Islamic Finance, The Future Of Banking

Bandar Seri Begawan - Islamic finance is relevant to the current global financial situation, and is the way of the future.

This was highlighted by Mr Mohd Hairul Azrin Hj Besar from University of Brunei Darussalam during a talk as part of the programme for the 16th AFA Conference 2009, which is currently taking place at the Rizqun International Hotel.

The talk was held to answer the question, Is Islamic finance an Alternative for a globalised economy?'

"I'm talking about Islamic Finance, and how it is relevant to the current financial crisis." he said during an interview. "Islamic finance is here to stay, and people should be prepared.

"I will be talking about how it can contribute in economic governance," he said. "It is the way of the future - it is not a fad nor is it a trend.

"I hope participants will come out of this knowing what Islamic finance is about, and look at it in a different way.

"At its current stage in Brunei, more exposure is needed so that we can educate the masses. We lack human resources, and need more laws and regulations for it.

"This is good exposure for Brunei. Hopefully it will show the world that Brunei can deliver in terms of holding conferences."

Also speaking at the session was Prof Ainun Na'im, Chairman of the Academics Compartment IAI, Indonesia.

He spoke about the Principles of Islamic Finance and Banking, which included "Syari'ah laws and values that comprehensively guide individuals in (ritual and non-ritual) life", and prohibition of "dealings with haram (unlawful) services and commodities such as gambling, liquor, etc."

He also said that in business and economy, "Syari'ah laws explicitly state that Allah allows trade (business) but prohibits riba (Ahallallahul Bai'a wa harramarriba)."

Another principle he spoke of was that "Zakat should be included in managing assets, as the obligation to contribute to social welfare," as well as "Segregation between syari'ah and non-syari'ah funds."

Present as moderator for the talk was Mr Makhtar Abdullah, Acting CEO, Centre of Islamic Banking, Finance and Management (CIBFM), Brunei Darussalam.

Day two of the I6th AFA Conference 2009 will be taking place today, as well as the closing ceremony.-- Courtesy of Borneo Bulletin

Link: http://www.brudirect.com/index.php/2009120912038/Local-News/islamic-finance-the-future-of-banking.html

Zakat fund collection drops

The global financial crisis has also adversely impacted Zakat collection this year. There has been a drop of QR5m in Zakat collection during the seven-month period from April to October this year, the state-run Zakat Fund has reported.

Although, Zakat Fund officials did not specify reasons for the drop, it is understood it could be an outcome of the world economic turmoil. Zakat is mostly paid by eligible Muslims during the holy month of Ramadan. The collection this Ramadan fell by nine percent.

The Zakat Fund collected QR111.4m between April and October as Zakat, which was QR5m less as compared to QR116m which was collected in the corresponding period last year. This was disclosed by Khalifa Al Kubaisi, head of finance and investment of Zakat Fund at the Ministry of Awqaf and Islamic Affairs, at a press conference on Sunday.

Of the QR111.4m, he said about QR94m was collected as Zakat while the remaining QR17.4m was through other kinds of donations. He said Zakat collection during Ramadan last year was to the tune of QR85m, while this Ramadan the figure was QR78m.

Zakat Fund has a database of beneficiaries and supports a large number of needy families as well as individuals.

Link: http://www.thepeninsulaqatar.com/Display_news.asp?section=Local_News&subsection=Qatar+News&month=November2009&file=Local_News2009112435516.xml

The absence of zakat’s impact on Yemen’s economy

Zakat, alms Muslims are required to give to the poor, provide the government with a significant amount of revenue, but the funds are often mishandled despite a 1999 law intended to regulate and streamline the practice, according to academics and officials.

“Unfortunately, local councils, which now are authorized to collect zakat duties do not distribute revenues to the poor and the needy,” said Dr. Mohammed Jubran, professor of economics at Sana'a University. “Most of zakat revenues that local councils collect are spent as rewards and travel expenses for councils’ members.”

Zakat makes up less than .18 percent of Yemen's GDP, according to an online study by Studies and Economic Media Center this year.

“In general, zakat has a big role in any society, but in Yemen, its role is scattered and unclear in terms of its impact on Yemen’s economy,” said Jubran.

Although there is an administration for zakat duties in Yemen which collects the duties and submits revenues to the government, Jubran thinks that the role of zakat in Yemen’s economy is still absent.

“We notice that the amount that the General Administration of Zakat Duties gathers is very little and does not exceed 10 percent of duty amounts that should be collected,” pointed out Jubran.

