Research Paper - Commerce

6 Development of Minorities through Zakat : An Overview 2 Research Paper - Commerce Dr M.U.Yusuf Dept of Commerce, Sir Sayyed College, Aurangabad. Abstract:- Zakat means an increase. As Zakat is in relation to wealth, it may mean increase in the bank balance of the payer in the life hereafter. The purpose of imposing Zakat on the assets of Muslims may be many. Historically it seems to be a common phenomenon between the followers of the Prophet Mohammad (PBUH) and the followers of all other earlier Prophets (PBUT). Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is to provide loans with little or no interest without guarantee or security. Those who promote microfinance generally believe that such access will help poor people out of poverty. The basic idea of microfinance is simple, if poor people are provided access to financial services, including credit; that may lead them to start or expand which ultimately will lead them towards a new horizon of freedom from poverty. Thus, micro-finance has become one of the most effective interventions for economic empowerment of the poor. General awareness world over along with other things, the need to have an agency for organized collection and planned use of Zakat became a point of debate. Convinced with fruitfulness of this exercise efforts were made at the micro and macro levels to convert this thought into practice. Establishment of Zakat organizations at local

7 / regional levels in India and abroad are manifestations to these efforts. The so collected Zakat can be used as a mean for providing micro credit for the economic strength and empowerment of the community. Thus Micro finance the Zakat way is expected to play a significant role in poverty alleviation and development of the community. The need, therefore, is to share experiences and materials which will help not only in understanding successes and failures but also provide knowledge and guidelines to strengthen and expand micro finance the Zakat way programmes. This paper underlines 1. Need of Microfinance for upliftment of Minority community 2. Zakat the obligation of Islam 3. Zakat and Micro-Finance the Islamic Banking way (Establishment of Zakat organizations at local / regional levels in India) 4. Zakat the ultimate solution for the upliftment of down trodden & Minorities Educational Institution Small Scale Industry Handicrafts, Tailoring, and petty job works. Introduction Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is to provide loans with little or no interest without guarantee or security 1. Microcredit, or microfinance, is banking the unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without.2 Microfinance refers to small-scale financial services for both credits and deposits that are provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing

8 countries, in both rural and urban areas 3. Need of Microfinance for upliftment of community: - Micro-finance, in the recent past, has become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. There are many features to this simple plan which are quite striking to the potential target group members, government policy makers, and development practitioners. The most obvious benefit is that micro-finance programmes may actually succeed in enabling them to increase their income levels. Furthermore, the poor are able to access financial services which previously were exclusively available to the upper and middle income population. Finally, the access to credit and the opportunity to begin or to expand a micro-enterprise may be empowering to the poor, especially in comparison to other development initiatives which often treat these specific target group members as recipients. Grameen Bank (Bangladesh):- The World Bank estimated in 2003 that there are over 7,000 microfinance (MF) institutions, serving some 16 million poor people in developing countries. These MF institutions more or less imitated Pr. Muhammad Yunus Grameen Bank in Bangladesh. The Grammen Bank alone provided MF loans to 5 million poor in Bangladesh in 2003. One should hail the humanitarian movement initiated by Pr. Yunus and emulated by many around the world. Indeed, we live in a world of deep poverty amidst plenty. Half of the world population - 2.8 billion people - live on less than US$2 a day, and 1.2 billion, a fifth of world population, live on less than US$1 a day. In several African countries the percentage of people living on less than US$ 1 or 2 per day far exceed world s averages as here exposed, therefore for development practitioners, the success of micro-finance programmes is encouraging. Too often in the past, costly large-scale development initiatives have failed to achieve any sustainable benefits, especially after funds have

