RETHINKING THE ROLE OF ZAKAT IN POVERTY ERADICATION

RETHINKING THE ROLE OF ZAKAT IN POVERTY ERADICATION KU AZAM TUAN LONIK AND NOR SYAFINAS MUDA School of Distance Education, Universiti Sains Malaysia, 11800, Penang, Malaysia. Corresponding author: kuadzam@usm.my ABSTRACT Malaysia has done very well in eradicating the problem of poverty in the country. The poverty rate has fallen from 49. percent in 1970 to.9 percent in 009. Nonetheless, one main facet of such phenomenon remains, i.e. the majority of the poor are from the Malay-Muslim community. In Malaysia, the management of zakat is under the state jurisdiction. As such the collection and disbursement of the zakat funds also falls under the purview of the Majlis Agama Islam Negeri. Each of the Majlis Agama Islam Negeri has its own zakat collection body. Two issues emerged. First, while zakat should be able to free the recipient from poverty, yet, the proportion of money allocated for these groups of asnaf is very minimal such that it fails to uplift the economic well-being of the recipients. Second, current practices adopted by most zakat agency are to give cash money to the recipients which failed to motivate them to embark on productive activities to uplift their economic well-beings. This paper evaluate the attempt made to provide start-up capital for the poor to engage in business activities using the zakat fund in the hope that the success of the initiatives will see a reduction in the incidence of poverty among the muslim communities and to ensure that the money disbursed to the poor and the needy are used not for consumptive purpose but for productive activities. Keywords: zakah, poverty, poor and needy. Introduction Being one of the pillars of Islam shows how important Zakat is in the life of a Muslim. The zakat that was prescribed upon Muslim has two main features. First, the zakat was imposed on income and specifically identified properties. Secondly, the Quran also specifically prescribed the eight groups of people entitled to receive the zakat payout (asnaf). Zakat are paid by the haves among the society to the haves-not. Together with sadaqah, it serves as an embodiment of the functionality of the social welfare functions of an Islamic society. While in certain society, Malaysia for example, the payment and disbursement of zakat is carried out by a legal body, the same cannot be said of other parts of the world. The functioning of these bodies acts only to facilitate the collection and disbursement of the zakat. Nonetheless, the nas (al-quran and al-hadith) recognised the existence of these bodies. According to the nas, one of the categories of people entitles to receive the zakat money is the amil someone responsible for collecting the zakat fund. In Malaysia, the management of zakat comes under purview of the state jurisdiction through the Majlis Agama Islam Negeri (MAIN). For the purpose of zakat management, each MAIN has its own arm that deals with collecting and disbursing the zakat fund. Two pertinent issues in zakat management in Malaysia emerged. First, while zakat should be able to free the recipient from poverty, yet, the proportion of money allocated for these groups of asnaf is very minimal such that it fails to uplift the economic well-being of the recipients. Second, current practices adopted by most zakat agency are to give cash money to the recipients which failed 99

to motivate them to embark on productive activities to uplift their economic well-beings. Realising this, in recent years, some of these bodies have devised a new mechanism in disbursing the zakat fund especially for the poor and the needy (al-fakir wa al-masakin). This new mechanism exists in the form of start-up capital to help the zakat recipients setting up a business endeavour. The initiative has enables the recipients to stand by their own feet thus reducing their dependence on the zakat fund. This paper evaluates the attempt undertaken by the Jabatan Zakat Negeri Kedah (Kedah State Zakat Department) in managing the start-up fund known as the Bantuan Jayadiri to provide start-up capital for the poor to engage in business activities using the zakat fund in the hope that the success of the initiatives will see a reduction in the incidence of poverty among the muslim communities and to ensure that the money disbursed to the poor and the needy are used not for consumptive purpose but for productive activities. The Economic of Zakat Various verse in the Qur an emphasised the need for Muslim to pay zakat. For example, in Surah Al-Baqarah, verse 8, Allah says And remember we took a Covenant from the Children of Israel (to This effect): worship none but Allah treat with kindness your parents and kindred, and orphans and those in need; speak fair to the people; be steadfast in prayer; and practise regular charity then did ye turn back, except a few among you, and ye backslide (even now). Except for zakat al fitr, many Muslim economists have argued that from the economic points of view, zakat acts as a form of an automatic stabiliser and a counter-cyclical policy instrument (see for example, Sadeq, 1990). As with other income based tax system, and conforming to the mechanism of an automatic stabiliser and a counter-cyclical policy instrument, the revenue collected from zakat fluctuates from time to time. This fluctuation is based on the fiscal cycles of a country. This also highlights the beauty of zakat being imposed as a percentage of income or wealth, or in the case of livestock, it was imposed based on the number of livestock in possession. The collection and disbursement of Zakat transfer wealth from the haves to the havesnot (Siddiqi, 1980). The haves may not necessarily be the surplus sector in literal meaning, for the payment of zakat is based on the minimum amount owned by a Muslim (the nisab) and the minimum time period in which a Muslim owned the income or wealth (the haul). Apart from being a counter-cyclical policy instrument, zakat also acts as a build-in safety net akin to a social welfare programs in a society. It provides financial protection to the haves-not. Zakat should increase the level of disposable income of the zakat recipients (Kahf, 1980) as well as providing a humane standard of living for them (Chapra, 1980). This prompted Faridi (1980) to argue that, zakat should serves two main objectives, that is, (a) to ensure minimum means of livelihood to each and every individual in the community and, (b) to ensure productive use of economic resources for the material well-being 00

