Empowering Communities through Zakat: The Dompet Dhuafa Experiment

An alternative approach to poverty alleviation that is of more recent origin than the mainstream microfinance models is the community-driven-development (CDD) approach. CDD is a grant-based intervention. It approaches the poor as partners in the development process, rather than mere recipients, and builds on their institutions & resources. Its key elements include: (i) focus on communities and/or community groups; (ii) inclusive and participatory decision-making process; (iii) direct transfer of resources to the community; (iv) community involvement in sub-project implementation; and, (v) community involvement in monitoring and oversight. The key phases in a CDD initiative are as follows:

Selection of the communities defined as poor

• Establishment of a Community Based Organization (CBO) by the poor that decides to become a formal organization
• Identification by CBO of priority projects that would reduce poverty, improved livelihood opportunities for all;
• Assistance provided to the CBO on activity design & management by the donor and/or the government through facilitators who directly engage with the community;
• Approval of the activity by a Fund of some sort (donor, government, philanthropic) and a direct cash transfer to the CBO; and,
• Contracting by CBO with local service providers and monitoring the

While the CDD has been quite effective as an intervention, its fundamental weakness has been the absence of a sustained grant-funding mechanism. Even in the most effective of CDD programs, participating poor communities may expect to receive between one-to-three grants in support of community identified activities over the course of a CDD program life cycle.  Yet, the full development of the community will require many more than these few grants.  What is needed is an ongoing grant funding mechanism to the communities in order to sustain the local initiatives leading to improved services, expanded income opportunities and a reduction in poverty levels. In this blog, I present a model of poverty alleviation through economic empowerment that may be seen as a variant of the CDD experiment and yet addresses the sustainability issue. Its experience demonstrates that zakat may serve as a sustainable source of funding and may be effectively used for community-driven development.

Dompet Dhuafa Republika (DDR) is a philanthropic institution based in Indonesia that serves to help the poor using donated assets including zakah, sadaqa and waqf from individuals, groups, companies or institutions. It redistributes the funds received to support the many socio-community activities, including activities aimed at alleviating poverty, and activities that promote education, health and research.

Information collected from DDR indicate that zakah collection have generally seen an upward trend. During January-July 2013, total zakah collected touched 52.9 billion. The funds dedicated to economic empowerment programs average about 6.3 billion per year that hovers around 10 percent of total zakah resources available. The low dedication is attributable to apparent Shariah objections by some scholars who emphasize on utilization of zakah for consumption alone in the short-term. In the face of a growing realization however that an emphasis on short-term may lead to a dependency syndrome among the poor, and that the long term need of the poor is economic and social self-reliance, DDR seeks to enhance the utilization of zakah for community empowerment programs.

Among the major economic programs of DDR are: the masyarakat mandiri (self-reliant communities),  pertanian sehat (health farming), kampoeng ternak nusantara (livestock development), Islamic microfinance (for-profit) in addition to capacity building iniatives under Indonesia Magnificence Zakah (IMZ). The first three programs follow a similar model of economic empowerment that involves interest-free loan financing to groups from a pool created out of zakah funds. The key distinguishing factor of this model is the phased building of self-reliant communities and the creation of a community organization that would continue to provide financing to the members. Below we focus on the masyarakat mandiri (MM) program.

Table. Five-year Details on Economic Empowerment Programs by DDR

* Participants

The MM program of Dompet Dhuafa Republika is focused on income generating and community based organization development. The objectives of the MM program are:

• To achieve material independence of target community by realizing its productive ability to meet basic needs and to establish survival mechanism during crises;
• To achieve intellectual independence of target community by fostering independent way of thinking and behavior and ability to make critical judgment.
• To achieve managerial independence of community-based organization by ensuring the community’s capability to take collective action in creating a sustainable local institution that is able to establish equal partnership between multi-stakeholders.

Who are the beneficiaries?

 Shariah clearly defines the nature of beneficiaries of zakah. In order to ensure full Shariah compliance as also to ensure efficiency and effectiveness of the intervention, the MM program employs the clearly defined criteria for identifying its target region and beneficiaries.

An urban region targeted for the program (i) is usually a densely populated slum area (ii) with potential to be developed into a center of production and (iii) with ease of access to transport and marketing facilities and networks.

A rural region targeted for the program (i) should have comparative advantages in specific commodities or produce (ii) should have natural resources with access to the same by the poor (iii) should have available human resources both in terms of quality and quantity and (iv) should not be witnessing conflicts or have a high potential for conflict.