According to information from the General Administration for Zakat Duties in Sana’a, the government spends more than twice as much providing for poor families than it collects in zakat revenue.

The total 2008 zakat revenue in Yemen was YR 8 billion (USD 40 million) and the Social Welfare Fund alone spends around YR 20 billion (USD 100 million) on poor families in the country.

“Collecting zakat duties is also done by individual efforts from some charitable organizations that distribute it as aid to needy families,” said the professor. “But the distribution is done inaccurately, which leads some families to get aid from more than one organization, whereas other poor and needy families receive nothing.”

Charitable organizations also collect zakat duties in Yemen because the law allows merchants retain 25 percent of the money they are required to pay, in order to personally distribute it to the poor.

Jubran suggested establishing a specialized corporation that is authorized to collect and distribute revenues to avoid duplication in distribution.

The professor said this measure would reduce poverty. According to 2008 UN statistics, 45 percent of the people in Yemen live on less than USD 2 a day. Extra zakat revenues can then be used to he

lp unemployed young people that lack direction.

Additionally, Jubran said that if zakat revenues were distributed efficiently, there would be income redistribution flowing money from rich to poor. Zakat will activate the economy because poor families will spend more money.

“The current authority of zakat duties does not do the task properly as evidenced by the fact that there is no tangible impact of zakat on Yemen’s economy,” said the professor.

“If zakat duties were collected correctly, zakat revenues would have reached around YR 100 billion (USD 500 million)” said Jubran.

A study by the Studies and Economic Media Center about the reality of zakat authorities in Islamic countries also pointed to failings within collection systems.

All Islamic countries have weak collecting systems, including Yemen, it says. The study attributes the weaknesses to bad performance of officials and flimsy legislative structures.

Mohammed Kawkaban, the general manager of the General Administration for Zakat Duties in Sana’a, admitted that challenges deter the improvement of collection performance.

“Performance of any foundation is connected with the level of awareness and efficiency of its employees," he said. "Frankly, the employees of the General Administration for Zakat Duties in Sana’a and its branches are still not qualified.”

“We need to organize specialized training courses for our employees in zakat accountancy, how to deal with zakat payers and training courses for all employees including managers in Islamic law of zakat,” said Kawkaban.

He recommended building a network to facilitate counting the zakat revenue. The total amount collected in Yemen has not been accurately counted for seven years, he added.

He suggested awareness campaigns because many people are ignorant of zakat issues and some of them think that people only one have to pay one duty and the end of Ramadan, and are not aware of other kinds of zakat, such as commercial item zakat and income zakat.

According to Kawkaban, the total revenue from zakat in Sana’a is increasing since in 2008 reached over YR 5 billion (USD 25 million) whereas in the first half of 2009 alone reached over YR four billion (USD 20 million).

Zakat Al-Fitr

Zakat al-fitr is required at the end of Ramadan from every Muslim who has the sufficient food, according to the Yemeni law.

According to Islamic literature, companion to Proph

et Mohammad Ibn Umar said, "The Prophet (PBUH), imposed a payment of one sa'a [2.5 kilograms] of dates or one sa'a of barley or one sa'a of wheat as zakat al- fitr from every Muslim, young and old, male and female, free and slave."

The purpose of zakat al-fitr is to purify Muslims from indecent acts or speech they may have committed while fasting, as well as to help the poor.

According to Islam, it is important that this zakat is paid before the Eid Al-Fitr prayers take place at the end of Ramadan. Some Islamic schools say it must be paid in foodstuff. However, Yemeni law allows people to give money instead of the required amounts of food, as long as the value is equal.

Some religious scholars also say that Zakat Al-Fitr can be given as money equal to quantity of foodstuff. That means if you are the head of a family of seven, you have to give eight sa'as of wheat, or the most served food in the country, or the value of this quantity.

Muslims all over the world are obliged to pay this kind of zakat. In some Arab and Islamic countries, it is the responsibility of the government to collect this zakat and in other countries non-governmental charitable organizations do this job.

In Yemen, it is the government that does this task through the General Administration for Zakat Duties.

Zakat al-fitr revenues increase yearly because, unlike other zakats, every Muslim who is not poor is required to contribute, and the Yemeni population is growing rapidly.

In 2008, zakat al-fitr in Sana’a revenues were about YR 272 million (USD 1.3 million) compared to about YR 187 million (USD 935,000) the year before according to Kawkaban, general manager of the administration.

Zakat on commercial items

Another kind of Zakat required by Islam applies to wealthy Muslim merchants. Traders are obliged to pay charity out of their commercial revenues, and in Sana'a, most zakat revenue is commercial.