of the community. What Allah has bestowed on His Messenger (and taken away) from the people of the townships,- belongs to Allah,- to His Messenger and to kindred and orphans, the needy and the wayfarer; In order that it may not (merely) make a circuit between the wealthy among you. So take what the Messenger assigns to you, and deny yourselves that which He withholds from you and fear Allah, for Allah is strict in punishment. Taking the two objectives of zakat as highlighted by Faridi (1980) above into account, one can adduced that this two groups of people should take precedent above the other. In fact, as argued by Chapra (199), needs fulfilment of the poor is the most important aspect of zakat payment, to enable them to stand on their own feet. Apart from that, although, the list of zakat beneficiaries does not necessarily means the priority assigned to certain group or groups, however, the Qur an constantly emphasised the destitute and the poor (fakir wa al masakin). In the following ayah in Surah al_baqarah, verse 110, the commands to Muslim to be good to the poor are placed and emphasised together with being good to the parents, kindred and the orphans. And be steadfast In prayer and regular In charity: and whatever good ye send forth for your souls before you, ye shall find it with Allah for Allah sees well all that ye do. Apart from the poor and needy, the Quran has list down six other categories of people entitled for the zakat fund. This is specified in Surah at-taubah, 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. They are: al-fuqara (destitute), al-masakin (the poor), amil (the collector), muallaf (new convert/revert), riqab (slaves), gharimin (someone is heavy debts), fisabilill (striving in 01

the way of Allah) and ibnu sabil (wayfarer who runs out of resources). Methodology Poverty remains one of the problems in Malaysia. The Economic Planning Unit estimated that despite the reduction in the incidence of poverty throughout Malaysia, the incidence of poverty in a few states remain high. One of the states is Kedah which recorded a 5.% poverty rate. Although there is no data to identify the specific percentage of Muslim in the category of poor, but being a predominantly Malay society, it can be deduced that the majority of those are the Malay-Muslim community. This study attempts to evaluate the success of the program Bantuan Jayadiri introduced by the Jabatan Zakat Negeri Kedah (Kedah State Zakat Department) which provide start-up fund for the poor to venture into a business activity. The program was introduced in 008. Within the period January 009 until April 011 a total of 15 recipients received the financial assistance under this program. However, only 180 recipients were involved in this study. This constitutes 8.7% of the total recipients. For some reasons, the remaining 5 recipients cannot be reached. This study adopted a face-to-face interview with 180 recipients of the Bantuan Jayadiri. They are the recipients of the Bantuan Jayadiri for the year 009 and 010. The lists of recipients were provided by the Jabatan Zakat Negeri Kedah. Results and Discussion A. Background Information Of the total 180 recipients of the Bantuan Jayadiri in 010 and 011, 8 (45.6%) are male and 98 (54.4%) are female Table 1. Table 1: Sex of resipient Sex Frequency Percentage Male Female 8 98 45.6 54.4 As shown in Table, 5% (9 recipients) aged between 0-0 years old;.% (4 recipients) aged between 1-40 years old; 4.% (76 recipients) aged between 41-50 years old;.8% (41 recipients) aged between 51-60 years old; and 6.7% (1 recipients) aged over 60 years old. Table : Age of recipient Age Frequency Percentage 0 0 years 1 40 years 41 50 years 51 60 years > 60 years 9 4 76 41 1 5.0. 4..8 6.7 Majority of the recipients are married (79.4% or 14 recipients). 16.1% (9 recipients) 0

are widow, 6 recipients are single and are widower. Table : Marital Status Marital status Frequency Percentage Single Married Widow Widower 6 14 9. 79.4 16.1 1.1 B. The Financial Assistance 79 recipients received financial assistance in the form of cash money as a start-up capital to start a business venture while 101 received the assistance in the form of tools. Table 4: Types of Assistance Frequency Percentage Cash money Tools 79 101 4.9 56.1 The amount of assistance varies in the rage of RM500 RM5,000. 1 recipients (6.7%) received between RM500-RM1,000; 91 recipients (50.6%) received between RM1,001- RM,000; 67 recipients (7.%) received between RM,001-RM,000, 7 recipients (.9%) received between RM,001-RM4,000 and finally only recipients (1.7%) received between RM4000-RM5000. The later are fishermen and the assistance was in the form of a boat engine. Table 5: Amount of Assitance Amount (RM) Frequency Percentage 500 1000 1001 000 001 000 001 4000 4001 5000 1 91 67 7 6.7 50.6 7..9 1.7 Table 6 provide the types of business ventures undertaken by the recipients. The highest are in sewing/tailoring (5%) followed by selling food stuff (4.4%) and operating food stall 0