9 dried up. Those who promote microfinance generally believe that such access will help poor people out of poverty. The basic idea of micro-finance is simple, if poor people are provided access to financial services, including credit; that may lead them to start or expand which ultimately will lead them towards a new horizon of freedom from poverty. Thus Micro-finance has become one of the most effective interventions for economic empowerment of the poor. Through this paper we would make an attempt to present a special concept of microfinance through Zakat (The Obligation of Islam). This concept will definitely prove to be a viable solution for socio economic development. Meaning of Zakat - The obligation of Islam Zakat is one of the five fundamental obligations of Islam. It is an obligatory form of worship (Ibadah) prescribed by Allah. Allah commanded so establish Salat (namaz) and give Zakat, and hold fast to Allah 4 Zakat is a duty from Allah similar to the duty of Salat 5 For establishing Salat (Namaz), the Muslim community organizes a place of worship (Masjid) to offer Salat in congregation. Similarly, the Muslim community is obligated to establish the institution of Zakat in order to collect Zakat from rich Muslims of the community and distribute it among the needy ones. Charity has been given a very broad meaning in Islam. Any benefit done to any creature; economic, moral, spiritual, or consolatory, is considered charity. Every good deed, therefore, is a charity. Islam has institutionalized charity as a regular exercise of benevolence, good will, and affection. Charity is the provision of help or relief to the poor. Many people in the world practice different kinds of charity for different reasons. Following the previous revelations, the glorious Qur an, reaffirms the continuation of charity as divine ordinance. Allah decrees: And they are ordained nothing else than to serve Allah, keeping religion pure to Him, as men by nature upright and to establish Salat and to pay the Zakat. That is true religion. 6 The literal meaning of the word Zakat is purification and growth. In keeping with these qualities, Allah has prescribed Zakat as an obligatory charity, as a duty to Allah, upon every wealthy individual. 1. Al-Qur'an 22:78 2. Al-Qur'an 2:43, 110, 177, 277; 4:162; 9:103; 24:56; 73:20;

10 3. Al-Qur'an 98:5 Wealthy individual is defined as one who is in possession of a minimum amount of wealth called Nisab( 70gm gold,520gm silver, or equivalent money) for an entire lunar year. This charity is prescribed in order to cleanse the individual s wealth, heart, and by extension the society in general, of the baser characteristics of miserliness, selfishness, greed and materialism and replace them with higher qualities of generosity, love, care, and mutual help. Zakat is a meaningful institution with a definite religio-socio-economic purpose. It has its established rules and procedures, structure, standard, and specific functions. Muslims all over the world practice Zakat as an obligatory duty of their religion. While the payment of Zakat is an individual duty, the collection and distribution of Zakat is a collective obligation. Islam has organized the institution of Zakat with a spiritual approach leading to the socio-economic benefit of mankind. Allah deprives usurious gain of all blessings, whereas He blesses charitable deeds (Sadaqat) with manifold increase. (Verse from Al-Quran 2:276) Zakat Collection in India The total Zakat distributed and collected in India every year is near about 8456 crores and 58 lakhs. These figures vary according to the per capita income and the economic condition of the country. Sr. % of the Amount Particulars no total amount Collected(Rs.) 1 Religious schools (Madaris) 83% 7047,15,00,000 2 Religious Associations 16% 1409,43,00,000 Total 8456,58,00,000 * Source. Zakat Foundation of India, Delhi_2001 India s Muslim population is amongst the largest in the world, exceeded only by Indonesia s and close to the Muslim populations of Pakistan and Bangladesh. Moreover, it is larger than the total populations of most countries of the world. As per the 2001 census Muslims constitute the second largest religious community in India and thus the largest religious minority. The 2001 census enumerated India s Muslim population at over 138 million, and by 2006 the Muslim population would be over 150 million.

11 *source http://en.wikipedia.org/wiki/demographics_of_india_2001 The upliftment of Indian Muslims as a starting point can be solved through its religious obligation (Zakat). Zakat as defined in the above paragraph can be used effectively to clean the poverty of not only Muslims but the society as a whole. Most of the Muslims avoid taking loans from banks and may opt out of conventional microfinance due to its reliance upon interest-based financing, prohibited by Islam as riba. These facts have been proved through the Rajendra Sachar Committee Findings Report 2004-05. If we see the table below, we find that even after being the Second largest group in India. The Indian Muslims are way backward in all aspects of life. Sachar Report Committee in 2004-05 Particulars All Hindus Muslim others All SC/ST OBC Gen Urban Poverty Incidence across SRCs in 2004 22.8 20.4 36.4 25.1 8.3 38.4 12.2 Literates as Proportion of Population by Age Groups 116.14 52.7 63.4 59.9 75.2-2004-05 Worker population ratio 64.4 65.8 71.4 67.3 54.9 64.5 The table above state that out of the total population of India 22.8% of population is poor. When bifurcated according to religion the table proclaim that Hindus as a whole including

