Giving Zakat for Consumption or Livelihood: Debating Zakat based Microfinance for Livelihood Support. MUHAMMAD MAROOF SHAH

Giving Zakat for Consumption or Livelihood 

Debating Zakat based Microfinance for Livelihood Support

MUHAMMAD MAROOF SHAH 

The concept of offering zakat based microfinance to eligible beneficiaries is now well established and many institutions across the world have come up doing it successfully with significant impact. Against the domiant view of a group of scholars who consider zakat investment to be a violation of the Sharīʿah; for example, Sheikh Muḥammad ibn Uthaymīn, Wahbah al-Zuhaylī, Sheikh Taqī ʿUthmānī, Muḥammad ʿAṭāʾ al-Sayyid, and Sheikh ʿAbd Allāh ʿAlī ʿAbd Allāh, the counter-view of its permissibility and desirability has been gaining more and more ground amongst economists and scholars of Islamic finance. Majmaʿ al-Fiqh al-Islamī of the Organization of Islamic Cooperation, Bayt al-Tamwīl al-Kuwaytī and the Sharīʿah Committee of Bayt al-Zakat in Kuwait have put forth number of arguments for zakat based microfinance put forth. Besides various scholars have put forth number of arguments for the same end. A full length research project on zakat and microfinance headed by Prof Aznan ibn Hasan and titled Exploring the Potential of Using Zakat Funds to Provide Microfinance to Zakat Recipients: A Shariah Analysis has reviewed various sources and made its own recommendations for the same. I quote below the selection of scholarly opinion from this work on the permissibility of using zakat for microfinance, delaying distribution of zakat if there is a maslaha and investing zakat funds for more returns. 

1)  Al. Suyuti said that a beneficiary has the right to be given his sufficiency from zakat, such as an amount needed to buy equipment, or needed capital, if the person is a businessman.

 2) The Prophet (SAW) auctioned the belongings of a poor man who had come to him asking for financial help. He gave him half the proceeds of the sale for his family’s needs, purchased an axe with the other half, and instructed him to go cut firewood and sell it.

3) The idea that zakat can be used for public interest (maṣlaḥah ʿāmmah) was proposed by Rashīd Riḍā, Maḥmūd Shaltūt,  and Muḥammad ibn ʿAbd al-Ḥakam.  Such contemporary scholars as Sheikh Mustafā al-Zarqāʾ, Yūsuf al-Qardāwī, and Sheikh ʿAbd al-Fattāḥ Abū Ghuddah are of the view that zakat funds can be invested to enhance and increase the zakat money.  This view is further supported by Majmaʿ al-Fiqh al-Islamī of the Organization of Islamic Cooperation, Bayt al-Tamwīl al-Kuwaytī and the Sharīʿah Committee of Bayt al-Zakat in Kuwait.  

4) Granting that establishing projects that will benefit different asnaf (categories of beneficiaries) as a group is a maṣlaḥah and leaders need to manage affairs on the basis of maslaha that inclusion of zakat administrators in the midst of other beneficiaries can be seen as an indication that the zakat authorities have permission to make ijtihād in the distribution. This is supported by the legal maxim that the leader’s management of affairs of the population at large must be based on maṣlaḥah. 

5)  ʿAbd al-ʿAzīz al-Khayyāṭ also contended that it is permissible to use a portion of the zakat fund to establish income-generating projects while the other portion is to be distributed for the immediate needs of the aṣnāf. In arguing for this opinion, he invoked the Ḥanafī School’s view that permits delayed distribution of zakat if justified by maṣlaḥa. Hence, the investment could take place before the time for distribution.

6) Hassan argued that the zakat fund could be used for direct and indirect poverty alleviation programmes. This finding coincides with Mikail and Obaidullah, both of whom established that zakat, waqf and other Islamic charitable funds are perfect components of Islamic microfinance.

7) The Prophet Muḥammad (SAW)  and the Khulafā al-Rāshidīn used to let the byeproducts of zakat assets such as cattle, camels and goats to benefit certain people.  

8) The hadith of the ʿUraynah tribesmen supports this assertion in that the Prophet allowed them to drink the milk of the camels of zakat. The hadith demonstrates that the recipients of zakat (in this case ibn al-sabīl) can get benefit from the asset and also from its usufruct (in this case the camels’ milk). The relation of the hadith to zakat investment is that once it is allowed to invest the asset of the needy (faqīr) that is being used for his basic need, it should also be allowed to invest zakat funds before using them for their needs.

9) The Prophet gave ʿUrwah a dinar to buy a sacrificial animal or a sheep. He bought two sheep, sold one of them for a dinar, and brought him a sheep and dinar. The Prophet invoked a blessing on him in his business dealing. The relation of the hadith with zakat investment is that ʿUrwah conducted a transaction for which he had not been appointed as a deputy (wakīl). This indicates the permissibility of investing the asset of another without his permission. This is because the Prophet not only allowed this transaction but also blessed him for doing so. If it is allowed to invest another’s property without their permission, it is also allowed to invest zakat funds without the permission of the rightful recipient.

10) Abū Mūsā al-Ashʿari handed zakat funds to ʿAbd Allāh and ʿUbayd, the sons of ʿUmar, and told them they could purchase with them merchandise from Iraq and then sell it in Madinah. He suggested, ‘You can retain the profit for yourself and surrender the capital sum to ʿUmar.’ This story is very clear evidence for the investment of zakat funds. Umar Ibn Al-Khattab instructed that, guardians should invest the property of the orphans. This saves it from being consumed through zakat.

