1. Mandatory Annual Giving of Zakat Islam makes it mandatory for Muslims to pay a minimum of 2.5% of their net savings every year to those in need. Zakat means cleanliness, purification, and blessings. It is the third pillar of Islam and is mentioned 32 times in the Qur’an. Giving Zakat purifies wealth, signifies brotherhood, shows faithful commitment, increases blessings, and earns rewards. Salah (prayer) and Zakat are often intertwined in the Qur’an.

For example: “Establish prayer, and pay Zakat. Whatever good you send forth for yourselves, you will certainly find its reward with Allah. Surely, God is All-Seeing of what you do.” (Al-Baqarah 2:110). Also, “Lo! Those who believe and do good deeds and establish Salah and pay Zakat, their reward is with their Sustainer; no fear shall come upon them, nor shall they grieve.” (Al-Baqarah 2:277).

The term Sadaqat is used in the Qur’an in contrast to Riba (usurious gain or interest on loans). For example: “Allah deprives Riba of all growth, whereas He blesses Sadaqat with manifold increase. And Allah does not love anyone who is stubbornly ungrateful and persists in sinful ways” (Al-Baqarah 2:276).

1. Economic Benefits of Zakat:

Liquidity in the Economy: Zakat is levied on liquid assets like gold, cash, and trade goods but not on one’s residence. This moves surplus wealth into the hands of the poor, who are most likely to spend it, thereby stimulating the economy and helping the poor lift themselves out of poverty.

Wealth Tax: Zakat is paid at 2.5% of the wealth one possesses above the basic needs of food, shelter, and education, according to nisab, which is equal to 85 grams of gold. As of July 4, 2024, nisab is estimated at $3,913.

Direct Aid: Zakat is paid directly to eight specific groups of people in need, including the poor, those in hardship, individuals in financial distress, stranded travelers, those in bondage, and more.

Efficient Distribution: Significant evidence suggests cash transfers are the most efficient and effective way to distribute donations, aiding recipients in meeting their needs and leading to long-term poverty alleviation. Wealth Tax, Not Income Tax: Zakat is a wealth tax, distinct from income tax, which is levied on one’s earnings. It promotes the productive use of wealth and opposes its hoarding.

Widespread Practice: The Pew Research Center reported on August 9, 2012, that the annual almsgiving of Zakat is as widely observed as fasting during Ramadan, with high participation rates across various regions.

Global Impact: The annual Zakat pool is estimated to be between US$200 billion and US$1 trillion. It aligns strongly with several Sustainable Development Goals (SDGs), including no poverty, zero hunger, and reduced inequalities.

2. Sadaqah, or Voluntary Charity

In addition to Zakat, Islam emphasizes the virtues of voluntary charity, or Sadaqah. Muslims are encouraged to give generously from their surplus wealth to help alleviate the suffering of the less fortunate. Governments, NGOs, and individuals can promote a culture of philanthropy and solidarity through charitable initiatives, fundraising campaigns, and community outreach programs. Alleviating economic inequality, promoting peace, and protecting the environment are central to the core Islamic principles known as Maqasid Sharia, which a Muslim follows to uplift the community economically and gain the pleasure of God. Islam calls upon its followers to give to those in need as a way of life. The Qur’an often mentions charity along with prayers as one of the factors that identify true believers. For example: "Be steadfast in prayer, practice regular charity, and bow down your heads with those who bow down (in worship)" (2:43).

"Be steadfast in prayer and regular in charity. Whatever good you send forth for your souls before you, you shall find it with Allah. For Allah sees well all that you do." (2:110). And, "Those who believe, and do deeds of righteousness, and establish regular prayers and regular charity, will have their reward with their Lord. On them shall be no fear, nor shall they grieve" (2:277).

The word Sadaqat is also used in contrast to Riba (usurious gains or interest on loans), such as in: "Allah will deprive usury of all blessing, but will give increase for deeds of charity, For He loves not creatures ungrateful and wicked" (2:276).

It advises: "If the debtor is in difficulty, grant him time until it is easy for him to repay. But if you remit it by way of charity, that is best for you if you only knew" (2:280). Islam equates charity to a loan to Allah, rewarded with multiple blessings. “Indeed, those who give in charity, men and women, that is those who give a loan to Allah a goodly loan, it will be increased manifold (to their credit), and they will have (besides) a liberal reward” (57:18).

