Almsgiving for Bolstering SDGs

By Randi Swandaru and Ebi Junaidi

Almsgiving in Islam is not only encouraged but also obligatory under certain circumstances. The article aims to find answers on how the trend of philantrophy, together with Muslim traditions of almsgiving, can be a source of solution to the existence of sustainable development.

 

The latest report by the World Bank on The Atlas of Sustainable Development Goals 20171 shows that Muslim countries are those who suffer in achieving sustainable developments. In terms of poverty alleviation for instance, there are still millions of Muslims who live under poverty line in Indonesia (25 millon), Bangladesh (45 million), Nigeria (51 million) and Pakistan (62 million). In addition, South Asia and Sub-Saharan Africa where many Muslims live, are recorded as the regions that significantly suffer from malaria, tuberculosis and extreme hunger. To moderate this situation Muslim countries need to find a conceivable source of funding from their internal source since the global effort to achieving this goal faces $2.5 trillion investment gap.2

Almsgiving could be an alternative source of fund to bolster Sustainable Development Goals (SDGs) in Muslim countries. Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention. Zakat is not levied from the wealth that related to consumption or production investment but levied from idle wealth so that it creates disincentive to hoarding wealth and induces economic redistribution from the rich to the poor. Reknown Islamic Economics founder father, Umer Chapra, argues that zakat can help the poorest of the poor through economic empowerment as well as provide social safety net.3 This model is considered to be more effective than conventional finance as the Islamic social finance instrument such as zakat and waqf promote social justice and welfare inclusion whereas conventional finance may expropriate assets through perpetual debt-based operation.4

Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention.

Almsgiving and sustainable development goals in essence share a huge portion of profound commonalities. The first and foremost of zakat recipients is al fuqara wal masakin (poor and needy) which aligns with the first two goals of SDGs to eliminate poverty and achieve zero hunger. Moreover, zakat reflects the spirit of SDGs such as reducing inequality and supporting economic growth by transferring the idle wealth to the less fortunate that empower them as well as encourage them to have socio-economic opportunity to grow. Besides, zakat can be utilised to provide health service, education, access to clean water and sanitation for the poor which aligns with some other goals in SDGs.

There are several best practices in utilising zakat as a social intervention. Akhuwat in Pakistan is a prolific example of Islamic microfinance that funded by alms and charity donation with 99.9% of recovery rate.5 This institution was established in 2001 with a single donation of 10.000 Pakistani Rupee or $95 but now it serves nearly 1 million beneficiaries through 350 branches in 250 cities across the country. Akhuwat has successfully mobilised sustainable zakat and sadaqat (voluntary donation) fund from public to provide a revolving benevolent loan for the poor. It maintains the operational cost low by emphasising volunteerism and utilising places of worship for credit delivery.

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Another example is zakat as a community-driven development programme that has been widely used in Indonesia. The National Zakat Board of Indonesia (BAZNAS) has run this type of programme, namely Zakat Community Development (ZCD) since 2012 in 8 provinces with more than 5.000 households as its recipient.6 Unlike other programmes, this grant-based intervention treats the poor as partners rather than merely the object of the programme whereby the beneficiaries are emancipated and empowered to collectively decide kind of economic activity that they want to build under village institutions such as cooperatives, farmer, or women groups. In this regard, ZCD emphasises the Islamic moral economy features such us reciprocity and neighbourhood as the underlying operation.

A hybrid model that combines zakat and waqf (Islamic endowment fund) is also conceivable. Under this model, zakat acts as a consumption buffer to prevent fund diversion while the return from waqf and charitable fund can be channelled to finance productive microenterprise project. Moreover, waqf as a sustainable social enterprise7 could be capitalised by cash waqf to provide microfinance for the poor.8

An empirical evidence shows that 20 out of 39 OIC member countries could relieve from extreme poverty by mobilising zakat from domestic sources and disbursing them to the poor that earns less than $1.25 per day.9 Another study indicates that the average annual zakat collection in OIC countries is between 1.8% and 4.3% of their GDP which is a significant amount of resources.10 In Indonesia – the world’s largest Muslim country, $385 million of zakat funds were collected in 2016 and has impacted 6 million poor and needy through five main groups of programmes of economy, health, humanity, social, and education.11 Nonetheless, this amount is still far behind the full potential of Indonesia zakat collection of $16.7 billion.12

There are at least four key factors to increase the zakat collection and its impact on SDGs, namely human resources capacity building, a robust zakat information system, a standard of global zakat management system and regulative support from the government.