12 the SC, OBC & others comprises 20.4%, whereas Muslims represents 38.4% which is the largest group. As for the literacy rate again the Muslims are less educated as compared to the other minorities(i.e. Sikhs, Jains, Buddhist etc..) where as if compared with the majority again the Muslims are far behind. As for the workers population ratio, out of the total 64.4%, Muslims are 54.9%, and the SC s are 71.4% and OBC s are 67.3%. This shows that Muslims are less employed, less literate & poorer compared to the SC s or the so called backward classes. And the reasons given by the Sachar committee report is Unemployment rate by social religious groups Hindus Muslims Other All Particulars All minorities SC/ST OBC UC Hindus Urban 8.1 10.5 8.2 6.8 8.1 10.9 8.3 Rural 8.0 10.0 7.4 6.0 8.4 10.8 8.2 Male 7.2 10.2 7.0 5.1 8.1 10.2 7.6 Female 9.0 9.9 8.8 8.0 9.2 12.2 9.2 Table 8.3: Sachar Report Committee in 2004-05 The illustration in the above table clearly shows that the unemployment rate of muslim community is depressing as compared to the other minorities Workable model for Micro-Finance through Zakat the Islamic Banking way Islamic banking appeared on world forum as a prominent player over two decades ago. But actually many principles of Islamic banking system have been generally accepted all over the world for centuries rather than decades Islamic financial system existed in Muslim community in different shapes according to situation of time. Actually Islamic financial system has a capability to fulfill the society requirements in respectable way. Islamic banking is a growing sector with its diversity in different segments and spectrum. It caters to religious Muslims in Muslim s societies as well as in countries where Muslims are in minority. In addition, it is a broad standard: non-muslim individuals and communities that seek ethical financial solutions have also been attracted to Islamic banking. It is clear from banking practice that Islamic banking is equally popular in all communities. It is clear from above statements that Islamic banking is not only Islamic or specific banking but actually it is a system which provides more ethical and moral concept of financial issues as well as it is really helpful to create a peaceful, economically prosperous and

13 welfare society. In order to reach a greater number of people, new models of microfinance are being studied and developed by the IDB (Islamic development bank), Muslim Aid and a nonprofit think tank in the United States, the Institute of Halal Investing (IHI). In the early days of Islamic microfinance, the loans were usually given with no fee (qard hasna) and any costs incurred were covered with sadaqa and loan forgiveness with zakat. While using qard hasna is an easy method to ensure Shariah compliance, it is not a sustainable model. Even when repayment rates are between 97% and 99%, comparable to the most successful microfinance institutions (MFIs), the reliance on voluntary contributions makes the continuing operation of the organizations uncertain.

14 The suggested model of microfinance through zakat will provide finance to client and the client will make profit-sharing payments each week based upon a pre-agreed ratio. The losses if any should be borne by the MFI and the MFI should have the option of ending the agreement if the losses are excessive. When the client will make profit-sharing payments, he/she shall also be allowed to purchase shares of the MFI s equity stake in his/her business. At the end of the financing period, the client shall be given full ownership of the business and the microfinance institution earns the principal plus weekly shares of profits or losses. Conclusion The principles of Islam provide the inspiration for a new model of microfinance, but this model need not be limited to helping Muslims. The suggested microfinance through zakat model can serve as a unique alternative to the traditional Grameen-style microfinance institution which will help in reducing poverty and creating sustainable micro businesses. Reference 1. The Glorious Qur an, Text and Explanatory Translation. Translated by Muhammad Marmaduke Pickthall. 2. Sahih Al-Bukhari. Translated by M. Moshin Khan. 3. Fiqhus-Sunnah, Alms Tax and Fasting. S. Sabiq. Translated by Abdul Majid Khokhar, Mohammad Saeed Dabas, and Jamal al-din M. Zarabozo. 4. The Calculation of Zakat for Muslims in North America.Monzer Kahf. 5. About the Fiqh of Zakat. Zakat and Research Foundation. 6. Zakat and Khums, According to Five Schools of Islamic Law. Sayyid Muhammad Jawad Maghniyyah. Translated by Mujahid Husayn. 7. North American Zakat Fund. Islamic Society of North America. 8. Zakat aur Ushr ke Masael. Abdul Waheed Khan. 9. Blake Goud is the executive director of the Institute of Halal Investing, a nonprofit think tank based in Portland, Oregon, U.S.A. He can be contacted at blake@investhalal.org 10. (www.islamic-banking.com). 11. (www.hsbcamanah.com).