Merchants are obliged to pay 2.5 percent of the value of commercial items they own for a full year. For instance, if he or she has commercial items worth YR 600,000 (USD 3,000), and one year of ownership passes and he or she still owns the property, YR 15,000 (USD 75) must be paid.

Zakat of livestock

In Islam, farmers are required to give animals that can be utilized, including camels, cows and sheep.

The animals have to have a minimum value, owned for one year for the farmer to be required to pay. The animals also must be grazing, as apposed to doing work such as plowing, watering, and carrying weights or riding.

Zakat of sheep

Far

mers who own 40 to120 heads of sheep for the entire year, which are grazing, are required to give one sheep as zakat. Farmers that own 121 to 200 have to give two sheep. If they own more, they have to give one more sheep for every hundred that they own.

Zakat of camels

People that have five camels or more are required to and if he or she does have less than that, no charity is imposed.

If a Muslim farmer owns five camels for the entire year, he or she is required to give one sheep for every five camels- up 25 camels. Farmers that own 25 camels must give bint mukhadh (a 1-year-old female camel). And if it was reached 36 camels he or she must give bint laboon (a 2-year-old camel). The required donation continues to increase, with the amount of camel’s owned by the farmer.

Zakat of cows

A farmer that has 30 or more cows and is also required to contribute livestock.

If the Muslim farmer owns 30 to 39 cows, he or she must give one, 1-year-old calf. If he or she owns 40 to 59, the duty is a cow that is two years old.If he or she owns 60 to 69, the duty is two calves.

However, this kind of zakat in Yemen can be paid with money that has the same value as the animals.

Who is entitled to be given the zakat?

Yemeni law says the that zakat revenue must be distributed to the poor, the needy, those employed to administer zakat, recent converts to Islam, to free the captives and slaves, debtors, in the cause of Allah, and to travelers.

Special administration against those who refuse to pay

In the General Administration for Zakat Duties, there is a special administration for those who underpay or refuse to pay zakat duties, according to Kawkaban.

“This administration sends a letter notifying him to pay the duty and gives him one month as an extension,” explained Kawkaban

“If he or she, after this extension, does not pay, the administration again gives him extra month but if he refuses to respond, the administration refers him to prosecution,” added Kawkaban.

“Many cases have been referred to prosecution,” said the manager.

Link: http://yementimes.com/article.shtml?i=1293&p=business&a=1

Zakat-ul-mal (Zakat)

Zakat is the third Pillar of Islam. It is sometimes translated as alms or poor-due, but actually means purification, growth, and blessing.

Zakat purifies the heart from the detested trait of stinginess, and also purifies the wealth by giving out a portion of that wealth. It also causes the wealth to grow through Allah’s blessings. While regular charity is strongly recommended and abundantly rewardedby Allah (SWT), Zakat is a debt we owe Allah (SWT), and must be paid as a part of ourbelief in Him.

Zakat, as a specific amount, was ordained in Madinah during the month of Shawwal of the second year of Hijrah. In order to emphasize its importance, the order to give Zakat is associated with the order to perform prayers over eighty times in the Nobel Qur’an.

In one verse which is repeated many times Allah (SWT) says what can be translated as, “…

And perform prayers and give Zakat…” and Allah (SWT) says to His Messenger (SAW)

what can be translated as, “Of their wealth take alms so that, through it, you may purify

and sanctify them…” [Surah At-Tawbah (9:103)]

The order to give Zakat is established numerous times not only in the Noble Qur’an,

but also in the Hadiths of Prophet Muhammad (SAW). The Prophet (SAW) said: “Islam is

built on five pillars…” [Reported by Imams Bukhari, Muslim] and he mentioned Zakat as

one of them. When the Prophet (SAW) sent Mu’ath to the people of Yemen, he told him:

“… And let them know that Allah has ordained on them alms, to be taken from their rich

(people) and given to their poor…” [Reported by Imams Bukhari, Muslim, and others]

There are several verses and Ahadith that warn about the severe consequences for those

who do not pay Zakat. We read what can be translated as, “… and those who hoard gold

and silver and spend them not in the way of Allah announce unto them a most

grievous penalty. On the Day, when they (gold and silver) will be heated in the fire of

Hell and used to brand their foreheads, their flanks, and their backs. This is what you

have hoarded for yourselves, taste you then what you have hoarded.” [Surah At-

Tawbah (9:34-35)] What is meant by “hoarded” here is every wealth on which Zakat was

due but was not paid.

the Prophet (SAW) says: “For every owner of a hoarded wealth on which he does not

pay Zakat, this wealth will be heated in the fire of Hell and made into sheets with which his

flanks and forehead will be branded until Allah passes judgment among His servants on a

day that measures fifty thousand years (of our reckoning), then his path will be shown,

either to Heaven or to Hell.” [Reported by Imams Bukhari, Muslim and Ahmad]

The companions of the Prophet (SAW) have unanimously agreed, during Abu-Bakr’s

term of Khilafah, to fight those who refused to pay Zakat; and they did in fact fight those

who withheld Zakat.