Human resource capacity is indeed very crucial in an effort to bolster SDGs by utilising zakat funds. The cooperation between zakat administrators and other institutions that has congruent commitment in achieving SDGs demands two competencies i.e. the law (fiqh) of zakat and Islamic finance practice in one hand; and a comprehension SDGs principle and best practice, on another hand.13 This step would equip both organisation to create the socio-economic intervention programme that permeates the Islamic spirit and objectives while attaining the goals of sustainable development. An initiative has already taken by BAZNAS as the general secretary of World Zakat Forum to create a global fiqh zakat discourse on SDGs.14 The fiqh of zakat on SDGs will be used as a reference among Muslim countries to mobilise zakat and utilise it in alignment with effort to achieve SDGs targets in respective countries. In addition, a cooperation with global institution such as UNDP will be strategic movement to enlarge human resource capacity of zakat administrator especially in transferring knowledge and experience in managing SDGs programme.

Secondly, zakat administrator needs a robust zakat information system as the public is now more demanding and eager to get involved and engaged in knowing how their donation is utilised in improving the wellbeing of the poor. This information system will enhance the transparency and efficiency of zakat operation which in the end, will increase public trust to zakat administrator and enlarge zakat collection. Having said that, BAZNAS has developed and launched a national zakat information system called SiMBA in 2012. This is a unified zakat information system platform that eases the donation and reporting activities. On the donator’s side, SiMBA co-operates with banks, e commerce, crowdfunding, and other institutions to create a comfortable and secure ambience for giving donation. On the operator’s side, this information system ease the recording and reporting process of zakat collection and disbursement by providing real time – online nation-wide data management.

Thirdly, it is necessary to have a global standard to measure the zakat administrator’s performance. A first step has been taken by IDB, Bank Indonesia, and BAZNAS that come up with Zakat Core Principle document. This document consists of eighteen principles about legal foundations, zakat supervision, zakat governance, intermediary function, risk management, and shariah governance that each zakat institution should pay attention in their zakat operation in order to have a good zakat management and governance. This document also provides a zakat institution performance indicator based on the disbursement holding period and disbursement to collection ratio. This framework will increase transparency and induce zakat administrator to enhance their performance. Furthermore, this guideline can tackle transnational issues such as transferring zakat from a zakat surplus country to other country and clearing misleading stigma that zakat related to terrorism.

If this model can be replicated in other Muslims countries together with efforts in increasing the zakat collection and better zakat management, the successful achievement of SDGs is possible on our sight.

Lastly, regulation support from the government will significantly increase the zakat collection. Current zakat practice in Muslim countries can be categorised in two big groups which are compulsory and voluntary basis. Countries such as Saudi Arabia, Sudan and Libya are those who oblige their citizen to pay zakat to the government. Some other Muslim countries like Indonesia, Bangladesh, and Bahrain manage zakat under voluntary basis. Regardless if compulsory or voluntary, regulation from government is necessary to provide a legal umbrella whereby zakat institutions can operate legally. Effective zakat institutions will help the government to raise fund in combatting poverty and achieving SDGs.

Aligning zakat for SDGs achievements has been started in Indonesia under a cooperation between BAZNAS, UNDP and Financial Service Authority. These organisations signed a mutual agreement to implement several projects on SDGs using zakat fund.15 One of the exemplary programme is to provide clean water facility in Nusa Tenggara. If this model can be replicated in other Muslims countries together with efforts in increasing the zakat collection and better zakat management, the successful achievement of SDGs is possible on our sight.

 

Photo Courtesy: © fatherbroom.com

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About the Authors

Randi Swandaru is an MIS & Reporting Manager at BAZNAS, Indonesia. He is currently pursuing his MSc degree in Islamic Finance and Management at Durham University Business School. His research areas are Zakat, Waqf, and Islamic Moral Economy. He is now the General Secretary of Islamic Economics Society-United Kingdom Representative.

Ebi Junaidi is School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are Waqf, Trust, Venture Capital, Risk Attitude and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative.

 

References

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