Zakat as an Economy
by Mufti Faraz Adam
Zakat as a System
Every guidance in Islam is full of benefits. The primary benefit of the revealed guidance is to connect us with Allah. The guidance is to show mankind the straight and direct path to be Godly, to be aware of the greater purpose of life and adopt a lifestyle which is pleasing to Allah. But the beauty of this guidance is multi-dimensional; and of course, that would be the case as Allah is All-Wise, His teachings and guidance are full of wisdom.
It follows that Zakat, the focus of this article, has multi-dimensional benefits. Zakat is a means to recognise Allah, and that recognition is facilitated at a micro and macro level. At a micro level, the Zakat payer is worshipping and committing to Islam through his/her Zakat payment, whilst the Zakat beneficiary realises that Allah has not forgotten them, and that a provision has been stipulated for anyone struggling so that they may find their path to Allah with ease. At a macro level, the system of Zakat functions as a powerful economic stimulus and a means of resource allocation. Zakat injects liquidity into the economy and gives it a jolt. It is a kick-starter which provides opportunities to hundreds and thousands annually.
Zakat in economic terms
To appreciate the potential that Zakat provides to the global economy, we have to look at it through numbers. A study by the World Bank and the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB) estimated global Zakat funds reached US$550 billion to $600 billion per year. Meanwhile, the official Zakat institutions only managed US$10 billion to $15 billion per year. There have been some suggestions stating that the potential size of the annual Zakat pool is close to US$1 trillion.
All things being equal, the size of the Zakat economy can potentially be equivalent to the nominal GDP of Turkey or Saudi Arabia. Turkey and Saudi Arabia have a nominal GDP of circa US$800 bn. GDP is perhaps the most closely-watched and important economic indicator for both economists and investors alike because it is a representation of the total dollar value of all goods and services produced by an economy over a specific time period. As a measurement, it is often described as being a calculation of the total size of an economy. Thus, in simple terms, if all Zakat was paid, you could annually equate the Zakat economy at present to one year’s worth of all goods and services produced in Turkey. Turkey is the 36th largest country in the world, size equal to over 300,000 square miles, with a population in the region of 84 million people.
If we were to move away from the numbers and describe what this means, quite simply, Zakat is roughly equivalent to the 17th largest economy in the world. Zakat has tremendous economic impact and power. It is an engine for change. Zakat has the power to transform the lives of millions of people struggling and make them self-sufficient. It can change large populations from consumers to producers.
And that is just the present state of Zakat. Zakat is fluid and the total Zakat revenue can increase based on more wealth and more Muslims. As the Muslim population grows globally, we can only expect the annual Zakat throughput to increase. There is only expansion on the horizon of Zakat.