WHO MUST PAY ZAKAT?

Zakat is obligatory on every Muslim, male or female, who has an amount of money,

called “Nisab”, in excess of his/her basic needs that have stayed in his/her possession for

one whole lunar year.

HOW IS NISAB DETERMINED?

Nisab is either the equivalent of the price of eighty five (85) grams of gold, which,

according to today’s market value, is worth about one thousand dollars ($1000), or the

equivalent of the price of five hundred and ninety five (595) grams of silver, which is worth

about one hundred and forty dollars ($140). A Muslim can choose either one of the two

estimates. Some scholars are of the opinion that it is preferable to consider the Nisab

definition, which would help the needy, the most; i.e. the definition based on the value of

silver. It is important to remember that Zakat is calculated based on the total amount of

wealth owned at the end of the lunar year, not only the Nisab.

WHAT IS MEANT BY BASIC NEEDS?

Basic needs refer to the things one cannot do without. These may include any or all

of the following: food, clothing, housing, and transportation for oneself and one’s

dependents. Dependents include spouse, children who are unable to earn their living and

parents who are in need.

HOW IS ZAKAT YEAR DETERMINED?

Zakat year is one lunar year starting from the time one’s wealth reaches the Nisab. If

the wealth drops below the Nisab any time during the year, one should stop counting days

and start again the day the wealth reaches the Nisab. For example, if you choose the gold

definition of the Nisab (i.e. one thousand dollars- $1000) and you have:

$1000 on Ramadan 1st (Start counting for Zakat year)

$1200 on Shawwal 1st.

$1500 on Zulqa’dah 1st.

$ 900 on Zulhijjah 1st..(Stop counting)

$ 700 on Muharram 1st.

$ 800 on Safar 1st.

$1100 on Rabi’I 1st.(Restart counting and, on Rabi’I 1st of the following year, pay Zakat on

the amount you would have at that time assuming you continued to have at least $1000

throughout the year.)

So, if a person’s wealth consists of gold, silver, cash, stocks, bonds, and merchandise

(1), he/she should add up the values of all these possessions. If the total amount is equal to

or greater than the Nisab, and it has stayed above the Nisab for one whole lunar year, then

Zakat is due on this wealth, at a rate of two and a half percent (2.5%) of the amount owned

at the end of the year. (See examples at the end of this paper).

WHO IS ELIGIBLE TO RECEIVE ZAKAT?

There are eight categories of people eligible to receive Zakat. They have been

specified in the Noble Qur’an what can be translated as, “Alms are for the poor, the

needy, the employees who administer the funds, those whose hearts have been recently

reconciled to the Truth, those in bondage, those in debt, in the cause of Allah, and the

wayfarer, (thus it is) ordained by Allah, and Allah is most knowledgeable, most wise.”

[Surah At-Tawbah (9:60)]

Based on this verse, the ways of spending Zakat funds can be classified as follows:

1- For the poor (Fuqara’) who do not have enough to take care of their basic needs.

2- For the needy (Masakeen) whose basic needs are met but their income does not take

care of other important needs.

3- For those whose sole job is to collect and distribute the Zakat funds.

4- For those who are close to accepting Islam as a religion, and those non-Muslims

whose evil can be avoided if they receive money.

5- For freeing a Muslim person from bondage (whether a slave in the old times, or a

prisoner of war in our times)

6- For those who are indebted and cannot pay their debts.

7- In the cause of Allah (SWT): the scholars have said that what is meant here is that

Zakat can be given to those who volunteer to fight in the cause of Allah (SWT) and do not

receive a fixed salary from the government.

8- For the wayfarer who is stranded in a foreign land and cannot get enough money to go

back to his homeland, even though he might be rich otherwise. He should be given enough

money to allow him to return to his homeland.

It is preferable that Zakat be paid to the poor and the needy among the relatives first.

As we will see shortly, not all relatives qualify to receive Zakat.

