‘Zakat’ and ‘waqf’ play bigger role in poverty alleviation

Poverty has long been a serious problem and a great challenge for Indonesia. According to the World Bank around 59 percent of Indonesian people are considered poor with incomes of less than US$2 a day. Poverty encompasses social, economic and political deprivations. The poor lack basic necessities and are deprived of the life that people value. They have little or no participation in ordinary social and economic life.

Concern about poverty is not new, and has been a focus over the centuries for historians, sociologists and economists. Its causes have been identified, ranging from deficiencies in the administration of income support, to injustices of social and economic systems. Various measures have been put forth to help, including reforms to social security and socioeconomic systems.

Since poverty is a multidimensional problem, solutions to poverty require a comprehensive set of well-coordinated measures. A global war against poverty, in addition to domestic efforts, demands assistance being given from the rich countries to the poor countries. In Indonesia, several policies and strategies have been adopted in the past to reduce poverty, but poverty persists.

Islam provides a novel concept of poverty and the poverty line, as implied in the concept of zakat, which is a charitable poverty alleviation institution in the Islamic system of ethics. There are several kinds of charity; zakat as compulsory charity, shadaqah as optional charity and waqf as perpetual charity.

The compulsory and optional charity deals with poverty though basically adopting a re-distributive approach, while waqf can be used to enhance the poor’s capacity to take care of themselves, through providing better access to education, health and so on.

Potential zakat is based on three definitions of what wealth it can be drawn from.

The first is based on traditional views, according to which zakat is levied on agriculture, livestock, stock in trade, gold, silver and money.

The second definition is based on the views of contemporary Muslim scholars where zakat can also be deducted from net returns from manufacturing and building rent and from net savings made from a salary.

A third basis for zakat calculation is based on Maliki views, where the zakat base includes buildings and other fixed assets, except those assigned for personal and family use. Estimates of potential zakat based on the first definition are equal to around 1 percent of Indonesia’s GDP; the second definition could bring in 1.7 percent of GDP; and the third could amass 2 percent of national GDP.

Thus, potential zakat collection in Indonesia ranges from Rp 100 trillion ($7.5 billion) to Rp 240 trillion per year – however, collected zakat amounts to just 0.2 to 0.5 percent of these amounts, or around Rp 460 billion. Of that, Rp 60 billion is distributed via the government-funded Zakat National Board (Baznaz) and around Rp 400 billion through other private zakat institutions.

Waqf is a locked-in dedication of the benefits of an asset for specific, charitable purposes. A waqf asset cannot be disposed of; its ownership cannot be transferred.

There are an estimated 358,710 waqf properties in Indonesia, which total 1.5 million square meters. These waqf assets can be part of a potential solution for helping the poor.

In addition, cash waqf has recently grown quickly in Indonesia mainly because of its flexibility and potential to benefit poor people anywhere. Based on a report, the national potential of fixed-asset waqf is Rp 377 trillion a year, and of cash waqf, Rp 120 trillion a year.

However, collected cash waqf totals only around Rp 43 billion, or 0.03 percent only of total cash waqf potential. Indonesia has safety net programs for the very poor and vulnerable but has not made the institutions of zakat and waqf a part of its poverty reduction strategy.

Muslims are paying their zakat on their own to the poor and to different charitable institutions. However, all these transaction are not passing through proper channels and are not recorded, flowing without planning and not as part of any strategy.

Therefore, one cannot asses the effectiveness of zakat in poverty alleviation. The same with waqf. These institutions need to be revived and organized with proper planning, which will provide an additional source of income to the government to provide for social welfare. These institutions need to be integrated into the overall poverty reduction strategy so we can see tangible results.

by Muhammad Shodiq

source The Jakarta Post, Friday, June 17, 2016