Role of IsDB in Developing Zakat Sector

Keynote speech delivered by Dr Mohammed Obaidullah, Lead Research Economist, IRTI, IsDB at the World Zakat Forum International Conference at Melaka, Malaysia on December 05, 2018

Bismillahi-ir-Rahmani-ir-Raheem.

Excellencies, Ladies and Gentlemen

Assalamu alaikum wa rahmatullahi wa barakatuhu

It is a source of immense pleasure for me to observe the World Zakat Forum scale new heights with every passing year since its humble beginning in the year 2010. I note with satisfaction that the Islamic Research and Training Institute of the Islamic Development Bank Group was part of the seminal initiative at the International Zakat Conference held in Yogyakarta, Indonesia where the World Zakah Forum (WZF) was born. Since then WZF has been organizing a series of highly successful events year after year aimed at facilitating interaction among key stakeholders of the zakat sector. I am extremely thankful to the organizers for their invitation to yet another event that is going to be path-breaking in terms of strengthening the global zakat sector.

There is a growing realization among policymakers that the zakat sector may have the potential to meet the ever-increasing financing gaps in the humanitarian and development sectors. Considering the humanitarian sector first, recent research points to a huge gap between demand and supply for humanitarian funds. The total funding requested from international donors within the United Nations (UN)-coordinated humanitarian appeals system have multiplied in recent years. While international humanitarian funding has increased to record levels in response, the financing gap appears to be getting bigger.[1]

Further, as the world moves to meet the Sustainable Development Goals (SDGs) over the next decade and half, it finds the financing requirements to be too large to be met through traditional funding tools alone. For example, a UNEP paper estimates the global investment required in various sectors to be around US$ 5-7 trillion annually to realize the aims of sustainable development.[2] And increasingly, funds driven by Islamic philanthropy are being seen as among the multitude of untapped resources for this purpose.

This realization has led many international humanitarian and development agencies to seek partnership with the IsDB Group to explore mobilizing and leveraging zakat resources. A case in point is the partnership between UNDP and the IsDB Group to engage in business intelligence generation and capacity-building leading to development of infrastructure and human capital for this sector. Another example is the much-anticipated Global Muslim Philanthropy Fund for Children, a unique platform with UNICEF and IsDB as founding partners. With the goal of improving the lives of children worldwide, especially in the Muslim World, the platform is facilitating a partnership between the founders and governments, agencies, philanthropic entities, companies and individuals from Muslim-majority countries, and from Muslim donors globally.

Excellencies, Ladies and Gentlemen

Data on zakat mobilized in various countries indicate a huge potential of the zakat sector in terms of raising resources. Two widely quoted studies – by the World Bank and the Islamic Research and Training Institute of the IsDB – estimate the potential of zakat globally in the range of USD 550-600 billion. Against this, the quantum of actual mobilization of zakat across the globe is extremely small. Research at the Islamic Research and Training Institute on actual zakat collected in IsDB member countries and non-member countries with sizable Muslim population indicates a conservative global estimate of around 10-15 billion USD[3]. Thus, only about 2-3 percent of the potential is being realized currently.

This naturally raises a very important question. What is the key contributor to this yawning gap between the realized and potential quantum of zakat mobilization? For astute observers of the scene, the most significant factor is perhaps the trust-deficit between the zakat paying community and the existing mechanism and infrastructure for zakat management.

Excellencies, Ladies and Gentlemen

The presence of an enabling regulatory and policy environment for zakat in a country is a critical factor in addressing the trust-gap. Indeed, this realization underlies an on-going partnership between the Islamic Development Bank Group and the Bank Indonesia to develop regulatory and policy standards and guidelines for creating an enabling environment for the zakat sector that is in tune with national and regional realities. As an outcome of this joint initiative, a key document “Core Principles for Effective Zakat Supervision” has been prepared and launched at the World Humanitarian Summit 2016 at Istanbul. In pursuance of a full-set of standard-setting documents for the zakat sector, two more documents dealing with the critical issues of Zakat Risk Management and Amil Governance have been prepared.

