Zakat Banks and Micro-finance: Role of NGOs and Local Bayut ul Amwaal

What if we spent zakat this year through an institution that moves away from conventional consumptive zakat to productive zakat (using zakat to finance different wealth generating units) and does it in a way that ensures that

·  donors can track where it has been spent


·  it has been professionally spent

·  recipients are able to sustain themselves in stipulated period and become zakat givers in due course

·  zakat given is multiplied by productive units and with this new wealth newer beneficiaries can be helped. As such one year’s zakat suffices for multiple productive units and chain of beneficiaries from year to year.

·  Shares evidence of giving back capital (zakat) in two instalments in two years /voluntarily giving some gift with the original zakat giver so that he/she rests assured and gets satisfaction that the money has been able to create/sustain jobs and alleviate poverty and make new donors regularly.

Please note as Muslims we are enjoined to consider spending zakat institutionally, professionally and for pulling people out of poverty net. We can’t sleep with easy conscience by one time transfer of money for consumptive mode or allowing professional beggars siphon off our zakat.

Zakat for microfinance has been in vogue in many countries and much good has been done through it. It is evidence of failure on our part and on the part of those whom we give zakat that we aren’t able to track how and where it’s spent, and how many became muzakkis in turn.

Zakat can be used to waive off loans of those who can’t clear loans on their own due to interest. Zakat banks should be in every bait al-mal at local level to create/sustain jobs, liberate people from burden of bad loans (zakat bank could pay in one go and in turn take from the loanee in easy instalments without interest), make society beggar free (the sight of a beggar is a shame on whole society that fails to cater to genuine need or arrest professional beggars).

One year’s zakat/ushr/sadaqa of one family, on an average, is enough to sustain another family for years if invested in the name of beneficiaries. From an average agricultural/business/salaried class family either ushr or zakat if duly collected, one job can be sustained and there would be no beggar around or people suffering depression on account of debt or failure to find job.

Millions can be collected for zakat/ushr bank from every village to liberate the poor and the needy from loans and none would suffer the shame of visiting offices of NGOs/trusts for paltry sums.

Giving monthly ration/stipend to some beneficiaries for consumption is the model we mostly encounter and it encourages parasitism by beneficiaries. Why not tie up disabled/old people who can’t work to someone who can and give zakat in microfinance mode to the later and create an arrangement that he/she in turn supports the former?  What are Aghas doing with their collected khums if some Shiite families are not able to get proper food or education or support for productive units? We hope they too will consider supporting productive zakat recipients.

The tragedy is that zakat givers don’t wish to take trouble to get channelized their zakat for productive purposes, to help create such institutions, to advise trusts they give to for employing professional teams for community empowerment. If you find public spaces full of beggars or long queues of people virtually begging in offices of NGOs for paltry sums it means we don’t give zakat/ushr or it is not professionally spent. Either way we can’ be absolved of guilt.

Let zakat banks be created with every local committee/bait al-mal and we don’t need to fund trusts we don’t know/advise/audit/help manage professionally or that don’t listen to advice for productive zakat. Please strengthen local bait al-mals/local zakat banks and ask anyone who has a need to go there and see to it how your money is spent.

More than ten families and ten jobs can be sustained or small loans cleared through zakat bank in every village/colony and this is all we need. If we can build a mosque costing millions in each Mohalla, why not along with it restructure associated bait al-mal as a zakat/ushr bank that first calculates dues to each family from zakat/zakat of land, sadaqat (and accepts voluntary charities as well) collects the same, invests at least part of funds in productive zakat units, and creates pension for disabled/old, scholarships for the local students, clears debt, builds common facilities, liaises with experts of Islamic finance for evolving shariah compliant models.

As Ramadhan is closing most of zakat is paid, ensure whom you gave and ask if you can track your given money and how much of it used for productive zakat. Some of our welfare institutions are doing wonderful work and they need our support and advice for getting professionalization for zakat linked microfinance.

We can also consider giving zakat in kind and not in cash to help run newer productive units. Suppose instead of Rs 25k zakat we transfer to some institution we do give two female sheep/ tie up with concerned agencies to convert cash into ewes and then give them to poor or needy farmer who can rear them, we will have helped to boost a new unit (one small productive unit can be financed by just 50 k) that will run for generations and the wealth created would boost local economy and create avenues for regular support of old/disabled people who can’t work.

Thousands of such units could come up in a year from single year’s zakat and that is one time investment only needed. Organizations/bait al-mals would get ample resources from this investment for future years. Similarly small value addition services/crafts could be funded, brands developed, waste generated on Qurbani utilized and local issues resolved from this fund. Drug addiction is linked to unemployment and this too could be addressed.

If we could provide local credit to anyone who wishes to work in N number of sectors including livestock byproduct processing (wool, pelt, offals), feed industry, agriculture, floriculture, apiculture, horticulture, sericulture, mushroom culture, fish culture, poultry farming, rabbit farming etc. besides living and dying crafts and knowledge economy  there would be almost no unemployment.

