, ,076, ,357, ,243, ,730, ,142, ,548, ,675, ,737, ,627, ,228, ,368, ,336, ,052, Source: Islamic Religious Council, Johor,

16 84 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 TABLE 6. DISTRIBUTION OF ZAKAT FUND ACCORDING TO ASNAF 2009 States ASNAF (RM) Faqir Miskin Amil Muallaf Al-Gharimin Ibnu Sabil Fisabilillah Other distributions Total (RM) Selangor 34,946,718 70,706,452 35,473,381 15,975,825 30,144,873 1,081,027 89,252,198 1,610, ,191,041 W.Persekutuan 36,086,388 25,932,448 40,350,845 6,570,162 2,229, ,030 63,329, ,986,013 Johor 9,896,091 22,885,290 11,191,469 8,772,523 2,108, ,849 42,372,063-97,419,660 Terengganu 4,505,497 27,745,238 7,374,052 1,930,642 18,000 55,013 20,400 10,929,743 52,578,585 Kelantan 12,683,310 22,721,497 9,245,507 1,172,998 17,900 9,000 5,960,851 4,667,779 56,478,842 Pahang 5,983,806 2,024,793 3,223,439 2,753, , ,943 32,341,228-46,753,309 Perak 27,003,351 (both faqir and miskin) 6,779,037 2,102, , ,700 23,054,475-59,965,762 Kedah 2,360,790 20,820,131 8,891,191 1,156,380 1, ,475 22,555,241-56,000,796 Pulau Pinang 3,620,578 22,411,287 4,980, , , ,927 18,881,581-51,816,561 N.Sembilan 12,024,204 5,283,986 2,837,785 2,889, ,000 6,605,764 11,354,229-41,211,752 Sarawak 4,892,395 2,649,723 3,966, ,147 5,224 1,462 10,995, ,496 23,640,627 Melaka 10,462,743 2,828,232 5,427,095 5,180,133 1,095,447 7,161,870 1,967-32,157,485 Sabah 7,623,740 4,473,500 2,782,432 1,777,256 5,917 8,435 7,694,371-24,365,651 Perlis 883,200 7,461,206 1,981, , ,280,703-26,754,491 Source: Annual Report, Zakat Collection Center, MAIWP, 2009.

17 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of Table 6 shows the distribution of zakat fund in 14 states in Malaysia in In most of the states, with the exception of Terengganu, Kelantan, Pulau Pinang, Negeri Sembilan, and Melaka, the allocation for fisabillah asnaf far exceeded the amount allocated to faqir and miskin. Selangor distributed the largest fund to fisabilillah asnaf with RM89.3 million compared to other states. In contrast, the fakir asnaf in Selangor only received RM34.9 million of zakat funds, less than half of what was distributed to fisabilillah asnaf. Similar pattern is exhibited in the distribution of zakat fund in Wilayah Persekutuan with the largest amount RM63.3 million (36.2 percent) goes to fisabilillah, followed by RM40.4 million (23.1 percent) for cost of managing zakat. The faqir and miskin asnaf received only RM36.1 million (20.1 percent) and RM25.9 million (14.8 percent), respectively, of zakat fund in Wilayah Persekutuan. It is observed that in 2009, Wilayah Persekutuan distributed the largest amount of zakat fund to amil asnaf (RM40.4 million) compared to Selangor (RM35.5 million) even though in terms of total collection and distribution of zakat fund Wilayah Persekutuan is behind that of Selangor. Statistics on distribution of zakat fund to fisabilillah asnaf in Annual Report 2009 published by Selangor Zakat Authority showed that large portion of the zakat funds in Selangor were given to Islamic associations/institutions and also to pay salaries/allowances of religious officials. For example, in 2009, Islamic associations in Selangor received RM10.5 million in assistance from zakat fund. A huge sum (RM12 million) was given to a single institution, Kolej Universiti Islam Antarabangsa Selangor. An equally huge amount distributed as emoluments and allowances for religious officials are as follows: RM6.2 million as allowances for mosques officials, RM10 million as allowances for KAFA religious teachers, and RM8.1 million as emoluments for MAIS staff. Zakat fund distributed to deserving asnaf under fisabilillah was found to be very minimal; for example, assistance for flood victims (RM728,510), assistance for fire victims (RM292,706), emergency assistance (RM740,831), assistance for school needs (459,677), and assistance to monsoon victims (RM206,765). Distribution of zakat has its own intended objectives. One of the main objectives is to increase the quality of life (physical, mental, and spiritual) of the asnaf (JAWHAR, 2007). In discharging the responsibility of distributing zakat fund effectively, zakat institution must follow the principle of Al-Awlawiyyat (prioritization). Distribution of zakat, as argued elsewhere in this paper, must be done by giving priority to certain asnaf such as faqir, miskin, and amil (JAWHAR, 2007). Based on this principle, in the event that the allocation for these three asnaf is not sufficient, a transfer of allocation from other asnaf should be done to give priority to these asnaf.

