THE POWER OF ZAKAH IN POVERTY ALLEVIATION

Dimas Bagus Wiranata Kusuma, SE

Assistant Lecturer of Airlangga University, Shariah Economics Department
Candidate Master of Economics
International Islamic University Malaysia
Email : dimas_economist@yahoo.com
Phone : +62-85645337945/+60-169026445

Raditya Sukmana, SE, MA

Lecture of Airlangga University, Shariah Economics Department
Candidate Doctor of Economics
International Islamic University Malaysia
Email : momyadit@yahoo.com
Phone : +62-811315561/+60-166534090

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THE POWER OF ZAKAH IN POVERTY ALLEVIATION

Dimas Bagus Wiranata Kusuma
Raditya Sukmana

ABSTRACT

During the 20th century, developing economies of the world have been facing two
contrasting phenomena. Some countries economies have to achieve remarkable
economic growth and improved their economic well being, but on contrary many
countries have to alleviate poverty who tend to increase year by year. Whereas, all
countries have agreed to eradicate extreme poverty and hunger half by 2015 since
approved in United Nations Meeting in 1990.
According to this issues, Muslim countries have to combat it by using religious
institution and culture. In this case, the role of Zakah, as traditional Islamic
institution in tackling of poverty is very relevant and important. Zakah is supposed to
be an important to investigate and provide much needed social service to the poor
effectively. Then, in order to know the role of Zakah in poverty alleviation, it need to
comprehend the type and causes of poverty. Having explained type and cause, also
this paper is going to discuss how to design the structure of Zakah in order to
maximize role of Zakah. So that, Zakah is supposed to mitigate poverty significantly.
Therefore, this paper ultimately intend to build several ways and means to collect and
disburse funds effectively and some policies should be stipulated to attain goals of
Zakah, namely to mitigate and promote dignity of Muslim Ummah
Key Words: Zakah, Poverty alleviation, policies, Muslim Ummah
JEL : D63, I32, I38

1. INTRODUCTION
Zakah is important institution in the socio-economic framework of Islam. It is
taken place as one’s of five pillar on which the Islamic code of life is founded. As
matter of fact that the injunction of Salah is frequently followed by the obligatory to
release of Zakah. The obligatory of Zakah has been ordained and enforced since the
advent of Islam brought by Prophet (pbuh), and continued by his wise successors until
his companions. Historically speaking, Zakah disbursed by Islamic state in the past
had spread out the welfare and proved the cohesive in the area of community building
in the light of shari’ah rulings.
Islam as way of life live, has regulated a certain rule in such a way in order to
make society to be favorable. Since the advent of Islam, certain rule has been
stipulated and tried to be implemented fairly, such as managing income and wealth.
Islam does not strictly prohibit in a way people holding some of property. However,
Islam is firmly forbidden a such wealth or income is extremely concentrated and
centralized in a certain people or individual ownership. To some extend of ownership,
the assets should be equitable distributive around community evenly. This approach
instructed is to guarantee that income and wealth are able to fulfilling the mashalah
and justice principle. Thus, the issues established are how to achieve its distributive
goals by utilizing “institutional approach”? Institutional approach mentioned here is in
such a way institutions that are categorized as divinely-ordained and not subject to
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political or social manipulation, and of course it should be backed up by Shari’ah

rules and regulations. This institutional features could be including Zakah institution
Zakah is originally developed in some extent to mitigate social inequalities
incurred as a result of economy activities. The glaring of Zakah is of distributing and
collecting its self. The problems raise in terms of the amount of Zakah disbursement
and the optimal zakat collected in certain community or particular Zakah payer. The
endeavor in Zakah management arises as the fact that in such a way, it is concerned to
be buffer fund in uplifting the fulfillment of basic needs, particularly for the poorest
and destitute. as matter of fact, admitted or not, they are categorized as disable, and in
turn finally trapping into poverty incident.
Poverty incident that have been facing in recent world, happen to be one of
core of attention whereby need to be eliminated immediately. Therefore, poverty
alleviation remains the most important challenge before policy makers in recent
Islamic world. Tragically, poverty occurs in several Islamic countries that indirectly
has been encouraging low productivity and promoting less competitiveness. Poverty
incident occurred has been incurring due to the inequality to access economic
resources and utilize it to particular productive economy activity. In other word,
poverty is not making because of human incapability, but the system accorded already
opened up the possibility to inequitable asset distribution evenly. So that, we are
finding that inequality asset ownership clearly incurs enormously. Let’s put the
several example regarding poverty incident around the world, specifically in many
Muslim countries. In Indonesia alone, with recognized as world’s largest Muslim
population account for over half of population-about 129 million are poor or
vulnerable to fall into poverty trap with incomes generated less than US$ 2 a day.
Likewise, Bangladesh and Pakistan record roughly 122 million respectively. Recently,
IRTI has completely done a study that reveals only five of the member countries,
namely Indonesia, Bangladesh, Pakistan, Nigeria, and Egypt which account for over
half a billion, approximately 528 million, of the world’s poor with incomes below $2
a day or certain poverty line. The table below provides clearly information regarding
the growth the poverty incident in Indonesia, both rural and urban areas, since 1976 to
2006.