(11.1%) Table 6: Types of Business Ventures Frequency Percentage Sewing/tailoring Retail Selling Food stuff Food stall Traditional Food Production Traditional Medicines Carpentary Construction Agri-business Fishery Others 45 44 0 15 5 6 7 0 5.0 1.7 4.4 11.1 8. 1.1.8 1.7..9 16.7 C. Changes in Income Before receiving the financial assistance from Bantuan Jayadiri, 49.4% (89 recepients) have an income of RM40 or below per month which fall under the category of absolute poverty. In addition, 1.7% (57 recipients) has an income between RM41-RM70. The remaining 18.9% (4 recipients) has an income of RM71 an above even before receiving the Bantuan Jayadiri. The poverty line income used to measure the incidence of poverty in Malaysia is RM70 per month. Below RM 40 RM 41 RM 70 RM 71 and above Table 7. Income before and after Before After Changes Frequenc y Percentage Frequency Percentage (no. of recipients) 89 49.4 0 16.7-59 57 1.7 74 41.1 +17 4 18.9 76 4. +4.0 180 100.0 Mean Median Mode Standard Deviation 540.8 499.0000 400.00 8.559 775.4000 70.0000 499.00 0.88894 4.5% However, after receiving the Bantuan Jayadiri, only 0 recipients (16.7%) falls under the absolute poverty category while 74 recipients (41.1%) have an income of between RM41- RM70. The number of recipients above the poverty line income has almost doubled from 4 to 76. In other words, 4.% of the recipients has managed to escape the poverty trap as a result of the Bantuan Jayadiri compared to 18.9% before the Bantuan Jayadiri. The mean income of the group has increased from RM540.8 before receiving the 04

Bantuan Jayadiri to RM775.40 after the receiving the bantuan Jayadiri an increase of 4.5%. D. Relationship between Changes in Income and Types of Business Ventures Table 8 shows the relationship between the changes in income and the types of business ventures undertaken by the recipients of Bantuan Jayadiri. In total, 1 recipients (67.8%) of Bantuan Jayadiri experienced an increased in income while 58 recipients (.%) does not experienced an increase in income. On occupational basis, all recipients venturing in construction had experienced an increased in income, 8.% of those in agro-business, 8.% of those venturing in sewing/tailoring, 66.7% percent of those in retail, 59.1% in selling food stuff. Sadly, all recipients venturing into producing traditional medicines does not experienced changes in income. Table 8. Relationship between Changes in Income and Types of Business Ventures Sewing Yes 7 (8.) No 8 (17.8) Total 45 Retail (66.7) 1 (.) Food stuff 6 (59.1) 18 (40.9) 44 Food stall 11 (55.0) 9 (45.0) 0 Types of business ventures Traditional Medicine Tradional Food Production 9 (60.0) 6 (40.0) 15 0 (0.0) Carpentary 4 (80.0) 1 (0.0) 5 Constructin 0 (0.0) Agrobusiness 5 (8.) 1 (16.7) 6 Fishery 5 (71.4) (8.6) 7 Others 0 (66.7) 10 (.) 0 Total 1 (67.8) 58 (.) 180 Conclusions While the nas specifically identified the people entitled for the zakat disbursement, it says nothing about the method of disbursement. Initiatives undertaken by a few zakat collection agencies in Malaysia in providing a start-up fund to help the poor and needy to venture into business activities should be welcomed. As shown in this study, the Bantuan Jayadiri as a form of business start-up capital to help the poor set up business ventures has succeeded in a) increase the income of the poor, and, b) alleviate the poor out of the poverty trap. This should become a model in poverty eradication programs throughout the Muslim world. References Ahmad, K., 1980. Studies in Islamic Economics. Leicester, UK: Islamic Foundation. Chapra, M.U., 199. Islam and the Economic Challenge. Leicester, UK: Islamic Foundation. Hasanuz Zaman, S.M., 1991. Economics Function of An Islamic States. Leicester, UK: Islamic Foundation. Muhammad Syukri Salleh, 006. Lokalisasi Pengagihan Zakat: satu Cadangan Teoritis. dalam Hailani & Abdul Ghafar (penyt). Zakat: Pensyariatan, Perekonomian & Perundangan. Bangi: Penerbit Universiti Kebangsaan Malaysia. Patmawati Hj Ibrahim, 007. Peranan Agihan Zakat Dalam Meningkatkan Tahap Ekonomi Ummah, Konvensyen Zakat dan Cukai Peringkat Kebangsaan PWTC, Kuala Lumpur, /5/07 4/5/07. Patmawati Ibrahim, 005. Potential Role Of Zakat Distribution In Reducing Income Inequality Among The Muslim Society in Abdullah Alwi Hj Hassan et al. Teori dan Aplikasi Kontemporari Sistem Ekonomi Islam di Malaysia. Utusan Publications dan Distributors Sdn Bhd, Kuala Lumpur. Sadeq, A.M., 1990. Economic Development in Islam. Kuala Lumpur: Pelanduk Publication. Sanep Ahmad dan Hairunnizam Wahid, 005. Persepsi Agihan Zakat dan Kesannya terhadap 05

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