11) Analogy (qiyās) of investment of zakat funds with the investment of an orphan’s assets by his guardian. Since scholars have allowed investment of the property of orphans, it should be allowed to invest the zakat funds before paying them to the rightful beneficiaries when the objective of doing so is generation of profits. 

12) Analogy of the investment of zakat asset with waqf property in the sense that both are acts that are done to draw closer to Allah with the hope of a reward from Him. It is well-known that investment of waqf property in order to get benefit from its profits is permitted by scholars. Thus, the same should be so for zakat assets as well. 

13)  Analogy of zakat investment with advance payment of zakat money. Since some scholars have allowed payment of zakat money to the beneficiaries before it is due when it is for the maṣlaḥah of the beneficiaries, it should also be permissible to invest zakat money for the maṣlaḥah of the zakat recipients. 

14) OIC Fiqh Academy, Jeddah, in its resolution no.15 (3/3) of 1986 allowed investment of zakat. The text of this fatwa reads as follows in translation: Regarding investment of zakat funds: ‘It is permissible, in principle, to deploy zakat funds in investment projects whose ownership will eventually be conferred on the eligible zakat recipients or that will be under control of the legal authority responsible for collecting and distributing zakah, on the condition that the important urgent needs of all deserving recipients have already been fulfilled, also that sufficient measures are taken to ensure safety from losses.’

15) The Academy resolved that “the original Sharīʿah rule is that zakat should be distributed immediately. However, it is permissible to delay the distribution due to maṣlaḥah, or for the return of a poor relative, or if the delay is in order to have a reserve for regular distribution to meet the recurrent needs of the poor who are incapacitated.”

16) Aḥmad Azhar argued that the Qurʾān commanded us to distribute zakat to the beneficiaries, but it did not impose on us a specific format by which to deliver the zakat to the beneficiaries, thus allowing scope for the ijtihād of the authority. Verse 60 of Surah al-Tawbah mentions the poor and the needy in plural form and not in singular form, signifying that our obligation is to alleviate the poverty of the poor people in general and not just one person.

17) It is also permissible to establish manufacturing or service projects from zakat money based on Resolution No. 15 (3/3). The above fatwa contains the permissibility of delaying the distribution of zakat due to maṣlaḥah or as a reserve for regular disbursement to the incapacitated poor Muslims. The fatwa also allows giving enough capital to recipients that want to take part in MSMEs or that need farm land to cultivate if they are interested in agriculture. Similarly, the fatwa also entails the permissibility of investing zakat fund in a micro enterprise in the following manner: 1. Either with individual zakat recipient or group of zakat recipients or 2. In projects that will generate income for the aṣnāf while the ownership is under the custody of the zakat authority. This was earlier approved by the OIC Fiqh Academy’s Resolution No. 15 of 1986.

18) There is no Sharīʿah issue if the zakat authority decides not to inform the zakat-based microfinance beneficiaries that the microfinance they receive comes from zakat donations. This is to ensure a greater sense of responsibility on the part of the recipients when using these funds.

19) The Ḥanafī scholar Abū Bakr al-Jaṣṣāṣ and others are of the opinion that it is not mandatory to pay zakat immediately.

20) The zakat money used in microfinance projects can take shape in various Sharīʿah contracts including qarḍ and equity-based and exchange-based contracts.  The zakat authority has the discretion to waive the liability partially or fully if the defaulter is not found guilty of misconduct and transgression with the capital that he was allocated. This is because he may be classified as one of the aṣnāf at the time of his inability to pay back the capital and/or profit.. . The microfinance institution shall put in place all necessary risk management measures and use a portion of its profit to form and maintain a reserve account as a buffer against any unexpected loss.

As number of major modern scholars including Shaykh Abu Zohra and many figures of Maqasid i Shariah have maintained the view that zakat can be extended as microfinance.  

The above cited research on Zakat linked microfinance  has segmented members of the society in relation to zakat-based microfinance into three categories:

Non-zakat recipient. This refers to the rich person. He is not eligible for zakat-based microfinance. ii. Potential zakat recipient. This refers to a poor person with healthy limbs and a potential source of income (e.g., he has potential business proposal or has a skill but needs working capital). He is eligible for zakat-based microfinance. iii. Actual zakat recipient. This refers to two type of persons a. One with healthy limbs but no source of earning. He is eligible for zakat-based microfinance. b. Incapacitated to work for earning, temporarily or permanently. He qualifies for regular zakat disbursements as long as his heath situation does not improve.

We can easily see how most of farmers  or their dependents will fall into recipient category to whom microfinance can be extended.

List of Fatwas on Investment of Zakat

 1) OIC Fiqh Academy, Jeddah, in its resolution no. 15 (3/3) of 1986 allowed investment of zakat

2) OIC Fiqh Academy Resolution No. 165 (18/3) of 2007

3) The Fatwa Council of the Kuwaiti Ministry of Awqaf and Islamic Affairs 

To conclude, we have an option of complementing different poverty alleviation programmes through zakat and for this properly  applications should be sought from zakat eligible needy entreoreneurs  and cases can be sanctioned during or soon after Ramadhan as most people pay zakat in this month. Anyone who has once received from zakat should be handholded to be transformed onto giver and until this happens zakat can’t be said to have achieved desired impact and as such donors can also actively part of screening processes or share recommendations for grant of scholarships.