Some economist and many Islamic Scholars are seemly worried regarding
poverty incident that appear to be common phenomena and latest, it has transformed
to be great disaster on recent world. The specified about how important poverty
alleviation is, refer back to effect created behind it, namely (1) a poor household are
unable to participate in the development process and also automatically exclusion
from financial system, (2) the poor and destitute people will tend to fall into poverty
trap cycle that encourage them to be less competitive and backward in knowledge, (3)
Poverty will create low aggregate income level and slow down the economic growth,
(4) Economic growth which is created as result of economic progress is able to
change in income distribution because of income distribution initially is shared on
initial stage of development, but after it is achieved the income only will be fully
distributed around groups who dominant in a certain economy area

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TABLE 1.1
INDONESIA POVETY LINE AND POVERTY INCIDENCE, 1976-2006

Percentage of People
The Number of people below poverty line
Year below the poverty line
Urban Rural Urban+Rural Urban Rural Urban+Rural
1976 38,8 40,4 40,1 10,0 44,2 54,2
1978 30,8 33,2 33,3 8,3 38,9 47,2
1980 29,0 28,4 28,6 9,5 32,8 42,3
1981 28,1 26,5 26,9 9,3 31,3 40,6
1984 23,1 21,2 21,6 9,3 25,7 35,0
1987 20,1 16,1 17,4 9,7 20,3 30,0
1990 16,8 14,3 15,1 9,4 17,8 27,2
1993 13,4 13,8 13,7 8,7 17,2 25,9
1996 9,7 12,3 11,3 9,6 24,9 34,5
1998 21,9 25,7 16,7 17,6 31,9 49,5
1999 19,4 26,0 23,5 15,6 32,3 48,0
2000 14,6 22,4 19,1 12,1 25,2 37,3
2001 9,8 24,8 18,4 8,5 28,6 37,1
2002 14,5 21,1 18,2 13,3 25,1 38,4
2003 13,57 20,23 17,4 12,2 25,1 37,3
2004 12,6 19,5 16,7 11,5 24,6 36,1
2005 12,05 18,7 15,97 11,6 23,5 35,1
2006* 13,4 20,8 17,8 12,9 26,2 39,05*
Sources : Statistic Indonesia, BPS, Various Publication

Human Capital and

Population Growth

POVERTY

Distribution and Aggregate

Distributional Income Level and

FIGURE 1.1
POVERTY GROWTH INEQUALITY TRIANGLE
Note : Adapted from Bourguignon (2004) and Iqbal (2002)

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In addition, poverty incident incurred theoretically is able to solve by inducing

income approach framework. Generally speaking and some of macroeconomics
textbooks argue that the preservation and maintained in terms per capita income
growth is a such a way able to mitigating income inequalities. The lower level growth
of income, basically will determine the effect of growth on poverty level in an
economy. Therefore, distribution of income evenly based on growth theory is able to
have poverty reduction in reasonable time. In other word, poverty alleviation or
poverty reduction enable to be cut-off if the growth of income based on economic
growth concept is concerning to be implemented as well.
However, the theory mention above are talking about distributive aspect in the
light of modern economy, but do not pertain n terms of distributive comprehensively.
In Islamic point of view, distribution is discussing about property ownership on which
its belong to public and its must be according to Al Quran injunction. Distribution in
Islam, to some extent is including the stage of distributional scheme procedure.
Hence, in terms poverty alleviation, we are avoiding discussion on functional
distribution which is proved could not display an effective poverty reduction strategy.
Therefore, distributional concept in Islam should be concerning about Pre-Production
Distribution, post-production distribution, and redistribution its self.
Islam concerns about how the poor and destitute, who justified as the less
privileged groups to really start on equal footing. So that, distributional in Islam has to
count and assure that they have equal opportunity in terms of exchange, need, power,
and social values. The notion of mention above has being actually thrown out and
absolutely separated in modern economic even in area of economic though recently.
The implication of its separately concept in distributional scheme apparently appears
in looking at the relationship between per-capita income and Gini coefficient, both
Indonesia and Malaysia, as shown below

GRAPHIC 1.1
MALAYSIAN AND INDONESIA GINI INDEX PER CAPITA INCOME, DURING 1970-2002

Regarding to figures above show that there is negative link between high
growth and inequalities. Whereas, Kuznets (1955) thought that the increase 1% in
income will automatically tends to promote economic growth in amount of 1%. It
means that the Kuznetsian Hypothesis absolutely is rejected due to during economic
growth incurred in both countries, apparently tend to raise up the inequality as well. In
a nutshell, hypothesis given by modern economic could not solve and create a welfare
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state society, moreover it has been coming up with additional problems and averting
from its basis problem, particularly in terms of poverty incident alleviation.
Finally, through this paper, we would like to convey and confirm that Zakah
happens to be institutional of Islam that has been proved widely since prophet (pbuh),
and wise successor, until his companions that it can be an effective tolls equipped by
God to promote social welfare, particularly Muslim society today, either in theory
perspective or empirical perspective. Therefore, to make sure the paper
understandable and easy to follow, we divide this paper into 4 sections, namely:
Introduction in section I, Literature Review in Section II, Findings in Section III, and
Policy Implications in Section IV, Conclusions and Suggestion in Section V.