WHO IS NOT ELIGIBLE TO RECEIVE ZAKAT?

There are categories of people who are not eligible to receive Zakat. They include:

a) the rich who have enough to support themselves; b) the healthy person who is capable of

working and earning his living, unless he cannot find a job or his job does not provide him

with enough money to support himself and his family. About these two categories, the

Prophet (SAW) said: “Alms are not to be given to the rich or to the well-built.” [An

authentic Hadith reported by Imam Abu Dawood] The term “well-built” conveys the

meaning that he is able to work and support himself.

In addition, Zakat cannot be paid to: c) one’s dependents whom he is responsible for

supporting. These include the wife, the parents, grandparents (up to the eldest living grand

grandparent), children, and grandchildren (down to the last born grand grandchild). Finally,

Zakat cannot be paid to: d) a non-Muslim, unless this person belongs to category No. 4 of

those eligible to receive Zakat (see previous section).

WHAT IF I HAVE A DEBT, SHOULD I EXCLUDE THAT FROM THE AMOUNT

ON WHICH I HAVE TO PAY ZAKAT?

Debts are usually of two types: a) due for payback in the immediate future, and b)

long-term payback arrangement. If the debt is due in the very near future at the time of

paying Zakat, this debt can be excluded from the amount on which Zakat is due. However,

if the debt is being paid back as installments, say every month or every year, then the

amount that has been paid back over the previous lunar year is subtracted from the total

income in the process of calculating Zakat.

CAN TAXES BE CONSIDERED A PART OF ZAKAT, KNOWING THAT THE

GOVERNMENT SUPPORTS THE POOR OUT OF THESE TAXES?

No! For the following reasons:

a. The avenues for spending Zakat funds in Islam have been clearly defined in the

aforementioned verse.

b. Zakat is paid only to Muslims (exception was mentioned earlier).

c. The portion of the tax that is spent on projects for the poor is not precisely known,

since other projects are funded from the same pool of tax money.

IS IT PERMISSIBLE TO TRANSFER ZAKAT MONEY TO AN AREA OTHER

THAN WHERE IT WAS COLLECTED?

In principle, Zakat should be distributed among the people in the area where it was

collected, for this has been mentioned in the Hadith when Mu’ath was sent to Yemen.

However, if there were no people eligible to receive Zakat in the same area where Zakat

was collected or if there were Zakat money left over after distribution, then this money can

be sent to other areas where it is needed.

DO WOMEN HAVE TO PAY ZAKAT ON THEIR JEWELRY?

The scholars have agreed that jewelry made of precious stones or metals other than gold

or silver does not necessitate paying Zakat. As for jewelry that is made of gold or silver, the

scholars have not reached a unified opinion. Some see that Zakat is due on this type of

jewelry; among them are Saeed Ibnul-Musayyeb, Saeed Ibnu-Jubair, Mujahed, and Abu

Hanifah. They have drawn their evidence from the Hadith, which starts with “For every

owner of gold or silver who does not pay their duty (i.e. Zakat), this wealth will be heated in

the fire of Hell and made into sheets…” In another Hadith, a woman came to the Prophet

(SAW) accompanied by her daughter in whose hand there were two bulky bracelets made of

gold. The Prophet (SAW) asked the mother: “Do you pay Zakat on these?” She answered

“No”. The Prophet (SAW) said: “Would you like that Allah exchange them for two

bracelets made of fire (you’d wear on the Day of Judgment)?” [Reported by Imam Abu

Dawood]

On the other hand, there are scholars who say Zakat is not due on this type of

jewelry; they include Ash-Sha’bi, Tawoos, Malik, Ash-Shafe’i, and Ahmad. They have

drawn their evidence from: “Aa’isha, (R.A.) looked after her orphaned nieces who used to

wear jewelry and she did not pay Zakat on the jewelry.” [Reported by Imam Malik]

“Abdullah Ibn Omar (R.A.) used to give his daughters and female servants jewelry made of

gold and he did not pay Zakat on it.” [Reported by Imam Malik]

It should be noted, however, that stored gold and silver, whether in the form of

jewelry or otherwise, are considered savings and thus are included in the calculation of

Zakat.

WHAT IF ZAKAT WAS NOT PAID FOR YEARS, DOES IT HAVE TO BE PAID

NOW?

Zakat is considered a debt we owe Allah (SWT), and it should be paid when it is due

without any delay. If a person is supposed to pay Zakat and he/she neglected to pay it for

years with or without a legitimate reason, then the whole amount of Zakat, which he/she

missed, paying should be paid immediately after calculating it precisely. Moreover, if

he/she had no legitimate reason for being late to pay Zakat, he/she should repent and ask

Allah (SWT) for forgiveness.