"Those who in charity spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve" (2:274).

While giving charity, the self-respect and feelings of the recipient must not be hurt. “O you who have believed, do not invalidate your charity by reminders of your generosity or injury like those who spend their substance to be seen by people, but he believes neither in Allah nor in the last day. His example is like that of a hard barren rock on which is a little soil, and on it falls heavy rain, which leaves it bare. They are unable (to keep) anything of what they have earned. And Allah does not guide those who deny the truth” (2:264).

The Qur’an also reminds that we should be humble about our offerings of charity, not embarrassing or injuring the recipients. "Kind words and the covering of faults are better than charity followed by injury. Allah is free of all wants, and He is Most-Forbearing" (2:263).

Charity may be given openly or better given privately. "If you disclose acts of charity, even so, it is well, but if you conceal them, and make them reach those really in need, that is best for you. It will remove from you some of your (stains of) evil" (2:271).

Sadaqat can also be collected and disbursed by the Islamic authority or state through a centralized mechanism for specific purposes defined in the Qur’an: “Take from their wealth a Sadaqa, purifying them and cause them to grow by it, and appreciate/bless them. Indeed, your appreciation/blessing is a reassurance for them. And Allah is All-Hearer, All-Knower. Do they not know that Allah is He who accepts repentance from His slaves and takes the Sadaqat, and that Allah, He is the Acceptor of repentance, the Most Merciful” (9:103).

This verse gives two objectives of Sadaqa:

Tat-heer: A comprehensive term used for cleansing the body, mind, heart, soul, and conduct from anything dirty, filthy, impure, unhealthy, or ignoble. In today’s context, it may refer to spending money for the provision of clean drinking water, better sanitation, health, and hygiene facilities, and proper education.

Tazkiya: A comprehensive term primarily meaning increasing, augmenting, enhancing, or developing human abilities, well-being, goodness, and righteousness. In modern context, it may refer to human resource development or human development, and may involve spending money on health and education initiatives by the Islamic state.

3. Inalienable Charitable Endowment of Waqf

Waqf is a sustainable, ongoing charitable endowment, also called Sadaqah Jariyah (continued charity). A Waqf endowment usually benefits the community as a whole by offering a service useful to society, such as a hospital or a university.

Waqf is an Arabic word, with a plural of Awqaf, meaning restriction because it acknowledges that all properties belong to God. For example, a Waqf may be a library or a cash sum that cannot ever be owned by a person. Instead, its possession is transferred to God, and the original owner no longer owns the endowment, but its benefits are shared by the entire community. Imagine a field donated as Waqf; the community may use the field by planting fruits and vegetables, and nobody owns the field itself, but the donation is ongoing and will support generation after generation.

The main characteristics of Waqf are as follows:

Permanent: The donor (or heirs) cannot revoke the endowment if it has been properly established. The ownership of a Waqf asset is thus transferred to God, becoming the property of God alone.

Irrevocable: Once the asset is transferred, it cannot be taken back or donated to someone else.

Inalienable: The benefits of Waqf must be applied to a charitable cause according to the wishes of the donor. Waqf property cannot be sold, inherited, donated, or otherwise disposed of. The Waqf stays forever, and its benefit is distributed in perpetuity.

Benefits of Waqf include:

Sustainable: A well-managed Waqf can sustain itself and grow, benefiting more people over time.

Legacy: Waqf provides a way for people to leave a lasting legacy that benefits future generations.

Charity for All: Waqf benefits everyone in the community, regardless of their religion or background.

Flexibility: Waqf can be created for various purposes, such as health, education, poverty alleviation, or infrastructure development.

Financial Stability: Waqf institutions can generate income through investments and other means, providing financial stability to the charitable cause.

Community Development: Waqf can play a significant role in community development by funding projects that improve the quality of life for everyone.

Waqf in Islamic history has contributed significantly to society by funding universities, hospitals, and infrastructure projects, showcasing its potential as a powerful tool for social and economic development. By leveraging Waqf and other Islamic financial instruments, communities can address contemporary challenges and create a more equitable and just society.