2. LITERATURE REVIEW

2.1. The Poverty Definition

Poverty is usually meant to be deprivation of wellbeing, and basically there
are many factors that cause it and various approaches to explain the concept. Basu,
1984 stated that poverty is close to the condition whereby poor are weak and
vulnerable to hostile factors and events beyond their control. Again, poverty is
characterized to be persistently in what referred to as the vicious circle of poverty.
Actually, There are many definitions of poverty. Levitan (1980) defines
poverty as the lack of goods and services which are needed to reach the proper
standard of living. According to Schiller (1979), poverty is incapability to have
proper goods and services to fulfill limited social needed.
Emil Salim gives similar definition; poverty is the lack of income to fulfill the
proper standard of living (Ala, 1981: 1-3) Robert chambers (1987) clearly explain
about the complete definition of poverty according to the reality and conceptually.
The point of poverty is deprivation trap, it is consists of five aspects, they are physical
weakness, exclusion or isolation level, susceptibility, and desperation.
From those aspects, susceptibility and desperation should have more attention.
Susceptibility is considered as the capability of the poor family to prepare something
in emergency reaction and usually make poverty rackets. Desperation is analogized as
pressing and cheating for the authority’s interest to the poor family and its usually
seemed as help.
Gunawan Sumodiningrat (1998) said poverty is classified to five kinds; they
are two kinds based on income level and three kinds based on the causal factor,
namely :
First, absolute poverty is described when income level in under poverty line or
the amount of income is not enough to fulfill the minimum life needed. Thus, absolute
poverty is counted by incapability to prepare daily needs, food and clothing, healthy,
and education. The real consumption quantitatively based on the base year is declared
with currency so that World Bank decide the poverty line is $50 per capita per year
(village) and $75 (city)
Second, relative poverty is described when income level is over the poverty
line, but still poorer than any other society group. It is declared with national income
presentation, which is earned by population with certain income degree and compared
with population proportion and other income proportion.

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Third, natural poverty is the poverty that is caused by natural factor such as the
different of, age, healthy, geographical location. They do not have proper resources,
both human resources, natural resources, and other developing resources.
Fourth, cultural poverty is the poverty that is caused by the different of custom
and tradition, work ethics, etc. it is referredt to the individual’s behavior that is caused
by life style, life habitual and culture. This society is difficult to participate to raise
their standard of living, to make a changing and to develop.
Fifth, structural poverty is the poverty that is caused by human brand factors
such as inequitable of productive distribution asset, discriminatory of economic
policy, collusion – corruption, and economy arrangement which beneficial to the
certain society group. Sometimes it is called pauperization, because it is caused by
intentionally factors.

2.1.1. The Characteristics of Poverty

Looking at the factors to determined the groups of the poor so that the
economists classify the society according to the poverty line. The characteristics of
poverty are:
First, they do not have their own production factor such as land, capital, and
skill so that they have a limited incoming ability.
Second, they do not have possibility to earn their own production asset.
Third, they have low education level.
Fourth, many of them who are living in the village and do not have their own
land (if there is any usually small land.
Fifth, many of them who are living in the city have not enough skill ability
and education.

2.2. The Definition of Zakah

Zakah is “that portion of a man’s wealth is designated for the poor” (Sayyid
sabiq, 1991, p.1). it is also defined as, “ a compulsory levy imposed on Muslim so as
to take surplus money or wealth from the comparatively well-to-do members of the
Muslim Society and give it to the destitute and needy” ( Zaim, 1989, p.101). again,
economically, Zakah in theory will result in economic prosperity as Zakah is paid
from those who have surplus , to the poor. So that, this will improve and enhance the
poor’s purchasing power which may lead to a higher demand on goods (Ahmad,
1977,p.80).
The fact that the main objective of Zakah is the achievement of socio-
economic justice is not disputed (Kahf, p.2). Metwally (1983) also stated that the
Zakah disbursement has the ability to increase consumption since the marginal
propensity to consume of the Zakah payer is lower than the Zakah recipient, so that
increasing the purchasing power parity of the poor. Consequently, in Islam transfer
payment, from the wealthy to the poor for the purpose of redistribution of wealth and
income in the society has been taking a central principle in building the Ummah.
Furthermore, redistribution concept is also established that the Quran and the Prophet
act (Sunnah) do have overwhelming evidences which indicate that Islamic system do
not recognize and like any form of concentration of wealth or income in a few hands.
Zakah has several meanings according to literary term; it means blessing,
growth, development, purity, and neatness. The scholars of Islam (ulama) define
Zakah as the part of property with certain requirement that Allah SWT requires to the

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owner to give to the proper person to have it with certain requirement (Anshori,
2002).
According to Lisan al Arab the term Zakah is pure, grow, and laudable, this
term is used in Al Qur’an and Hadist (Qardhawi, 1999:34). Zamakhsyari said in Al
Faiq chapter 1 page 536, Zakah based on fiqh term is certain amount of property,
which is obligated by Allah to be distributed to the right people beside the obligation
to distribute the property in certain amount (Qardhawi, 1999:34). According to
Chapra (2000: 270), Zakah has literary meaning as purification (thaharah), growth
(mana’), blessing (barokah), and praise (madh), in fact Zakah is a Moslem’s financial
obligation to pay their some net property or agricultural produces, if those properties
exceed the nishab limit (certain degree) it is paid as the part of religion obligation.