18 86 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 TABLE 7. RATIO OF DISTRIBUTION TO FISABILILLAH TO FAKIR AND MISKIN ASNAF, 2009 States Faqir Miskin Total [3=(1)+(2)] Fisabilillah Ratio of (3) to (4) Selangor 34,946,718 70,706, ,653,170 89,252, W.Persekutuan 36,086, ,932, ,018,836 63,329, Johor 9,896, ,885, ,781,381 42,372, Terengganu 4,505, ,745, ,250,735 20, Kelantan 12,683, ,721, ,404,807 5,960, Pahang 5,983, ,024, ,008,599 32,341, ,003, (both fakir and 27,003, ,054, Perak miskin) Kedah 2,360, ,820, ,180, ,555, Pulau Pinang 3,620, ,411, ,031, ,881, N.Sembilan 12,024, ,283, ,308, ,354, Sarawak 4,892, ,649, ,542, ,995, Melaka 10,462, ,828, ,290, , Sabah 7,623, ,473, ,097, ,694, Perlis 883, ,461, ,344, ,280, Source: Annual Report, Zakat Collection Center, MAIWP, 2009 and authors calculation. TABLE 8. DISTRIBUTION OF ZAKAT FUNDIN PAHANG ACCORDING TO ASNAF Asnaf Amount Distributed (RM) Amil 2,429,233 3,022,500 2,495,687 3,395,974 6,200,208 10,034,444 Faqir 1,808,538 3,538,318 4,642,000 5,211,227 5,907,542 6,065,073 Miskin 1,926,438 2,704,270 2,099,051 2,484,981 2,182,859 6,504,316 Muallaf 1,049,741 1,457,440 1,716,898 2, ,793,377 2,919,110 Ibnu Sabil 181, , , , , ,704 Fi Sabilillah 6,301,203 8,392,539 10,140,061 8,747,865 23,187,496 32,357,017 Gharimin , ,222 Riqab ,220 Total 13,696,292 19,376,074 21,317,696 22,227,762 40,739,620 58,604,106 Source: Zakat Collection Center, Pahang,

19 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of TABLE 9. DISTRIBUTION OF ZAKAT FUND IN WILAYAH PERSEKUTUAN ACCORDING TO ASNAF, Asnaf Amount Distributed (RM) Faqir 14,837, ,363, ,506, ,086, ,908, Miskin 13,463, ,675, ,616, ,932, ,888, Amil 25,685, ,249, ,643, ,350, ,438, Muallaf 3,125, ,796, ,652, ,570, ,458, Al-Riqab Al- Gharimin 1,399, ,395, ,652, ,229, ,540, Ibnu Sabil 340, , , , , Fisabilillah 42,696, ,361, ,035, ,329, ,731, Total 101,548, ,224, ,507, ,986, ,542, Source: Collection and Distribution of Zakat, MAIWP TABLE 10. DISTRIBUTION OF ZAKAT FUND IN SELANGOR ACCORDING TO ASNAF, Asnaf Amount Distributed (RM) Faqir 1,994, ,394, ,946, Miskin 56,073, ,174, ,706, Amil 23,700, ,396, ,473, Muallaf 8,387, ,672, ,975, Fisabilillah 65,535, ,595, ,252, Ibnu Sabil 408, , ,081, Gharim 17,466, ,976, ,144, Riqab 953, ,089, ,610, Total 174,520, ,998, ,191, Source: Annual Report, Selangor Zakat Management, various issues.

