EFFECTIVE USE OF ZAKAT FOR POVERTY ALLEVIATION IN PAKISTAN

(Muhammad Arshad Roohani)

INTRODUCTION:

Poverty is the scarcity or total absence of money or material possessions. On the other
hand, destitution or absolute poverty pertains of the deprivation of the basic needs of human such
as food, water, clothing, adequate shelter, sanitation, education, and health care. Relative poverty
is the economic inequality in a society of a community that people live in. Poverty is
unavoidable considering the shortage in production and growing population of people. As the
industries evolved, the production of goods has become more inexpensive and accessible to all.
The modernization of agriculture, especially the discovery of fertilizers provides adequate
opportunity to nourish entire population. However, provision of the fundamental requirements of
human is limited due to government constraints like tax avoidance, corruption, loan conditional
ties, debt, brain drain, and so on. Various efforts are made to increase income in order to
supplement the basic human needs.
One of the major goals is poverty reduction and a lot of international organizations are
doing things to end poverty and hunger such as World Bank and United Nations. According to
the report from World Bank, about 1.29 billion of people are alive below the line of poverty in
2008. Out of them, 173 millions are available to be witnessed in China, 400 million people in
India, and about 47% of poor people in Sub Saharan Africa. The extreme poverty continues to be
a global challenge and a lot of poor people can be found in various parts of the world, even in the
highly developed countries.

PROBLEM STATEMENT:

United Nations (2012), stated that the poverty in Pakistan is quite difficult to quantify. In
2006, the Pakistani government’s methods to gauge the number of poverty were challenged by
the United Nations Development Programme and World Bank. The government of Pakistan
stated that 23.9% of their total population is living below the poverty line, but according to
independent organizations the total number would be between 25.7% and 28.3%. In 2001, the
International Monetary Fund (IMF) assisted the government of Pakistan in preparing the Interim
Poverty Reduction Strategy Paper, which contains suggestions and guidelines in reducing
poverty in Pakistan.
The Human Development Index (2009) ,reached 0.572 in Pakistan, which is quite more
than Bangladesh. The HDI of Pakistan still stands lower than India. According to HDI, about
60.3% of Pakistan’s population is living under $2 per day as compared to countries like India and
Bangladesh, which are living below $1 per day.
Siddiqui (2009) stated that the distribution of wealth in Pakistan is observed to be
uneven. Only 10 percent of country’s population is found to be earning about 27.6%, whereas the
bottom is only earning 4.1%. Indicators regarding human development in Pakistan particularly
with regard to women come under countries having same level of income per capita as accorded
by the report of United Nations Human Development. Furthermore, the rate of infant mortality is
also higher in Pakistan as compared to the countries in South Asia.
In such scenario, vulnerability rests for fundamental weakness of those people who are
deprived economically that falls on or below the poverty line secondary to exogenous random
shocks. Vulnerable households have low expenditure level. A household is considered vulnerable
if they don’t have any other means to supplement their expenses as a result of changes in income.
The vulnerability is definitely higher in households clustered in the poverty line. The coping to
vulnerability primarily depends on the family’s sources of income and so the external impacts
could definitely boost the reliance over the wages in agricultural industry. However, the major
part in Pakistan lacks diversification. That causes the increased levels of dependency on credit.
Economic weakness is the leading issue in Pakistan for poverty. Other factors leading to
increased poverty in Pakistan are political disenfranchisement, social powerlessness, distortion
institutions, ill functioning institutions.
Khan (1993), explored that at the end of 1990s, the Pakistani government encountered
many problems in managing the country. Corruption and political instabilities remain to be a
major conflict, including the long armed conflict with the Taliban, which resulted in decrease of
business confidence, reduced public expenditure, deterioration of economic growth, undermining
the law, and poor delivery of public services.
Pakistan is run by military dictatorship for a significant period of time, which alternates
with limited democracy. The rapid changes in the Pakistani government had led to abrupt
changes in the national policy and decrease in accountability and transparency of the
government. It is the onset of military regimes that resulted to non transparency in the resource
allocation. The poverty has further stricken due to the neglect by the government of the
Baluchistan and Khyber Pakhtunkhwa. In Pakistan, if you are not part of the political elite, then
you will no longer have a chance to be a political leader. The development priorities in Pakistan
are not determined by the potential beneficiaries, but instead it is determined by the political elite
and bureaucracy, which most of the time is not in line with the actual needs of Pakistani people.
As a result, Pakistan experienced macroeconomic imbalances, political instability, and poor
creditworthiness. The current Pakistani government made a promise that it would reform areas
that need to be modified.
The major cities in Pakistan have about 1.2 millions of street children including beggars
and scavengers. One of the biggest problems is ambiguous law and order making conditions
worse as many girls and boys tend to steal, smuggle, and scavenge just for their survival. As a
matter of fact, a number of street children turn to solvents just to starve, fear, and isolate.
Children normally are helpless against astringent dreadful diseases including STDs, HIV/AIDS,
among many others.
OBJECTIVES OF STUDY:

 Alleviation of poverty by implementing efficient and effective Zakat System.

 Encouraging collection and disbursement of money on Governmental level through Zakat
System .
 Educate and facilitate people, more and more about Zakat System that paying of Zakat
should in accordance of Sharia’s Compliance?

RESEARCH QUESTIONS:

 How Zakat is the only solution to Poverty Alleviation?

 What befitted parameters should adopt to encourage Zakat System on Governmental
Level?
 Does education and facilitation to people results paying of Zakat in accordance of
Sharia’s Compliance?

SCOPE:

Our scope of work is to analyze grounds for Zakat to alleviate poverty specially:

 Why Zakat is needed?

 What can be challenges and opportunities for Zakat System in poverty alleviation?
LIMITATIONS OF THE STUDY:

 No or less Zakat collection and disbursement record on Governmental level.

 No or less education and facility to people about Zakat System.

SIGNIFICANCE OF THE PROBLEM:

 Tax System is not effectively, alleviating poverty in developing countries like Pakistan,
Bangladesh, and Malaysia as well as in developed countries like UK, USA and Australia.
 Zakat System has tremendous potential in these countries and could be used as a
powerful weapon to fight against poverty.

JUSTIFICATION:

It recommends that integrating Zakat System with NGOs, NPOs (non-profit organizations), will
enhance the financial stability and will be helpful to achieving their aim of providing financial
services to alleviate poverty.

BASIC ASSUMPTIONS:

 Zakat is the key tool of used in Islamic Finance to reduce poverty.

 Through implementing Zakat System, one can standardize the society financially in poor
Muslim countries.

DEFINITION OF KEY TERMS:

a. Zakat: Zakat is a word, which means “to purify”, and it is the third pillar of Islam.
Muslims have the obligation to donate at least 2.5% of their wealth to people in need.
b. Sharia’s Compliance: Observing Islamic law.
c. Poverty: Poverty is the scarcity or total absence of money or material possessions.
d. Poverty Alleviation:Poverty reduction (or poverty alleviation) is any process which
seeks to reduce the level of poverty in a community, or amongst a group of people or
countries.

POPULATION AND SAMPLING:

1. Categories of businesses that are consisted of distribution segment include suppliers of

cell phone vouchers, stores including grocery stores, apparel vendors on credit report, and
veggie merchants. Around 47 % of these, 110 sample information family members are
categorized in this kind.
 2. Types of companies that feature in the manufacturing sector consist of prepared rice and
food suppliers, fried poultry supplier and steamed noodle sellers. 41% among these
categories are recipients of Zakat. Types of companies that consist the solution section
are computer system leasing, picture copying services and individual car parking
services. 12% of Zakat beneficiaries concern this group.

3. During the calculation of HDI, only 90 families were considered who were selected from
the previously estimated 110 families from the samples distributed. The incompetence of
the questionnaires data collected from these families are the primary data because 20
samples were not considered any further.

RESEARCH TOOLS:

 During Quantitative Research questioner is used as research tool.

 During Qualitative Research correspondence/electronic interviews are arranged as
research tool.

VALIDITY AND RELIABILITY OF RESEARCH TOOLS:

Key indicators of the quality of a measuring research tools are the reliability and validity of the
measures. Validity of research tools develop to reduce the errors and reliability focus to stable.