2.2.1. Zakatable Assets

In implementing the obligation of Zakah, Muslim are recommendable to
understand about Zakatable wealth that required to be fulfilled, so that Zakah
disbursed is considerably commensurate with syariah point of view. So that, it is
important to define the condition of Zakatable assets as in the following sections :
a. Undivided and absolute right of ownership, it means that all items subject to
Zakah, it must be owned by the potential payer themselves. This ownership
must be absolutely owned so that it enables to give the owner the right and
power is entitled by law. Therefore, the obligation of Zakah is talking about
levied items owned by the potential payer. Accordingly, these are several
items that exempted to be subject to Zakah, namely some properties of the
state for it belongs to the Ummah and no one could access also has a right of
ownership over them
b. Growth, it means that Zakatability is that wealth must either be actually
growing or have the potential for growth. Again, growth means something that
provides the owner with profit and benefit. Actual growth means is the
increase by Genetic or business reasons. Potential growth is when the assets
can increase if it is used properly for that particular purpose. Basically, the
wealth actually grow since growth by reproduction, through business, animal
breeding, or seed planting. In short, as long as such asset is considering to
subject to Zakah after growth has happened.
c. Reaching the minimum for Zakatability. Islam is truly administered in terms
of Zakatable assets and including a minimum required for Zakatability, which
is called among jurists “nisab”. The condition of nisab for Zakatability is
agreed upon among scholars, except in the case of crops, fruits, and minerals.
The rational of nisab requirement is very obvious. Zakah is a due on the rich to
relieve the poor and to share in the expenses for common interest to Islam and
Muslims. Zakah is levied to them who accord and achieve certain nisab
required. Therefore, there are several set certain minimum for different items
and exempted for everyone who has items below the minimum of the payment
of Zakah
d. Excess above essential needs. Some jurists add to the condition that is, nisab
must be accompanied by in excess of basic needs of the owner. If the person
who owns the assets need them for essential necessities, they are not
considered rich, nor would such a person like to sacrifice anything of what
they own for the payment of Zakah. According to The prophet (pbuh) says, “
Pay Zakah on your wealth with your hearts willing and pleased”. The need is
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to some extent related with basic needs, namely designated for providing food,
clothing, shelter, or medical care for the owner and their household. If this
condition is furnish, hence assets owned are treated as non-existent from the
point of view Zakatability
e. The passage of a year. These are some items which subject to Zakah in a
yearly obligation. Twelve full lunar months should pass from the beginning of
ownership, or past due date of Zakah, for Zakah to accrue again on assets. It is
reported from Ibn’Umar that the Prophet (pbuh) said : “There is no Zakah on
an asset a year has passed”. Why did He obligate it once every year? As matter
of fact that Zakah is an expression of the utmost justice, so that the ruling has
been prevailing like that due to it would have heavily burdened the rich, but if
it were made once in a lifetime, it would not have satisfied the need of the
indigent. So that, the best and wise way is to make it once every year.
However, there are several items that should be subjected to Zakah when they
are obtained regularly, such as monthly salaries, and crops. They are excluded
from the passage of a year is concerned because of they themselves are
income

2.3. Integrating Between Zakah and Poverty

To make sure that Zakah is able to solve poverty incidence, hence this paper is
offering the basic assumption. The assumption lay Zakah as expenditure part in order
to be able to generate its potential effects on the distribution. In other word, the power
of Zakah is clearly described and depicted.
First assumption, Zakah proceeds are sufficient to cover Needs. It means that
the implementation of Zakah shall be based upon the Shar'iah rule so that enables the
proceeds to be high to be directed to the disbursement allocation target of poverty
alleviation
Second assumption, Government is responsible in collecting and distributing
Zakah. The benefit of this is, firstly, Zakah is preserved by legal law so that it has a
power to enforce everyone who are considered as rich and deserve to fulfill their
obligation, secondly, it allows government to directly supervise the mechanism and
patio of Zakah distribution so that Zakah is able to fulfill the desired objective of
poverty alleviation
Third assumption, The government has an authority to regulate the methods
and approaches of Zakah disbursement. In this case, the government may instruct to
Zakah payer in terms of Zakatable assets, whether it can be done in cash, kind, or by
means of consumer goods, producer goods, or equities.
Fourth assumption, The costs of Collection and Disbursement are minimized.
This assumption is concerned to be important due to the objective of Zakah is
allocated to poor as main priority. Thus, Zakah management is insisted to be well-
organized and considering effectiveness principle as main role of conduct in
organizing Zakah.
Fifth assumption, Zakah does not create economic injustice (distortion) in
terms of equity and it does not reduce other government revenues as well. It means
that Zakah which is imposed only for Muslim while non-Muslim are required to pay
tax, also Zakah implementation does not incorporate a deduction of the amount paid
as Zakah by the Zakah payer from their otherwise due income and or property tax.

