Zakat for Sustainable Development
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Poverty alleviation and wealth inequality are two of the biggest challenges faced by many countries around the world, including Indonesia.
The World Bank reports that no less than 700 million people in the world live in absolute poverty with earnings of only US$1.9 per day, and three billion people face financial vulnerability at US$2.5 per day.
This is the same case with wealth inequality. In 2013, Oxfam International reported that the top 1 percent of the world’s richest people controlled 48 percent of the world’s wealth. In its 2016 report, the wealth gap condition was worsening, with the 85 richest individuals in the world possessing the same amount of wealth as the poorest 3.5 billion people.
Poverty alleviation
Indonesia is also not free from these issues. The number of people living in absolute poverty may be decreasing continuously, but as of September 2016, 27 million Indonesians– or 10.7 percent of the national population – still live in absolute poverty.
The gap between the rich and poor in Indonesia is relatively wide. Indonesia’s gap in consumer expenditure is among the highest globally, with a Gini ratio of 0.394 in September 2016. A similar inequality exists between men and women, between urban and rural areas, and between different social groups. These high rates of inequality result in the diminished depth of human development in Indonesia.
Efforts to provide a solution to these issues were made through the 17 Sustainable Development Goals (SDGs) of the Sustainable Development Agenda. The SDGs are a universal call initiated by the United Nations “to end poverty, protect the planet and ensure prosperity for all”. Countries across the globe signed the Sustainable Development Agenda on September 25, 2015, which came into force on January 1, 2016. The SDGs have clear targets and guidelines on how to achieve them within 15 years, including ending all forms of poverty and reducing social inequalities within a nation and internationally.
Achieving the SDGs will be one of mankind’s greatest achievements in the near future. The SDGs are global goals achieved nationally, in which all countries in the world have agreed to participate. There is a huge momentum and energy that surrounds the SDGs, with a strong sense of ownership and will towards partnership and cooperation between government agencies, the private sector and civil society. It is at this point that the role of religion as one of the global forces of change becomes significant. The involvement of religious organizations is essential in advancing the SDGs and their mission of humanity, peace, development and tolerance.
It is estimated that 22 percent of the world’s population are Muslims, with the Islamic financial and social security systems valued at $2 trillion (Rp 26 quadrillion). Islamic financial and social security systems have developed rapidly in the last decade, with a growth of between 10 percent and 12 percent per year. Experts estimate that total assets will reach $3 trillion (Rp 13 quadrillion) in 2020. The total amount of zakat (obligatory, annual charitable giving) alone may reach between $200 billion (Rp 2.6 quadrillion) and $1 trillion (Rp 13 quadrillion) per year.
Zakat is a religious obligation for sharing wealth and is one of the Five Pillars in Islam. It is the duty of all Muslims to give at least 2.5 percent of their accumulated wealth or earnings for the benefit of the poor and other beneficiaries called mustahiq. Zakat aims to provide services and benefits to improve the welfare of mustahiq.
Zakat has an important role in eradicating poverty and hunger, which more commonly occur in African and Asian countries with large Muslim populations. In these countries, organizations have been established to collect and distribute zakat. Six Muslim-majority countries have a system in place under which the payment of zakat is mandatory for all Muslims. In nine other countries, zakat donations through formal organizations are done voluntarily, whereas 25 countries have no state zakat agency.
Indonesia has the fourth largest population in the world; it is also the largest Muslim-majority nation in the world. Most of its citizens pay zakat regularly, even though it is not a financial obligation.
Muslims are paying zakat through the zakat booths at Jakarta’s Istiqlal Mosque on Friday (1/7/2016). Other than zakat fitrah (paid in the fasting month of Ramadhan), the booths also accept zakat mal (mandatory alms taken from earnings), as well as other religious donations such as infak, shadaqah and fidyah. The collected zakat will be distributed to those in need.
Data from the National Zakat Agency (Baznas) shows that the amount of zakat collected formally in Indonesia reaches around Rp 3.65 trillion (about $281,000) annually. Even with a continuous increase of over 20 percent per year, this figure is still relatively low, as the potential zakat collection reaches Rp 421 trillion ($32 million) per year, equal to 3.4 percent of the nation’s gross domestic product. In other words, the actual amount of formal zakat collected in Indonesia is less than 1 percent of its potential amount.
Meanwhile, the amount of zakat collected informally – that is, given to agencies other than Baznas, other formal institutions and outside the banking system – is surely much larger. This is because most Indonesians habitually distribute zakat, infaq (charity) and other alms either directly or through informal institutions. The amount of informally collected zakat cannot be determined, considering that many informal zakat collection agencies do not have reliable record-keeping and evaluation systems.
Around half of the formal zakat is collected through Baznas, while the other half is collected through other zakat management bodies (Lembaga Amil Zakat, or LAZ). Some 61 percent of the collected funds is channeled to a variety of programs, two-thirds of which target poverty alleviation.
Other than poverty alleviation, both Baznas and LAZ have programs in five key areas: the social sector, education, economy, health and religious outreach. Baznas, for instance, has zakat programs for community development, humanitarian aid and support for schools and hospitals.
Recently, to reinforce its commitment, Baznas and UNDP signed a memorandum of understanding (MoU) to develop SDGs in Indonesia. UNDP is backed by its scope, experience and technical capabilities in managing development programs. UNDP also has operational transparency and the skill to monitor and evaluate programs, which is important for institutional accountability.
Inclusive alms
A concrete result of this cooperation is the establishment of a zakat platform to strengthen zakat’s role in achieving the SDGs in Indonesia. Baznas and UNDP are currently preparing several programs to achieve SDGs in several provinces across Indonesia, with plans to involve the central government, regional administrations and local banks.
At the same time, Baznas has also signed an MoU with the Financial Services Authority (OJK) to cooperate in increasing zakat collection through an inclusive zakat program. The OJK and UNDP had earlier signed an MoU on developing inclusive financing in Indonesia. Inclusive zakat programs are based on the national strategy to develop inclusive financing and aims to intensively increase formal zakat collection through banks and other financial institutions.
Inclusive financing and zakat programs are vital to poverty alleviation, considering that only about 36 percent of Indonesian adults use formal financial services, far behind Singapore (98 percent), Malaysia (81 percent), and Thailand (78 percent). Those adults who are not using formal financial services are targeted in the inclusive financing and zakat programs, through the creation of a system that is quicker, more appropriate and equipped with a range of formal transaction facilities.
The inclusive zakat program will utilize branchless banking services to improve the efficiency of zakat collection and distribution. The program will also prepare a digital platform for paying and distributing zakat to increase the amount of zakat collected through formal channels.
The zakat for SDGs and inclusive zakat programs are the first of their kind in the world and was established amid the momentum of the current Ramadhan fasting month. The platform and cooperation to advance SDGs through zakat pioneered by Indonesia can be an exemplary model for many other countries in the world.
ZAINULBAHAR NOOR
Deputy Chairman, National Zakat Agency (Baznas)
