Re-establishing The Institution of Zakat.

Due to a variety of eroding factors, the institution of zakat, which once provided an c economic safety net to society, has lost its meaning. Today, it has an ad hoc and irregular function reduced to almost a ritual practiced individually by a small minority of Muslims. Many who pay zakat, unfortunately, do not even know how to accurately calculate it, let alone its potential economic impact on society.

To re-establish the institution of zakat, it is essential that we first understand the importance of zakat in terms of its economic impact upon society. Also, in order to properly apply its rules and regulations to many forms of wealth, we must recognise that there are new categories of wealth (such as intellectual property and other intangible assets) which did not exist in early Muslim society, and for which we need to use appropriate evaluation methods (book value, replacement values, market value, present value of future earnings, etc.) in computing zakat.

Can the institution of zakat achieve its objectives of establishing economic justice and general well being of all members of society through equitable distribution of wealth in today’s economic environment? Since there is no contemporary empirical data, this question can be answered only through simulation or extrapolation of the cumulative economic impact of a redistribution of wealth. To test if it is as valid as it was fourteen centuries ago, let’s go through a simple accounting exercise. It is a known fact that the collective wealth of 1% population of the Middle East lying in the Western Banks is conservatively estimated to be in the region of over 800 Billion dollars, and earns $80 Billion annually in net profits (10% rate of return of equity) a 2.5% Zakat on this wealth would produce an annual Zakat of approximately 20 Billion dollars. Mind well this is only 1% population of the Middle East. If some one estimates the total wealth of the 1.25 Billion Muslims and measures the Zakat we can well imagine what an economic impact it can have on the lives of the Muslims alone.

If we were to distribute this money among various categories of recipients of zakat as prescribed in the Quran over, say, every year for the next ten years, the cumulative result of this annual redistribution of wealth will substantially reduce unemployment, expand investment base, eliminate poverty and extreme disparity of wealth between rich and poor by the end of the tenth year. This projection is however based on the premise that this goal is achievable in a reasonable length of time provided the system of collection and distribution of zakat is credible, cost-effective, loophole-free and supported by strong accountability mechanisms to assure its integrity.