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3. FINDINGS AND ANALYSIS

3.1. The Effect of Zakah from Macro Model Perspective

3.1.1. Zakah and Consumption Aggregate
According to Susanto (2002), to begin the analysis it should be reputed that
situation are; first, Zakah was subjected to all investment and wealth commerce of
Moslems. Second, a commerce Zakah payer has large enough business and dominates
one part of national income. Third, religious movement and Zakah awareness is well
succeeding so every Moslem has Zakah obligation (Muzakki). Fourth, Zakah
proportion to be paid is constant. Fifth, the collected Zach is shared to the mustachio
(people who is deserved to receive Zach). Sixth, mustachio’s MC>Musky’s MPC.
Seventh, in one hand Zach is counted as the alleviation taxable income component
and in the other hand Zach is untamable for mustachio.

C=a+bY ……………………………..……………………………………(1).

On macro scale in Islam economic, there are two objects: mustachio and
musky, the formulas are:

C1 = a + bYd ; Yd = (bY − aY )(muzakki) ..............................................................(2).

C 2 = dY ; Z = aY (mustahiq)
→= d [(1 − b)Y + aY ]
C = C1 + C 2 ............................................................(3).
C = a + b(b(bY − aY ) + d [(1 − b)Y + aY ]
a = rate of Zakah that is paid.

However, those formulations could not count about the tax that must be paid by
Muzakki, whereas Mustahiq have not the duty of paying Zakah. Hence, we consider
by as Zakah payment income which dominate one certain part of national income; and
the rest (1-b) is Mustahiq income. The macroeconomics formulations except Zakah
variable are:
sehingga :C = C1 + C 2
C1 = a + b( βY − tβY )
C = a + b (βY − tβY ) + δ [1 − β )Y − t (1 − β Y ] .......(4).
C 2 = δ [1 − β )Y − t (1 − β )Y ]
C = a + bβY − btβY + δY − δβY − δtY + δtβY

Average propensity to consume (APC) and marginal propensity to consume MPC

with tax could be written:
C a
APC = z → 0 = + bβ − btβ + δ − δt + δtβ ; ................................................(5).
Y Y
dC
MPC = z → 0 = bβ − btβ + δ − δt + δtβ ......................................................(6)
dY

The commerce agreement for aY, in one hand will reduce Muzakki taxable income, in
other hand it does not include as untaxable object for Mustahiq. Hence, the
formulations are:

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C1 = a + b( βY − αY − t ( βY − αY )
, so that :.......................................................(7).
C 2 = δ [(1 − β )Y + αY − t (1 − β )Y ]
C = C1 + C 2
: C = a + b(β Y − αY − t ( βY − αY ) + δ [(1 − β )Y + αY − t (1 − β )Y ] ....................(8)
C = a + bβY − bαY − btβ Y + bαY + δY − δβY − δtY + δαY + δtβY

For APC and MPC value is asserted :

C α
APC = , z > 0 = + bβ − bα − btβ + btα + δ − δβ − δt + δα + δtβ ……………(9).
Y Y
dC
MPC = z > 0 = bβ − bα − btα + δ − δβ − δt + δα + δtβ ……………(10)
dY

C
C2=Z+E

Czakat C1+C2+I

C1+I

C without
zakah

FIGURE 3.1
INCOME DETERMINANT IN ISLAMIC AND NON ISLAMIC ECONOMY
Source : Eko Suprayitno (2005)

The graphic above shows that income determining process on two economic
systems. When there is not Z and E, in non-Islam economic, consumption is C.
investment as I is showed by C1+I. the condition under Islam economic where
C1+C2+I shows Islam aggregate outcome. Where c1 is the consumption outcome of
Zakah payer (Muzakki) and c2 is Mustahiq consumption outcome with assumption
there is no other income except Zakah. Generally it could be compared that Zakah
concept could raise consumption proportion of the poor.
Therefore, the more Zakah disbursed by Muzakki, the more in increasing the
amount of aggregate consumption created into economy. In spite of in Islamic
economic system, Zakah payer will transfer their excess income or wealth to Zakah
recipient which indirectly will promote the higher propensity to consume of Zakah
recipient. In contrast, in the Zakah payer side, they will reduce the consumption, and
turn into saving/investment activities. However, finally it also will create real
economy through investment project financing or credit instrument.

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TABLE 3.1
EFFECT OF INTRODUCTION OF ZAKAH AS A TAX ON SHORT-RUN SAVINGS
AT DIFFERENT LEVELS OF MARGINAL PROPENSITY TO CONSUME

MPC before Value of F1 (MPS Value of (1-a1) F1S of (1-a2) % decline in MPS
introduction after Zakah) MPS without as the result of
Zakah (a1) Zakah Zakah (a2)
1,00 0,000 0,00 0,00 0,0
0,90 0,1998 0,10 99,8 0,2
0,80 0,1990 0,20 99,5 0,5
0,70 0,2977 0,30 99,2 0,8
0,60 0,3960 0,40 99,0 1,0
0,50 0,4938 0,50 98,8 1,2
0,40 0,591 0,60 98,5 1,5
0,30 0,688 0,70 98,3 1,7
0,20 0,784 0,80 98,0 2,0
0,10 0,8802 0,90 97,8 2,2
0,00 0,9756 0,00 97,0 2,5
Source : Islamic Development Bank (1997)

