Potentially $1 trillion can be collected in zakat each year, bolstering efforts to improve living conditions and reduce poverty.
There is a growing global movement to align Islamic social finance with the United Nations Sustainable Development Goals (SDGs) designed to address global environmental, social and economic challenges by 2030.
These include tackling poverty, inequality, climate change and environmental degradation and ensuring social justice. Islamic social finance has various tools that coincide with the 17 SDGs, including zakat (compulsory alms), waqf (endowments), sadaqa (voluntary charity) and qard hasan (interest-free loans).
Since 2016, the UN has explored ways to harness the power of Islamic finance to implement its projects and align funding flows with the SDGs. Many United Nations agencies are currently exploring new partnerships and tools for Islamic financing, such as the Zakat Fund for Refugees platform of the United Nations High Commissioner for Refugees (UNHCR), the United Nations (UNICEF) and a United Nations relief and works agency for Palestine refugees in the Near East. Organization of Islamic Cooperation Waqf Fund (UNRWA-OIC).
In addition, the United Nations Development Program (UNDP) mobilizes Indonesian zakat funds for broader development projects related to carbon reduction, equality and equity. Similarly, in cooperation with UNDP, the Global Muslim Philanthropy Fund for Children (GMPFC) of the Islamic Development Bank provides humanitarian assistance and funding for development projects, such as education and health services. .
Zakat is the key element of Islamic social finance to tap into as it is a compulsory alms, whereby all Muslims must make an annual payment equal to 2.5% of their income and income. goods to help the poor.
There is currently a significant financing gap to achieve the SDGs, equivalent to at least $2.5 trillion a year, said UNDP Islamic finance specialist Greget Kalla Buana, adding that if mobilized effectively, zakat has enormous potential to help the world’s poor.
“It’s basically the greatest wealth redistribution mechanism there is,” he said.
As the world’s Muslim population reaches 1.9 billion, the World Bank and the Islamic Development Bank Group estimate the annual value of zakat at $1 trillion.
Based in Jakarta, Indonesia, Buana works on zakat-funded SDG-related projects that shift the disbursement of zakat from a consumption model to a productive model and expand the rights of zakat recipients by stimulating creation. of businesses and industries. An example is the 2017 partnership between UNDP and the Indonesian national zakat agency BAZNAS which installed micro-hydropower plants in Jambi province, Sumatra, introducing cheaper electricity and emitting CO2 at higher of 4,000 people and more than 800 households.
“As of today, five facilities are in operation and the community now enjoys wider access to electricity, whether for schools, healthcare, commercial enterprises, tourism, etc.,” said he declared.
The local government also paid more attention to the village receiving this electricity by financing the development of a 700-meter long village road, thus highlighting the multiplier effect of the project.
Although the SDGs were not developed on a religious basis, many of the goals are aligned with the spirit of Islamic law, said Omar Shaikh, director of the UK Islamic Finance Council (UKIFC), a non-profit organization specializing in consulting and development. organization focused on promoting and improving the global Islamic and ethical finance industry.
“If you take the seven categories of zakat recipients, explicitly written in the scriptures and primarily focused on helping the poorest of the poor – including travellers, refugees and migrants – and look at the 17 SDGs, you can see that they clearly correspond to the SDG framework. and are achievable within the Islamic spirits of law and Islamic principles of Maqaasid As-Sharia (Sharia goals),” he told Salaam Gateway.
According to the UNDP report Unleashing the Potential of Zakat and Other Forms of Islamic Finance to Achieve the SDGs in Indonesia, examples of zakat and overlapping SDGs include:
faith in reducing vulnerabilities, especially to poverty, hunger, ill health, unsafe water and inequality (relating to SDGs 1, 2, 3, 6 and 10);
life by eradicating food insecurity, ensuring healthy lives, tackling water scarcity, poor water quality and inadequate sanitation, ensuring decent work for all and making cities safe and sustainable (SDGs 2, 3, 6, 8 and 11);
offspring by promoting peace and protecting the environment (SDGs 3, 5, 7, 11, 12, 13, 14, 15 and 16);
the intellect by facilitating access to healthy food and quality education to strengthen human capital (SDGs 1, 2 and 9) and
wealth by generating economic activity and a social safety net (SDGs 1, 3, 8 and 10).
However, there are challenges to mobilizing and leveraging zakat funds successfully, including the lack of a global standard for collecting and distributing zakat, said Zenobia Ismail, a researcher in the International Development Department of the University of Birmingham.
Some Muslim-majority countries such as Indonesia, Malaysia and Pakistan have state-run collection systems, while elsewhere zakat is administered by local or supranational Islamic non-governmental organizations such as Islamic Relief Worldwide and Muslim Hands based in UK or South African. Donated by the Givers Foundation, as well as United Nations agencies.
She said instances of mismanagement and corruption have fueled distrust of zakat schemes and limited growth. Organizations that lacked transparency and accountability discouraged contributions and undermined the ability to use zakat as part of a national poverty reduction strategy.
“Zakat systems need high levels of accountability and strong management and transparency capabilities. Moreover, although it is a compulsory payment, zakat is not paid by all eligible persons, not even in countries where there are state-run collection and redistribution systems,” she pointed out to Salaam Gateway.
Therefore, Ismail sees more potential in using zakat for local economic development projects related to the SDGs, such as digging boreholes for drinking water and better sanitation systems in poor countries.
“You have to be realistic about what can be achieved with zakat since it is a charity paid by individuals according to their income. There may be more opportunities for Muslim billionaires to establish something like the (Bill and Melinda) Gates Foundation, which can be a bigger player in the international development arena,” she said. .
Shaikh said the increased use of fintech and blockchain technologies could also boost donor confidence.
“The SDGs provide a clear framework for measuring impact and this is where zakat has suffered in recent years, due to lack of transparency on where the money is spent and lack of reporting on (its ) social impact…technology can improve transparency and credibility as it gives more confidence to the stakeholders involved,” he said.
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