20 88 Journal of Islamic Economics, Banking... Vol-10, No1 January-March, 2014 TABLE 11. DETAILED DISTRIBUTION OF ZAKAT FUND ACCORDINGTO ASNAF FAQIR (DESTITUTE) IN SELANGOR, 2009 ASNAF FAKIR (RM) Asset of Faqir - Emergency Assistance/Miscellaneous 149,708 Educational Materials Assistance 2,752,239 Monthly Financial Assistance 9,413,599 Monthly Food Assistance 2,252,307 Medical Assistance 200,837 House rental assistance 620,247 Primary/Secondary School Fees Assistance 5,884,792 Training Course 1,300 House Improvement 1,025,347 Individual House Construction 3,603,068 Management of Jenazah 60,430 Management of Senoir Citizens Home 114,924 Contribution for Eid 8,867,920 Total 34,946,718 Source: Annual Report, Selangor Zakat Management, 2009 Table 7 provides the comparison of zakat funds distributed to faqir and miskin asnaf and also fisabilillah asnaf. The figures in Table 7 show that in some states (Wilayah Persekutuan, Johor, Pahang, Sarawak, and Perlis), the total amount of zakat fund extended to faqir and miskin asnaf is even lower compared to the amount distributed to fisabilillah asnaf. In Pahang for example, the amount given to both fakir and miskin combined was only RM8 million compared to RM32.3 million given to fisabilillah asnaf. In addition, the distribution of zakat fund to faqir and miskin asnaf in Perlis is only about half of the amount given to fisabilillah asnaf. The remaining states display similar pattern of high distribution to fisabilillah asnaf compared to fakir and miskin asnaf with the exception of Terengganu, Kelantan, and Melaka. Data on zakat distribution according to asnaf over a longer period of time in selected states are shown in Tables 8-10.

21 Is Zakat Capable of Alleviating Poverty? An Analysis on the Distribution of In order to identify poor people who are eligible to receive assistance under faqir and miskin asnaf, most of the zakat institutions such as Johor, Sarawak, Selangor, Wilayah Persekutuan and Negeri Sembilan measure poverty using the absolute PLI method. However, recently, the had al kifayah (necessities of a household) approach was adopted. Had al kifayah is used to determine the level of necessity needed by a household to sustain daily needs. Had al kifayah is calculated based on various variables such as number of members in a household, age group of members, among others. Table 11 shows the detailed distribution of zakat fund according to fakir asnaf in Selangor in The largest amount of zakat fund distributed to faqir asnaf in Selangor is under monthly financial assistance (RM9.4 million). The second largest amount of zakat fund given to the fakir is the contribution/gift for preparation of Muslim festivities, i.e., the two Eids, namely Eid-ul-Fitr and Eid-ul-Adha. In addition to financial assistance, the faqir asnaf also received food allowance, rental allowance, medical assistance, and educational materials assistance. It is observed that there is no fund allocated for income generating activities for fakir. Similar to Table 11, Table 12 shows that the largest portion of zakat fund distributed to the miskin asnaf is the monthly financial assistance (RM24.1 million). It is observed that there are some allocation of funds provided for income generating activities for asnaf miskin, These are, for example, assistance for cattle breeding project (RM318,192), fishery (RM176,892), agricultural activities (RM76,922), and general business activities (RM1,721,062). Although the effort made by Selangor Zakat Authority to provide assistance to miskin asnaf by providing fund for income generating activities is commendable, the amount given was not substantially helpful. As a remedy, the amount has to be increased and the activities need to be expanded and more diversified, according to the current circumstances and practices. In comparing the total amount of zakat fund distributed to faqir asnaf and miskin asnaf, it was found that the amount distributed to the two asnaf was quite puzzling since the total number of faqir and miskin in Selangor in 2009 is about the same, which is 10,778 of fakir and 10,843 of miskin. However zakat fund distributed to the miskin asnaf (RM70.7 million) is more than double the amount given to the fakir asnaf (RM34.9 million). By definition, the faqir asnaf is more deserving compared to miskin asnaf since the first group has no property whatsoever, and these people need help to survive either because of their physical inability, old age, or others. If the number of faqir and miskin asnaf is about the same, then by right, the amount distributed to the faqir asnaf should be unvarying.