The table below shows net effect from Zakah from Zakah payer and
moderation on MPC in Islamic economy system. Analyzing in terms of Muzakki’s
both MPC and MPS is to show that they will discourage to increase their desired
consumption and in contrast, they are force to store their income as productive fund in
investment purposes. According to the table above shows that there is a distinction
between MPS after and without Zakah. The MPS after Zakah initially shows in such a
way larger than MPS without Zakah. However, since MPC is 0,8, MPS without Zakah
is larger. But, when MPC is 0, MPC without Zakah shows 0 as well, but MPS with
Zakah indicates 0,97. It means, in Islamic Economy, although MPC of Muzakki is
spent out all, they are still keeping a small of MPC and promote larger amount of
MPS. So that, Islamic economy is always keeping in mind a balanced-economy-
concept.
And then the impact of Zakah toward poor is describes as follows. Zakah must
be given as a direct transfer payment to the poor. The hope is the poor are sufficient
enough to take care of their basic needs. Accordingly, they are able to establish their
own means of livelihood, utilizing a combination of their own human and material
resources by Zakah given. The Zakah distribution, therefore, at raising not only the
income of the poor and their capital but also raising their ability to make responsible
decisions concerning the use of their income. Improvement income of the poor means
increase their consumption of goods and services, and raising their opportunity to
access educational facilities, health, nutrition, and in general, improvement in the
welfare of poor families. These improvements are commonly a major requirement in
increasing the productivity of the poor. Fogel (1994) stated that fulfillment of the
basic needs of lower income classes tend to increase their productivity. Productivity
level is measured by (1) an increase in labor force contribution (increasing the amount
of working hours and days) as a result of health and nutrition improvement, (2)
improvement physical, psychological, and spiritual abilities of the poor, which is
called “intensity of work per hour”. So that, the poor have abilities to make better
efficiency to convert energy into work output.

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3.1.2. Zakah and Investment

We try to analyze with the Zakah distribution method and hopefully it can
help the government to reach the target with Islamic macro approach. In Metwally’s
theory of investment (1995: 73), the function of investment is formulated with: I =
ώ(r,Za,Zp,m)
And r=r(SI/SF)
Where,
I = investment demand
R = expected profit rate
SI = investor financial loss/ profit share
SF = debtor financial loss/profit share
Za = Zakah rate of undeveloped asset
Zp = Zakah rate of investment profit
m = other outcome except Zakah of undeveloped asset

But, because of Za=Za and Z=Zp (Zakah rate is constant) so the formulation is:
∂I ∂I
I = ώ (r,m), where > 0, >0
∂r ∂µ

According to the formulation the investment demand will increase if

a. The unexpected profit increase
b. Premium rate of undeveloped asset increase

After studying Islamic investment philosophy, the relevance to affect the poor
income through Zakah instrument is
Y = C + S ;...(1) , Y = C + I ;....(2) ,hence,
S = I ………………………………………………………………..………..(13).

So : S = I = Y − a + b(βY − αY ) + δ [(1 − β )Y + αY ] …………………..………….(14).

Where, a = the Zakah that must to be paid.

But in that formula has not count tax that must be paid by Muzakki yet and
Mustahiq is not obligated to pay tax. bY is considered as Zakah payment income
which dominate one part of national income and the rest (1-b)Y is Zakah receiver
income. If government transfer is zero and tax (Tx=tY), the investment formulation
without commerce Zakah variable: (Ausaf Ahmad, 1987)

I = Y − a + bβY − btβY + δY − δbY − δtY + δtβY ;

whereas………………………………………………………………………....(15).
I α
API = , z = 0 = 1 − + bβ − btβ + δ − δt + δtβ
Y Y
……………………………(16).
∂I
MPI = , z = 0 = 1 − bβ − btβ + δ − δt + δtβ
∂Y

If Zakah variable is put into the zY in the equation, it will decrease taxable
income of Muzakki and it does not include tax object for Mustahiq. So the
formulation is needed to rewrite.
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Based on this analysis, the investment function in Islamic economy is as follows

I = Y − C
I = Y − C 1 − Z − E
I = − α + (1
− z − γ )(1 − b )Y
1
Y = (α + I )
(1 − z − γ )(1 − b )
…………………………………........................................................................(17).
Where, z = the sum of Zakah collecting in economic system
E = the wholly infak and sodaqoh payment

I Conventional

I Islam

Y1 Y2

I=I0

PICTURE 3.2.
INCOME DETERMINATION VIA INVESTMENT IN ISLAMIN AND
NON-ISLAMIC ECONOMY
Source : Supriyanto (2005)

The income determination process in Islamic economy could be tested with a

diagram. It is expected that economic condition is in the close economy system,
aggregate investment is counted at the vertical line and consumption aggregate at the
horizontal line. In the picture above the investment slope in Islamic economy is
smaller or flatter than conventional. It means that the slope in Islam has the elastically
elasticity, that is the change in incoming rate has the high sensitivity toward the
variable changing investment. It means in the Islamic concept, if the population
income is in the proper rate it will accelerate investment movement and cause the
income balance in the higher level.

