The multiplier effect of Zakat

Zakat is a definite amount set by Almighty Allah for those who are poor and in their own right are eligible to it as stated in the holy Quran. Zakat is a form of charity-giving or donation-giving practice which is treated in Islam as a religious responsibility. There are five pillars of Islam which are basically the fundamental activities in Islam, regarded as necessary conditions for the illumination of the soul. They include Shahada (faith), Salah (prayer), Zakat (Charity), Sawm (fasting), and Hajj (pilgrimage to Mecca). Therefore, as per Quranic ordering, Zakat is next after Salah in prominence.

Zakat is regarded as the most important Islamic duty which is obligatory upon every Muslim as per his capacity and ability. It is the experience of sacrifice, and it is imperative on two fronts: Firstly, through Zakat we reminisce the essence and spirit of Islam and its principles coupled with the religious fervor. Secondly, it describes the manner in which must be ready to sacrifice anything for the sake of Allah as his order which we ought to follow no matter what. According to Benda-Beckmann and Franz Von (2007), Zakat in literal terms means ‘that something which purifies’. It is a form of cost which cleanses or purifies worldly goods and services from their experienced and occasionally adulterated source of attainment. Accordingly, Zakat must be distributed in the direction of the community for the greatest happiness of the greatest needed number agreeing to the terms and conditions of Almighty Allah.

Zakat is a function (dependency) of income and wealth of an individual. Higher the income and wealth of an individual, higher the obligation and entitlement to zakat and vice versa. As per Islamic law, a Muslim must have a minimum amount called Nisab in order to be able to give Zakat. Normally, the amount of Zakat is 1/40 of the total savings and wealth of a Muslim which is over and above Nisab. It is given to the poor and needy in the cause of Allah.

In economics in general and macroeconomics in particular, a multiplier is a proportionality factor measuring the change in an endogenous (dependent) variable due to some change in an exogenous (independent) variable. When variable, say X changes by one unit, another variable, say Y changes by M units (Multiplier times). Therefore, M is nothing but a multiplier. According to Jain & Ohri (2010) concept of the multiplier is an important concept of Keynesian theory of income, output, and employment. It relates to the change in income as a result of the change in investment. It is a fundamental economic fact that when we increase the level of investment, there is also an increase in the level of income. But, this does not mean there is an equal amount of change in both variables. Rather, the increase in the level of income is many times greater than the increased investment. The number of times income increases is called multiplier.

It is a fundamental Islamic fact that when we increase the level of Zakat, there is also an increase in the level of income. But, this does not mean there is an equal amount of increase in the level of investment in Zakat and the level of income. Rather, the increase in the level of income is many times greater than the investment in Zakat. The number of times income increases as a result of Zakat is called Zakat multiplier. Zakat is the best investment which generates the level of income many times more than the increased investment (Zakat itself) for not only the one who gives it but also for those who receive it. There is no denying the fact that Zakat has a multiplier effect. Whatever we spend in the path of Allah definitely gets multiplied and comes back to us multiplier times in different ways. Zakat alleviates poverty as it can be used as a tool for the underprivileged, the destitute, the debtors, the slaves, and the disadvantaged travelers. Even though Quran, has talked about eight ways for spending Zakat, there is an overall settlement that the first main concern or use of Zakat money has to be given to the poverty eradication by helping the poor and deprived people.

According to Kurihara, the value of the multiplier is governed by the level of marginal propensity to consume, change in the level of consumption as a result of a change in the level of income. Higher the marginal propensity to consume, higher is the size of the multiplier and vice versa. Therefore, there is a direct relation between marginal propensity to consume and the size of the multiplier. Similarly, the value of Zakat multiplier is governed by the level of marginal propensity to consume. Higher the marginal propensity to consume of the person who is willing and able to pay Zakat, higher is the size of Zakat multiplier and vice versa. Hence, there is a direct relation between marginal propensity to consume of Zakat paymasters and the size of Zakat multiplier. In fact, the marginal propensity to consume of the society by and large determines the size of Zakat multiplier.

Conclusion:

Zakat is a solution to most of the macroeconomic problems of the economy, income, output, and employment in particular. Through Zakat, we can achieve integrity which is social and economic in nature. It is like a circular flow of income and product in an economy because corresponding to each Zakat money flow to one direction, there is a money flow from the opposite direction. It is a mechanism of income and wealth distribution in society. If Zakat is followed in letter and spirit, as intended by Allah and His Messenger (Peace be upon him) there would be no socio-economic crisis. It reduces the gap between have’s (rich) and have not’s (poor) so that poor catch up to the level of rich and parity is maintained.

Binish Qadri is ICSSR Doctoral Fellow, Department of Economics, Central University of Kashmir, Guest Faculty, NIFT, Srinagar. 

qadribinish@gmail.com