PROCESS OF DATA COLLECTION:

Research tools used to collect data in Quantitative Research and in Qualitative Research are
questioner and correspondence/electronic interviews respectively.

PLAN OF DATA ANALYSIS:

Data can be analyzed through applying statistical tests such as:

 CO-RELATION
 REGRESSION
REFERENCES:

1. Abdul Rahman, R. & Ahmad, S. (2010). PengukuranKeberkesananAgihan Zakat:

Perspektif.
2. Maqasid, Al-Syariah. The Tawhidi Epistemology: Zakat and Waqf Economy. Seventh
International Conference.
3. Abdul-Rahman, A. R. & Goddard, A. (1998). An interpretive inquiry of accounting
practices in religious organisations. Financial Accountability and Management, 14(3),
183-201.
4. Ahmad, A. (1984). A Macro Model of Distribution in an Islamic Economy. Journal of
Research Islamic Economics, 1(2), 3-18.
5. Ahmed, H. (2004). Roles of Zakah and Awqaf in Poverty Alleviation.Jeddah. Islamic
Development Bank.
6. Ahmed, Habib. (2004). Role of Zakat and Awqaf in Poverty Alleviation. IRTI-IDB,
Jeddah.
7. Ahmed, Habib (2008). Zakah, Macroeconomic Policies, and Poverty Alleviation. Lessons
from Simulations on Bangladesh. Journal of Islamic Economics, Banking and Finance,
Vol.4, No.2
8. Akhtar, M. R. (2000). Poverty Alleviation on a Sustainable Basis in the Islamic
Framework. The Pakistan Development Review, 2(4), 631-647.
9. Anand S. and A. Sen (1992), Human Development Index: Methodology and
Measurement. Human Development Report Office Occasional Paper 12, UNDP, New
York.

10. Aziz, T.M. (2007). The Islamic Theory of Distribution. Retrieved, February 27, 2011
from http://www.aimislam.com/resources/18-economics/227, The Islamic Theory of
Distribution.
11. Bakar, N. B. A., & Rashid, H. M. A. (2010). Motivations of Paying Zakat on Income:
Evidence from Malaysia. International Journal of Economics and Finance, 3(2), 76-84.
12. Beik, Irfan. (2009). The Use of Zakat as Financing Source for Micro and Small Scale
Enterprises and Its Role in Reducing Poverty: A Case Study in Jakarta, Indonesia .
Unpublished PhD Dissertation, IIUM Malaysia.
13. Berma, M. (2003). Towards the National Vision Policy: Review of the New Economic
Policy and New Development Policy among the Bumiputera Communities in Sarawak.
1&2(21), 211-256. Kajian, Malaysia.
14. Billal, Mohd. Ma’sum. (1996). The Modern Social Security System - The Institution Of
‘Zakat’ An Appraisal, Business Law Journal. February 1996.
15. Chapra, M. Umer. (2000). The Future of Economics: An Islamic Perspective. The Islamic
Foundation, Leicester, UK.
16. Dogarawa, A. B. (2009). Poverty Alleviation through Zakah and Waqf Institutions: A
Case for the Muslim Ummah in Ghana. First National Muslim Summit on 3 October
2009, Ghana.
17. Faiz, M. (1991). Prospects of Poverty Eradication through the Existing Zakat System in
Pakistan. The Pakistan Development Review 30, no. 4 (1991).
18. Faridi, F.R. (1983). Theory Fiscal in an Islamic State. Journal of Research Islamic
Economics, 1(1), 15.
19. Fukuda-Parr, S. (2003). The Human Development Paradigm: Operationalizing Sen’s
ideas on capabilities. Feminist Economics, 9(2-3), 301-317.
20. Gambling, T. E. & Karim, R. A. A. (1986). Islamic and Social Accounting. Journal of
Business Finance & Accounting, 13(1), 39-50.
21. Hamid, S. Craig, R. & Clarke, F. (1993). Religion: A confounding cultural element in the
international harmonization of accounting? ABACUS, 29(2), 131-148.
22. Hassan, M. K., & Khan, J. M. (2007). Zakat: External Debt and Poverty Reduction
Strategy in Bangladesh. Journal of Economic Cooperation, 4(28), 1-38.
23. Hassan, N. (1987). Zakat in Malaysia: Present and Future Status. Journal of Islamic
Economics, 1(1), 47-75.
24. Hassan, M. K. (2010). An Integrated Poverty Alleviation Model Combining Zakat,
Awqaf and Micro-Finance. Seventh International Conference, The Tawhidi
Epistemology: Zakat and Waqf Economy, Bangi Selangor, Malaysia.
25. Hassan, M. K. (2010). An Integrated Poverty Alleviation Model Combining Zakat,
Awqaf and Microfinance. Seventh International Conference. The Tawhidi Epistemology:
Zakat and Waqf Economy, Bangi.
26. Haq, Mahbul ul. (1998). Reflections on Human Development. Oxford University Press,
Calcutta India.