3.1.3. Zakah and Tool of Economy Policy

Keeping in mind as mentioned above regarding with particular assumption
stated that government has power to determine whether Zakah paid in cash or in kind.
Of course, government cannot change the rate of Zakah, nor the exempted items.
However, the Islamic Government can use the collection as a means of influencing
the economics activity in their society. The same thing applies to Zakah distribution.
The principles is that the method most convenient to the poor. For instance, if the
government aims to enhancing production and employment, so that Zakah may be
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collected in kind, because this reduce the inventories of Zakah payers, and induces
producers to replenish their shelves. On the other hand, if government would supply
the liquidity in the economy, or attract market signal for a rise in income and output, it
may collected and disbursed in cash. Finally, Zakah could be used as fiscal policy and
instrument to influent the economy. However, keeping in mind that it will be
powerfully implemented if the amount of Zakah proceed is assumed not to be
negligible as a percentage of GNP.

3.2. The Picture of Poverty

3.2.1. Poverty Profile in Malaysia
Poverty in Malaysia is predominantly happening in rural area. Rate of poverty,
particularly who work in agricultural sector are considerably higher. Therefore,
Malaysian Government has emphasized several strategies to mitigate poverty such as
agricultural development program, export of labor-intensive manufactured goods,
public investment in Education, Health, and infrastructure improvement. Figure below
shows the incidence of Poverty in Malaysia over last three decade between 1970-
2002. According to the figure, Government seemly is successfully in mitigating the
rate of poverty until more than 40 percent over three decade.

GRAPHIC 3.1
INCIDENCE OF POVERTY, MALAYSIA, 1970-2002
Source : Malaysia’s Millennium Development Goals, 2005

To gauge the profile of poverty in Malaysia, this paper is also trying to convey
several parameter that is able to indicate the poverty measurement and performance,
as follows the “ poverty gap index” which indicates the distance between the average
income of the poor and the poverty line. Table 3.1 below clearly provides details
information about the poverty gap (P1) and squared poverty gap (P2) based on World
Bank Poverty line (US1$ per day). According to the figure, the average gap between
the standard of living of poor households and the poverty line continued to decrease
during 1995 and 1997. Thus, it can be justified that Malaysian’s Government is
considered significantly successful in terms of reducing the number of poor people.

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TABLE 3.2.
POVERTY MEASUREMENT, MALAYSIA, 1984-2004
Survey
Means$ PL H(%) PG(%) SPG(%)
Year
1984 241,67 38,0 3,22 0,66 0,23
1987 233,14 38,0 2,39 0,36 0,09
1989 228,00 38,0 1,91 0,29 0,08
1992 253,06 38,0 1,62 0,14 0,02
1995 263,29 38,0 2,08 0,26 0,05
1997 328,17 38,0 0,54 0,05 0,01
2004 204,31 38,0 0,54 0,06 0,01
Source : PovcalNet, World Bank, 2006, www.worldbank.org

3.2.2. Poverty Profile in Indonesia

As matter of fact that the economic crisis obviously has a significant effect
such as production volume reduction that affect in the increasing of the termination of
employment. According to the Department of Labor’s expectation, the number of
unemployment in 1998 reached number 15,4 million or approximately 17,1 % of 90
million people, moreover World Bank expect for about 21 %. This increase causing
the raise of the poverty number because it makes the society purchasing power per
capita decline.
Later, Central Bureau of Statistics (BPS) informed the number of poverty
population in Indonesia in the middle of 1998 reached 79, 4 million or 39,1% from
202 million total population (table 1.1). It shows that the number of poverty
population absolutely increase for 56, 9 million since 1996 (the last susenas)1. In
1996, the number of people under poverty line is 22, 5 million, which 7, 2 in the city
and 15,3 in the village. But in 2006 the poverty level2 increased to 17, 75% or about
39, 05 million. From this number, it could be predicted that the number of poor
household is 19, 1 million which include 2,8 million is very poor, 8,2 million is poor
and 6,9 million is close by poor. This increase is presumed as the cause of the effect
from the cutting of refined fuel oil subsidy3.
The above condition basically is contrast in terms of the concession made that
has resumed in MDGs (Millennium Development Goals) program. As we know that
in 1990, United Nations declared “Millennium Development Goals” MDGs which
should to be reached by 191 countries, include Indonesia, for next 15 years (in the end
of 2015)4, and the one of the target is poverty and extreme starvation alleviation. It
could be realized by SBY when he succeeds to make the declining of poverty level
from 16% (2005) to 8, 2% in 2009 (Hadar, 2007)5. In spite of that condition,
Indonesia has developed some programs as feedback and implementation of that
international commitment, such as declaring the national movement of housing
development, poverty trust fund, transmigration, and open the opportunity for worker
as Indonesian blue-collar worker (TKI). However, having evaluated extensively in

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2008, poverty reduction program is not significantly reducing the rate of poverty. The
information details provides below according to Minister published by National Mass
Media, as follows :

TABLE 3.3
MDGS EVALUATION IN ALLEVIATION POVERTY SECTOR
MDGs Notes
- Poverty increased in 2006
- Children malnutrition: update condition 26%, target 18%,worse status :
1 high and increase
- Insufficient calorie consumption: update condition 64%, target 35%,
status: no advance: high and static
Source: Kompas (May 30, 2007)