CAN ZAKAT BE PAID, PARTIALLY OR FULLY, BEFORE IT IS DUE?

Yes, according to some Fiqh scholars. A situation may a rise where there is a need

to give out some or the entire anticipated Zakat amount before Zakat year is over. In this

case, the amount given out with the intention of being considered Zakat is deducted from

the actual Zakat amount due at the end of Zakat year.

EXAMPLES OF HOW TO CALCULATE ZAKAT:

Example 1: a person who works as an employee:

Annual Salary $35,000

Annual Expenses ($25,000)

Savings……………………………………. $10,000

Value of shares owned in a business…………… $10,000

Dividends during the past lunar year………….. $ 1,000

_________

Total……………………………………… $21,000

House used as a dwelling – Exempt***………….. $ 0

Car used for transportation – Exempt………….. $ 0

Money in a retirement account – Exempt****…….. $ 0

Amount subject to Zakat……………………… $21,000

Amount of Zakat $21,000 X 0.025 = $525

Houses or other properties (like machines or vehicles) are exempt if they are being

used by the owner or rented to someone else, in which case Zakat is due only on the income

from the rent. However, if these properties are kept as savings for the future, or are being

offered for sale (as a business), then Zakat is due on the value of these properties.

Retirement accounts referred to here are those which are provided by employers, and

which are not controlled by the employee or cannot be withdrawn without penalty. Once

this money is withdrawn, however, it is considered income subject to Zakat. For other types

of retirement or insurance arrangements in which the accumulated money is under the

control of the person (i.e. he/she initiated it and can withdraw it easily), the accumulated

money is considered savings and must be included in the calculation of Zakat.

Example 2: a person who owns a business:

(At the start of the business the capital was $75,000, and over the first year this asset

grew through buying and selling, which translated into a larger inventory)

After one lunar year, inventory was valued at…. $100,000

Cash in the register……………………….. $ 1,000

Money saved in the bank…………………….. $ 7,000

Vehicles, furniture, appliances…etc. (used in the operation of the business) -

Exempt…… $ 0

________

Amount subject to Zakat $108,000

Amount of Zakat $108,000 X 0.025 = $2,700

_____________________________________________________________

(1) Note for owners and shareholders of businesses:

In general, there are three types of businesses: trade (buying and selling), manufacturing,

and service.

For businesses that deal in trade, every partner in the business calculates Zakat based on

his/her share of the merchandise on hand at the end of his/her Zakat year (merchandise

might reflect the original capital plus any profit that was made during the year). Since

shareholders are practically partners in the business, every shareholder must pay Zakat on

the value of the shares and the dividends received during the year.

For businesses that deal in manufacturing or service, each partner pay Zakat based on net

profits only; there is no Zakat on machines or tools used in these types of business. For

shareholders in these businesses, Zakat is paid only on the dividends that were received

during the year.

This paper has been designed to give general information about Zakat. If you need more

detailed information, you may consult the appropriate sources.

Source : islam1.org

`Zakat' potential still untapped: Bazis Jakarta

The Jakarta branch of the government-appointed Islamic Charitable Donations Board, Bazis, said there is the potential for Rp 3 trillion (US$300 million) worth of zakat (alms) to be collected in the city, but this goes mostly untapped beacause of a lack of awareness of the importance of paying zakat; one of the five pillars of Islam.

Deputy head of Bazis Jakarta, Ale Abdullah, said Tuesday after a Bazis alms collecting event at the Jakarta Convention Center that some people treat zakat as voluntary.

"Some people think that because they have already given charity to a couple of people, they do not need to pay zakat," Ale said, adding that according to Islamic law, zakat was not voluntary.

"It is a compulsory act. There is the right of the poor to the people's wealth," he said. According to Islamic law, able Muslims are obliged to give alms to the poor annually. The common calculation for zakat is a minimum of 2.5 percent of one's personal wealth.

Some people prefer to be charitable to the homeless, but Ale said that Bazis Jakarta advises against this, as it encourages the poor to beg instead of empowering them.

The City Social Agency held for the first time a raid on people who gave out donations on the streets on Monday. This was the first raid since the passing of a 2007 bylaw on public order, which makes it a crime to give people money on the street. Some 12 people were fined between Rp 20,000 to Rp 70,000.

