Master of Science in Economics
Faculty / School
Faculty of Business Administration (FBA)
Department of Economics
Date of Submission
Dr. Qazi Masood Ahmed, Institute of Business Administration, Karachi
MSECO Research Project
This study aims to estimate the potential Zakat collectible in the Muslim majority countries to combat poverty. It also strives to explain and show the impact of the institution of Zakat in affecting microeconomic choices like labor supply and entrepreneurial capital as well as the impact on macroeconomic aggregates. In our estimation exercise, we find that Zakat to GDP ratio exceeds PGI-GDP (Poverty Gap Index to GDP) ratio except in 3 countries with poverty line defined at $1.25 a day. Only in Bangladesh, Mozambique and Nigeria, the Zakat to GDP ratio is less than PGI-GDP ratio with poverty line defined at $1.25 a day. Mozambique is one of the members of OIC with very small proportion of Muslim population. We also discover that Zakat to GDP ratio exceeds PGI-GDP ratio except in 4 countries with poverty line defined at $2.00 a day. Only in Bangladesh, Mozambique, Nigeria and Pakistan, the Zakat to GDP ratio is less than PGI-GDP ratio with poverty line defined at $2.00 a day. In our empirical analysis, we also show the comparison of Zakat to GDP ratio against poverty headcount ratio. According to our estimates, Zakat to GDP ratio exceeds PHCR-GDP (Poverty Head Count Ratio to GDP) ratio except in 5 countries with poverty line defined at $1.25 a day. The countries in which Zakat to GDP ratio is less than PHCR-GDP ratio with poverty line defined at $2.00 a day include Bangladesh, Mozambique, Nigeria, Pakistan and Tajikistan. We also find that Zakat to GDP ratio exceeds PHCR-GDP ratio except in 7 countries with poverty line defined at $2.00 a day. The countries in which Zakat to GDP ratio is less than PHCR-GDP ratio with poverty line defined at $2.00 a day include Bangladesh, Indonesia, Kyrgyz Republic, Mozambique, Nigeria, Pakistan and Tajikistan. Through our mathematical exposition, we show that if a person keeps idle investible wealth, then Zakat will depreciate the idle wealth overtime. We also discuss that the leftover wealth after the lifetime of the deceased will be distributed among the close relatives. This also systematically and permanently checks wealth concentration in each household across time and space at the most micro level possible. On the macroeconomic front, proportional Zakat linked with income will act as an automatic stabilizer. If an economy is in disequilibrium and policies fail to immediately recover and boost incomes, wealth Zakat will enable the distributive allocation that works independently of the business cycles and will help in stabilizing the extremes of the business cycles. In this way, wealth Zakat will act as a permanent stabilizer. We discuss that Zakat is an important tool for redistributing income and it can also increase aggregate spending. The redistribution from people with lower MPC to people with higher MPC will boost aggregate spending even with the same level of aggregate income. Finally, we recommend certain steps at the policy and implementation level so that the institution of Zakat can be effectively utilized to contribute in poverty alleviation. We recommend that it is appropriate to disburse Zakat at the federal level. This way, the regional disparities can be reduced more effectively. To gain the trust and the confidence of people, it is vital to improve the governance and transparency. In this regard, we recommend that the Zakat collection and disbursement details shall be reported in a standard way periodically. We also highlight the importance of creating synergies between Zakat and other welfare programs. We also draw attention towards modifying the accounting standards to achieve transparent computation, assessment and collection. On improving administration, we emphasize the need to improve the capacity of public sector officials to scrutinize financial accounts for transparent and efficient Zakat assessment. Lastly, we also recommend to pool resources by transferring surplus Zakat funds from rich countries to poor countries with lower wealth bases so that poverty can be reduced quickly.
Shaikh, S. A. (2015). Estimation of economy-wide potential zakat collectible in oic countries for funding poverty gap (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-mseco/20
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