Fintech can also play a very significant role in bridging the trust-gap. Fintech can provide solutions to apparently intractable issues that have acted as major stumbling blocks in the past. It has tools that can be employed to easily establish the identity of the donors as well as the beneficiaries. Setting up a database of beneficiaries can address long-standing issues, such as, avoiding a “dependency” culture among beneficiaries and making possible time-bound mustahiq-to-muzakki transformation programs. Similarly, a database of donors can enhance the efficiency and effectiveness of mobilization drives. Instant verification of identity of donors can avoid potential money-laundering and financing of terrorism issues. More than establishing or verification of identities, fintech can provide new digital identities to the internally displaced persons and make zakat disbursement possible.

Application of fintech can drastically reduce informational asymmetry between donor and beneficiaries; and ensure due diligence and monitoring with complete transparency. This realization has led the IsDB Group to actively seek application of fintech in raising resources for some of its programs. A case in point is the Alliance to Fight Avoidable Blindness (AFAB), a partnership involving the ISFD, the IsDB group and more than 30 governments and NGOs including crowdfunds to provide the ‘Gift of Sight’ to the poor and blind. Every donation made on the partner-crowdfund is matched dollar-to-dollar by the AFAB, thereby enhancing the overall quantum of resources available for this noble cause. The much-anticipated Muslim Philanthropy Fund for Children is another example of application of technology to raise zakat resources for meeting humanitarian and development objectives.

My dear brothers and sisters

The eradication of poverty continues to be the foremost among the Sustainable Development Goals. It is seen as the biggest moral challenge of this Century. I end my talk with a saying of the Prophet (peace be upon him) that forcefully drives home the central message of Islam regarding poverty. “Poverty is almost like disbelief in God.” Indeed, Islam views poverty to be a curse to be eradicated through productive efforts. Poverty is in conflict with “enrichment of self (nafs)”, which is one of the primary objectives (maqasid) of Shariah. Islamic jurists have unanimously held the view that it is the collective obligation (fard kifayah) of a Muslim society to take care of the basic needs of the poor.

Zakat has always been seen as Islam’s answer to the challenge of poverty. However, it can perform its role efficiently and effectively, if we continuously strive to find innovative ways to optimize the mobilization and allocation of the resources. Your IsDB Group has been in the forefront when it is about undertaking cutting-edge research and capacity building leading to development of infrastructure and human capital and standard-setting for the zakat sector, optimizing and leveraging zakat resources with the application of technology with the overall goal of addressing humanitarian and development needs. Indeed, there are many other exciting experiments being undertaken across the globe. I pray and hope that these experiments continue to grow and deliver.

Finally, I would thank WZF for organizing this event that in-sha-Allah, would provide an excellent opportunity for all participants in finding ways to meet the multitude of challenges facing Islamic philanthropy in general, and zakat in particular.

May Allah SWT accept our efforts in making a difference to the lives of the poor and the needy.

Ameen

Wassalamu alaikum wa rahmatullahi wa barakatuhu.

[1] According to this widely quoted study “An Act of Faith – Humanitarian Financing and Zakat” the proportion of appeal requirements met in 2014 was the lowest since 2001 (58 percent), and the volume of unmet requirements was the highest on record (USD 7.5 billion).

[2] Managing Climate Change: Role of Islamic Finance, IRTI Working Paper Series

[3] Top zakat collecting countries include Saudi Arabia at about USD 4 billion; Malaysia at about USD 600 million, Indonesia at USD 270 million, Sudan at USD 225 million, India and at Pakistan 100-150 million each, Islamic Relief Worldwide (collected from 1st world Muslims) at USD 100 million, Singapore at USD 20 million, Brunei at USD 15 million, South Africa at USD 10 million – add up to USD 5.5 – 6 billion, according to various issues of the IRTI Reports and stand about 1 percent of the potential.