Ale said that instead of giving money to beggars on the street, making donations through an organization such as Bazis was better. He said Bazis could distribute funds as non-interest loans to finance small businesses. A public accountant audits Bazis annually, Ale said, which ensures the transparency of the organization.

Bazis Jakarta received more than Rp 770 million Tuesday in alms from agencies, officials and staff members of the Jakarta administration. The Jakarta Public Order Agency donated the most, giving Rp 200 million.

Ale said that Bazis has distributed Rp 2 billion from collections made in 2008 to pay for the education of poor students in Jakarta. More than 500 elementary school students received Rp 300,000 each and 498 junior high schools students received Rp 420,000 each. Some 1,425 high school students receive Rp 150,000 per month and 795 undergraduate students receive Rp 200,000 per month.

Some 40 graduate and postgraduate students receive grants to finance their thesis and dissertations. A graduate student receives Rp 2.5 million, while a post graduate student receives Rp 3.5 million.

Link: http://www.thejakartapost.com/news/2009/09/02/zakat039-potential-still-untapped-bazis-jakarta.html

Some FAQs about Zakat and charity

Compiled by Shafee Ahmed Ko,

What is meant by charity in Islam?

Charity, for which the expression used in the Holy Quran is "spending out of what God has given you", means using your energy, talent, resources, money, possessions, or whatever else, to help and do good to those in need. In Islam charity is very often mentioned alongside prayer because just as the latter is man's relation with God, or man's duty towards God, the former (charity) represents his relation with his fellow-beings, and indeed with all the creation of God. Prayer expresses love for God, submission to Him, and a desire to bring out the Divine qualities that lie hidden in every person. Charity is an expression of sympathy and benevolence towards God's creation, putting into actual practice the lessons you learn in prayer.

Please give some examples of what are acts of charity in Islam.

Innumerable examples can be given because doing any kind of good to anyone, even to yourself to make you more capable of benefiting others, by using what God has given you, is an act of charity. Feeding the hungry, helping the poor, taking care of the destitute such as orphans, lending a hand to the disabled, helping an unemployed person to find a job, etc., are the more obvious examples of charity taught by Islam. But it also teaches that there are other, smaller acts of charity which one has the opportunity to do everyday. Helping someone in any way, showing the way to a stranger, speaking a kind word to cheer someone up, giving useful advice or imparting knowledge to someone, removing from the road something that could cause an accident, even simply refraining from hurting anyone, are all acts of charity in Islam.

Charity is usually thought to be giving money or alms to the begging poor, and is said to degrade them and make them feel inferior. This is not so in Islam, then?

Most certainly not. Firstly, charity in Islam is much broader than giving money to the poor, and can be exercised just as well even where there is no poverty, as shown above. Secondly, giving charity, or the doing of any good to someone, must be done as a duty, not to degrade them or to ask for thanks. The Holy Quran tells us:

"A kind word with forgiveness is better than charity followed by injury.. . . O you, who believe, make not your charity worthless by reproach and injury, like him who spends his wealth to be seen by people. . ." (2:263-264)

Thirdly, charity should be given solely out of love for God, out of the desire to do good to His creation, as the Quran says about the righteous:

"They give food, out of love for Him (Allah), to the poor, the orphan, and the slave, saying: We feed you only for Allah's pleasure - we desire from you neither reward nor thanks." (76:8, 9)

How important is charity?

Being charitable is very strongly urged upon the Muslims, so much so that the Holy Prophet Muhammad has said that on every limb of the body, doing a charitable deed is due every day, whether it is with the hands, feet, or tongue. There is no person at all who cannot do a deed of charity to others. According to the Holy Prophet, if someone has nothing to give, he should work and earn, and give out of that; if he still does not have anything to give, he should help someone in distress; and if he is unable, for some reason, to do even that, he should try to do any good he can and refrain from doing any harm to anyone.

Apart from general charity, Islam has made compulsory a sort of tax on one's possessions, known as Zakaat, to be spent on the welfare of the disadvantaged. This is explained further in no. 83.

To whom can a Muslim give in charity?

Just as acts of charity have the broadest possible significance in Islam, similarly the circle of those towards whom charity is to be exercised is the broadest that can be conceived. Starting with the people around us - our relations, friends, and neighbors - it extends to all Muslims, and to followers of other religions. In fact, a Muslim's charity covers even animals. The Holy Quran emphasizes that one should keep a special look-out for those who may be in need but who do not ask for help (2:273).

What kind of things should be given in charity?

In case of those acts of charity when we give something away, the Holy Quran teaches that we should only give good and useful things, not useless and worthless ones, and they should be the kind of things we like to have ourselves (2:267). Moreover, things given in charity must have been earned or acquired lawfully by the person giving them away.