Initially community funds including zakat on all produce/savings would be enough to kick start all such projects. Since government gives part of subsidy for most ventures, another part could be financed by community funds and we can achieve ambitious targets of HADP and even overshoot them.

Let every local bait al-mal finance every year one high tech poly-house, one sheep/dairy/poultry unit, ten bee/mushroom units, 1000 walnut/hazelnut trees, 50 kg of seeds and 500 kg of fertilizers, 500 seedlings of quality vegetables and similar things and we can change the face of economy.

We can continue to fund professional maktabs/madrasas and give better avenues to madrasa work force. Every local government school we can strengthen by providing a computer/library from such funds in due course and make such schools number one choice again for the poor.

Let our NGOs learn from some great models such as Red Cross, Akhuwaat Foundation and Saylani Welfare International Trust; how money is collected and professionally distributed to finance anyone who needs qard i hasan (interest free benevolent loan) or scholarship or medicine or help in any exigency.

Why can’t we create Apps for collecting Rs 5 daily (or Rs 150 monthly) from each family for life (doing small sadaqa daily repels accidental death/ balayi) and we would mobilize enough funds  after investing them for helping anyone who approaches for help (and isn’t hounded by verification upon verification or given paltry sum only if at all the case is sanctioned. Local trusts take week or more for verification, sometimes months and emergencies as such mostly fail to be addressed).         

It is strange that most of NGOs are short of ideas and create mostly sewing centres where poor women are trained to sew the rich people’s needless clothes – this is no wealth generation ( I wonder why government doesn’t tax women’s clothes as one woman has often enough for a whole local community. Read Singer’s great paper “Famine, Affluence and Morality” on why buying a new car or clothes is immoral if old ones could be used without any significant problem).

They need to see beyond service sector productive sector and fund it. It is also sad o note that another much hyped marriage programme of some NGOs is also, mostly, mismanaged. We could have learnt from our forefathers who would give a heifer to bride that would give her milk for life.

We could facilitate every person asking for marriage assistance to apply one year before, organize collective marriages – in one central Asian country the government arranges them and much resources are saved – fund sheep farms for giving free supply of meat needed, ask for one day free service from every professional to make marriage or house building virtually free for so many.

There are shopkeepers who do give zakat and if they are properly connected to such endeavours, all needs for a marriage would be met free from zakat – Lal Chowk alone could fund clothes, shoes, jewellery and other items for hundreds of marriages with no burden on any trust.

Eidi of Rs 100 collected from each family on two Eids would suffice for funding thousands of scholarships. Counselling centres need to be created with every mosque/maktab for guiding youth to create cooperatives, register their own companies, read good books, tackle drug addiction etc). ask if such centres don’t come up where has your zakat gone. 

If we all wrote our wills, especially all who retire or are ill, we could create waqf of billions, for community use and in our names/or through our resources hundreds of charities, scholarships, academic Chairs, entrepreneurship cells, counselling centres, libraries, training centres and common facilitation centres could be created in due course of time.

In any case our property would go to heirs and even our pending zakat mayn’t be paid and we shall be answerable there and condemned here by obliteration of our names. Do consider to write a will today – don’t wait as we don’t know when death may come – in the name of any institution you trust.

If we have failed to give zakat properly ever year, through this will all pending zakat that heirs aren’t generally worried to deduct from inherited property, will be paid as well. Another great advantage is all parents who fear mistreatment from children in old age can secure their better treatment by threatening to give 1/3rd of property away through will.

Children would at least safeguard property and take care of old parents. I suggest parents prepare a one page document on which they write they are going to give …..percentage of 1/3rd of their property to …… institution and if they fear mistreatment they can increase this percentage as a safeguard.

In any case 1/9th of property must be donated for a community cause by all irrespective of care from children. Once Muslims were very particular about it. Much of property in such sacred cities as Mecca is from waqf.

All of us who die uncared or unsung could ensure better name here and hereafter through creating waqf. Recently scholarships were created from the will of Prof. Nusrat Andrabi  who served there.

All professors, all wholesalers, all gazetted employees, all those who have more than a kanal of land in posh areas or have big gardens or large agricultural land area or who have no children or well adjusted children could create waqf worth billions of dollars in this year alone and there would be none suffering from any want in the Muslim world.

NGOs should run campaigns for this and they would not be forced to virtually beg people for funds/ automatic debit of accounts. Waqf could help all irrespective of creed. Any acquaintance who is too sick or whose future life you want to secure, advise him for writing the will immediately. Good children would help parents draft the bill and not take it as loss of property; it is the real gain if we truly believe or are good citizens who care for community.

Post Script: For implementing a workable model of zakat linked microfinance kindly download and read a paper “Zakat as an Islamic Microfinancing Mechanism to Productive Zakat Recipients” by Ibrahim and Ghazali in Asian Economic and Financial Review. And calculate how much difference your zakat/sadaqa could make. All forty neighbours would be catered if we took pains to see where and how spent. Please calculate how much zakat you owe or have failed to pay till date.

DISCLAIMER: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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