MM identifies its target group of individuals based on criteria not just related to their income and ownership, but based on their potential for forming partnerships, and their quality as human resource.

In terms of income and ownership, those with income of less than 2 dollar a day for rural areas and less than 3 dollar a day for suburban and urban areas are eligible beneficiaries. Additional criteria used are conditions of residence and ownership of assets. A key requirement is the agreement from the local community based on their evaluation of the individual or family.

The evaluation of potential beneficiaries is also undertaken in terms of their potential to form meaningful economic partnerships. This is assessed in terms of the potential for expansion of their micro-businesses. Several criteria used on the process are: past track record in enhancing the scope and scale of business; the availability of raw materials, production capacity and market potential; the capacity to absorb labor, potential to create further economic opportunities and to utilize local resources.

In terms of human resource potential, the potential beneficiaries of the program are restricted to those individuals who are between 18 and 60 years of age, are able to work with a vision for further expansion of their efforts. Further, they must not be currently receiving assistance from other similar programs.

The program has the following key components:

• Building Awareness: The program helps the community to identify its problems and its potential under the assumption that the community itself has the ability to solve the problems. Community organizers from the program are immersed in the target region and share the life of the communities. The program also facilitates a learning process to bring about changes in attitudes.
• Organization: It generates self-help groups as the medium to build bargaining position; helps form a local organization through community initiative.
• Building Cadre: It prepares a local cadre who will develop local self-help and who will take over the “hand-holding” role once the program ends.
• Technical Support: It provides technical training based on locally available and appropriate technology.
• Partnership: The local Community figures out what can be implemented and what support will be needed from external party (the program). The community establishes cooperation based on specific roles for each stakeholder based on mutual trust and transparency.

The program provides the following services to its beneficiaries:

• Developing human resources through various training program, workshops, meetings among members and others;
• Developing institutions with proper documentation of standard operating procedures for  each organization or group in order to be commonly monitored;
• Provision of capital to local businesses through group-based credit, self-help savings;
• Providing business development services for improving production methods; and
• Developing markets through sharing of information on business opportunities, building networks and synergies.

The program emphasizes building and strengthening of individual and institutional capacity. At an individual level, the focus is on improving perceptions & attitudes, enhancing knowledge & skills and ability to generate income and manage funding of micro enterprises. At an institutional level, the focus is on strengthening organization management, improving access to financial services, information, marketing services and networks.

How is Shariah Requirement of Tamleek Ensured?

Islamic scholars generally agree that zakah may be disbursed in the form of a grant. Zakah could thus, form the basis of designing a range of programs for the poor. A key Sahriah requirement for zakat is tamleek. The term tamleek implies a process of imparting ownership. In the context of zakah, tamleek is seen as a requirement that essentially implies making the zakah recipient (mustahiq) the owner of donated funds. This clearly rules out the possibility of giving zakah as a loan to be repaid later. The ownership question however, opens up two further issues. Should the poor beneficiary have absolute right to decide how he/she is going to use the funds? Where there is a genuine possibility that the poor may not use the donated cash in an optimal way, can the zakah distributing institution place a conditionality on the possible use of zakah, e.g. zakah payment in the form of scholarship to poor students for covering tuition fees. Given the recent evidence available in development literature in favor of unconditional cash transfers (UCT) over alternative ways of financial assistance to beneficiaries, the case in favor of interpreting tamleek as unconditional cash transfer appears to be a sound one. However, it is perhaps a good idea to treat the issue more as an efficiency-related than a Shariah-legal one.

The MM program of DDR seeks to meet the tamleek requirement by having a clear termination and exit strategy. It withdraws from the region and the program comes to an end as soon as the community cadres  ready to take part in maintaining program sustainability – financial and institutional. It ensures that a community-based organization is a legal entity with adequate capacity to sustain cooperation with all stakeholders. The tamleek condition of zakah is thus, complied with, since the poor beneficiaries ultimately become the owners of the local organization in a collective sense with transfer of assets from the program to the local organization. Thus, the fact that they are borrowers in the first instance does not appear to vitiate the tamleek requirement.

Note:

1. The term Dompet Dhuafa in Bahasa Indonsian implies “Wallet of the Poor”.
2. A comprehensive photo-documentation of the model by Mohammed Alim may be downloaded here.

Mohammed Obaidullah | April 23, 2014