Please explain what is Zakaat?

Just as Islam has prescribed a set form for prayer, to enable us to keep it up regularly, similarly it has given an outward form for charity and made it compulsory, in order to make it a regular duty. That outward form of charity is known as Zakaat, and consists of giving a specified fraction of one's wealth every year into a fund. This fund is administered by the Muslim community or Muslim government, and is used to help the poor, the disabled, the unemployed, and others in need.

Is Zakaat just like a tax?

In the sense of being collected and spent by the Muslim government Zakaat is like a tax. However, the great difference is that paying Zakaat is a religious duty to be done out of obedience to God and sympathy for people. So giving Zakaat is morally beneficial to the payer because it develops the spirit of self-sacrifice in him and curbs feelings of greed. Notice that the word 'tax' means a burden, but zakaat means something which purifies you.

Why is general charity and Zakaat a basic duty in Islam?

Because it brings out the best and highest qualities in a person, which is really the object of existence according to Islam. God has given to each person various capabilities and resources, such as knowledge, money, strength, some talent or skill, etc. Every individual must use whatever he or she has been given to benefit other people as well as the rest of God's creation, and not for selfish ends. If this principle is neglected, then not only is there there no relief for the distress and the suffering of the needy, but man's increased selfishness makes him his fellow-man's deadly enemy; and society as well as mankind become divided into factions and groups all trying to grab things from one another

Thrust for global zakat fund initiatives

BMB Group Ltd is not a particularly familiar name to many of us. Although the Cayman Islands-based company is a prestigious asset management and financial services provider with a global presence, it has not been very visible since its establishment in 2004

BMB Group Ltd is not a particularly familiar name to many of us. Although the Cayman Islands-based company is a prestigious asset management and financial services provider with a global presence, it has not been very visible since its establishment in 2004. The reason is the company serves mainly a very discreet group of clientele, providing an Islamic investment platform to some of the most significant ruling families, sovereign wealth institutions, ultra-high net worth individuals and institutions from the Islamic world. The company could almost be likened to an “exclusive club” for the super elite group. Nevertheless, BMB Group’s presence in Malaysia is increasingly being felt since it forged a partnership with the International Zakat Organisation (IZO) in February 2009 to establish and co-manage a global zakat and charity fund. The IZO is a key charitable body of the Organisation of the Islamic Conference (OIC), which will oversee the management of the fund by BMB Group. As part of the initiative, BMB Group will be setting up an Islamic asset management company in Malaysia, and that will be launched in August. Dr Humayon Dar, the chief executive officer of one of the group’s subsidiaries, BMB Islamic, told StarBizWeek in a recent interview that the launching date is to coincide with Ramadhan to add more meaning to the global zakat and charity fund initiative. This is because Ramadhan, which marks the fasting month for Muslims, is when believers normally pay their tithes. The medium-term target size for the global zakat and charity fund is US$3bil. But for the first closing, which is expected to be 12 months after the launch of the fund, BMB aims to raise up to US$750mil for the fund. According to Dar, the funds will be collected from Muslim sources in different parts of the world, including Malaysia, both on the government and private sector levels. And the group will manage the fund on behalf of the targeted beneficiaries. The fund will invest in four sectors within the 57 country members of the OIC. Of these sectors, three concern investment activities and one is for contributions towards emergency and relief. Dar reveals that the fund’s investment activities will focus on global equities that are syariah-compliant, income-generating activities for the beneficiaries of the zakat money in the form of microfinance and private equities, as well as the development of social enterprises relating to health, education and housing. But the basic objective of the fund is still capital preservation. “When you attempt to preserve capital, you cannot be aiming for very high returns,” Dar says, nevertheless, expressing confidence that the group could generate commendable returns from its investment activities. BMB Group is eyeing for a rate of return of between 15% and 20%. The returns on its investment, Dar explains, will be channelled towards the fund’s fourth function, that is, emergency and relief. On how the company quantifies the social benefits of the global zakat and charity fund initiative, Dar says the company is aiming for a social return rate in the range of 50% to 75% back to the community. BMB Group has embarked on an acquisition trail since the end of 2008 when it bought US private equity firm EMP Group, which is focused on investing in emerging markets. According to Dar, BMB Group is considering several other options and it is open to acquiring other quality assets that are available at the right prices. “Being cash rich enables us to do that,” he says, adding that the company is also planning to set up a private equity platform for the region. http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=3347&Cat=0