27. Hudayati, A. & Tohirin, A. (2010). Management of Zakah: Centralised Vs Decentralised

Approach. Seventh International Conference. The Tawhidi Epistemology: Zakat and
Waqf Economy, Bangi.
28. Indonesia Law of Zakat Management, No. 38/1999.
29. Islahi, A.A. (2005). Zakah: A Bibliography. Scientific Publishing Centre, King Abdul-
Aziz University, Jeddah, Saudi Arabia.
30. Iqbal, Z. (n.d). Economic Rationale for the State Collection of Zakah. International
Journal of Islamic Financial Services, 1(2).
31. Kahf, Monzer (1999). The Performance of the Institution of Zakah in Theory and
Practice. International Conference on Islamic Economics towards the 21st Century,
Kuala Lumpur
32. Kahf, Monzer. (2006). Role of Zakat and Awqaf in Reducing Poverty: a Case for Zakat-
Awqaf-Based Institutional Setting of Micro-finance. Conference on Poverty reduction in
the Muslim Countries on Nov. 24-26, 2006.
33. Kenneth Harttgen and Stephan Klasen,(2010). A Household-Based Human Development
Index. Human Development Research Paper 22, New York: United Nations Development
Programme.
34. Khan, M. Fahim. (1990). Zakat, Moderation and Aggregate Consumption in an Islamic
Economy. Journal of King Abdul Aziz University, Islamic Economics, Vol. 2, pp. 101-
105.
35. Kusuma, D. B. W., & Sukmana, R. (2010). The Power of Zakah in Poverty Alleviation.
Seventh International Conference, The Tawhidi Epistemology: Zakat and Waqf
Economy, Bangi Selangor, Malaysia.
36. Lewis, M. K. (2001). Islam and Accounting. Forum, 25(2), 103-127.
37. Mannan, M. A. (1989). Effects of Zakat Assessment and Collection on the Redistribution
on Income in Contemporary Muslim Countries. Management of Zakat in Modern Muslim
Society, Jeddah, IRTI/IDB, pp. 29-50.
38. Mahamud, L. H. (2011). Alleviation of Rural Poverty in Malaysia: The Role of Zakat: A
Case Study. The University of Edinburgh. Retrieved, April 25, 2012,
fromhttp://www.era.lib.ed.ac.uk/handle/1842/5554.
39. Malaysian Economic Planning Unit (EPU) relevant websites.
40. Md Isa, Y. Z. (2011). The Relationship Between Poverty Elimination and Asnaf
Entrepreneurial Scheme. Unpublished Masters Theses. University of Utara, Malaysia.
41. Md Saad, N. & Abdullah, N. (2011). Is Zakat Capable of Alleviating Poverty? An
Analysis of the Distribution of Zakat Fund in Malaysia. World Zakat Conferenece, 2011.
42. Mirza, M. & Baydoun, N. (1999). Do Islamic societies need their own accounting and
reporting standards? Journal of the Academy of Business Administration, 4(2), 39-45.
43. Mohamed Ibrahim, S. H. (2001). Islamic Accounting: Accounting for the New
Millennium? Asia Pacific Conference, Kelantan, Malaysia. International Islamic
University, Malaysia. Retrieved, September 2, 2007, from http://www.iiu.edu.my/iaw.
44. Mohammed, J. A. (2007). Corporate Social Responsibility in Islam. Unpublished
Doctoral Thesis, Auckland University of Technology. Retrieved, September 14, 2008,
from Dissertations and Thesis Databases.
45. Nasir, N. M. &Zainol, A. (2007). Globalisation of Financial Reporting: An Islamic
Focus. In Godfrey, J. M. & Chalmers, K. (Eds.), Globalisation of Accounting Standards
(pp.261-274). Cheltenham, UK: Edward Elgar.
46. PEBS-FEUI. (2009). Indonesia Zakat & Development Report. CID Publishing, Jakarta.
47. PEBS-FEUI. (2010). Indonesia Zakat & Development Report. CID Publishing, Jakarta.
48. Qardhawi. Y. (1997). Fiqh az-Zakat (24th ed., Beirut : Mu`assasat al-Risalah, 1997), 37-
38; Abdullah Ibn Muhammad ath-Thayyar, az-Zakat wa Tatbiqatuha al-Mu’asirah (2nd
ed, al-Riyad: Maktabat al-Tawbah, 1993), 12.
49. Qaradawi, Y. (1999). Fiqh al zakah (Volume 1): A comparative study of zakah,
regulations and philosophy in the light of Quran and Sunnah. King Abdul Aziz
University, Saudi Arabia.
50. Sadeq, A. H. (1997). Poverty Alleviation: An Islamic Perspective. Humanomics, 13 (3),
110 – 134.
51. Rodolfo de la Torre and and Hector Moreno. (2010). Advances in sub national
measurement of the Human Development Index: The case of Mexico. Human
Development Research Paper 23, New York: United Nations Development Programme.
52. Salleh, I. M. and R. Ngah. (1981). Distribution of Zakat Burden on Padi Producers in
Malaysia. In Some Aspects of the Economics of Zakat, edited by M. R. Zaman. Gary,
Association of Muslim Social Scientists, Indiana.
53. Shirazi, N. S. (2006). Providing for the Resource Shortfall for Poverty Elimination
through the Institution of Zakat in Low-Income Muslim Countries. IIUM Journal of
Economics and Management, Vol.14, No.1.
54. Shirazi, N. S. (1994). An Analysis of Pakistan’s Poverty Problem and Its Alleviation
through Infaq. International Islamic University, Islamabad.
55. Shirazi, N. S. (1996). System of Zakat in Pakistan. International Institute of Islamic
Economics, International Islamic University, Islamabad.
56. Shirazi, N. S, & Amin, M. F. (2006). Providing for the Resource Shortfall for Poverty
Elimination through Potential Zakat Collection in OIC-member Countries. Reappraised,
57. Tabung Bailtulmal Sarawak (Pusat Sumber).
58. Shirazi, N. S. (2006). Providing for the Resource Shortfall for Poverty Elimination
through the Institution of Zakat in Low-Income Muslim Countries. IIUM Journal of
Economics and Management, Vol.14, No.1.
59. Siddiqui, M. A. (2009). Determinants of Poverty in Pakistan: Findings from Survey Data
2005. European Journal of Social Sciences, 1(12), 52-64.
60. Sirageldin, I. (2000). Elimination of Poverty: challenges and Islamic Strategies. Islamic
Economic Study, 1(8), 1-16.
61. Susamto, Akhmad Akbar. (2002). Zakat Sebagai Pengurang Penghasilan Kena Pajak:
Sebuah Tinjauan Makroekonomi. Makalah SIMPONAS I, Sistem Ekonomi Islam P3EI
UII, Yogyakarta.
62. Susanto, Anang A. (2002). Zakat Sebagai Kebijakan Alternatif Antikesenjangan dan Anti
63. United Nations, (2012). Millennium Development Goals..Retrieved, February 15, 2012,
from http://www.un.org/millenniumgoals/poverty.shtml.
64. White, L. S. (2004). The Influence of Religion on the Globalization of Accounting
Standards. Retrieved, September 1, 2007, from
http://cbfa.org/papers/2004conf/White.doc
65. Wolff, E. N. (2009). Poverty and Income Distribution.United Stated. Wiley-Blackwell.
66. World Bank. (2007). Malaysia and the Knowledge Economy: Building a World-Class
Higher Education System. Retrieved, February 29, 2012, from
http://siteresources.worldbank.org/INTMALAYSIA/Resources/Malaysia-Knowledge-
Economy2007.pdf.