The measurement of poverty also has been done by World Bank that stated the
poverty gap rose slightly after crises. Although after crises the poverty measurements
are going to be better off, but the severity of poverty tends to increase because of
economic turbulence over post crises in the mid 1997. Table below shows the
poverty measurement in Indonesia since 1987-2002,

TABLE 3.4
POVERTY MEASUREMENT, INDONESIA, 1987-2002
Survey
Means$ PL HL (%) PG(%) SPG(%)
Year
1984 36,72 38,0 65,20 9,88 9,88
1987 34,75 38,0 70,54 10,18 10,18
1990 40,50 38,0 57,12 6,03 6,03
1993 39,84 38,0 58,14 6,18 6,18
1996 46,06 38,0 46,73 4,20 4,20
1999 41,24 38,0 53,42 5,12 5,12
2002 52,53 38,0 33,35 1,98 1,98
2005 62,79 38,0 24,01 1,61 1,61
Source : PovcalNet, World Bank, 2006, www.worldbank.org

Therefore, the poorest became poorer, and among the poor, the absolute and
relative poverty is more significant after the financial crisis seems to have reduced
inequalities at other income levels. After 1999, there was a decrease in poverty rate,
even in 2002 the poverty gap and severe poverty gap reached the lowest point in
observation (0.91% (P1) and 0.18% (P2)). There will usually be a group of more
permanent „hardcore‟ poor, while others drift in and out of poverty. It is important
therefore to consider not just those who are currently poor, but also those who are
vulnerable to poverty – capable of falling below the poverty line at any point. This is
a much larger group of people – variously estimated at between one-third and one-
half of the population (Islam, 2002). These are people vulnerable to many different
kinds of shock, such as sudden price increases, or the loss of employment, or family
sickness. Women appear to be the most vulnerable because they already earn less than

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men also those working in agriculture – both men and women – also tend to be in a
more precarious position (UNDP et al., 2004).

3.3. The Potential of Zakah in Poverty Alleviation

In order to assess potential Zakah in alleviating poverty, we need to quantify
in terms of the number of the poor in an economy. Subsequently, we need to calculate
the funds required to uplift the poor out of poverty. Then, we would calculate the
potential amount Zakah than can be collected in the economy. Finally, the scope of
Zakah for alleviation poverty could be looked at comparatively from the funds needs
for poverty alleviation and the possible Zakah proceeds over particular term.
According research done by Habib Ahmed (2004) that he came out within cross-
country analysis and trying to measure poverty through a certain poverty line. Thus, a
simple method has taken to estimate the minimum amount needed to bring the poor
above the poverty line. So that, Ahmed has divided into two groups, namely the poor
in group one, receiving 1US$ per day and assuming it directly would be transferring
to individuals in that group. Likewise, the difference treatment is given to the another
group, group 2 which is transferred 2 US$ in order to bring it up poverty line.
Accordingly, to make clear that how far generating income is able to mitigate poverty,
we also need to compute the percentage of GDP required. Table below will show the
effect of income distributed to GDP required needed as much as I US$ per day

TABLE 3.5
POVERTY GROUPS AND PERCENTAGE OF GDP REQUIRED TO RAISE INCOME BY
US$1 IN MALAYSIA
Percentage of GDP Required for
Group 1 Group
GDP Per poverty Alleviation
Year (%Pop<U 2(%Pop<2US
capita (US$) Group
S$/day $/day) Group 2 National
1
1984 2160,84 2 14,97 0,15 0,95
1987 2106,82 2 14,69 0,14 1,17
1989 2398,93 2 13,92 0,13 0,88
1989 2398,93 0,98
1992 2881,58 2 13,84 0,11 0,75
1995 3510,15 2 13,97 0,09 0,65
1997 3938,13 2 9,25 0,10 0,46
Source : Karomah (2009,p.26)

According to the table we can see that there was considered steady trend of
reducing the percentage of the poor, however the income per capita tended to steadily
increase overtime. Regarding with required GDP seemed to be less enough because
still less than 1 percent.
Unlike in Malaysia, the poverty performance in Indonesia reveals a different
thing. According to the table, Zakah will be effective as an alternative to eradicate
poverty if the Zakah collected was equal with at least 3.1 percent of national GDP. So
that, by utilizing these funds, it is fully expected that the number of poverty is able to
be enormously mitigated. Accordingly, the GDP required tends to raise if poverty line
stated is higher 1 US$ to 2 US$ (approximately 21,6% of GDP). Unfortunately, the
problem incurred in Indonesia is not much different as compared with Malaysia,

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namely less than 1% per annum. Table below clearly shows the poverty groups and
percentage of GDP required to raise income 1US$ per day

TABLE 3.6
POVERTY GROUPS AND PERCENTAGE OF GDP REQUIRED TO RAISE INCOME BY
US$1 IN INDONESIA
GDP Per Percentage of GDP Required for
Group 1 Group
capita (US$) poverty Alleviation
Year (%Pop<U 2(%Pop<2US
(Constant 2000
S$/day $/day) Group 1 Group 2 National
US$)
1987 510,75 28,15 20,12 61,61
1993 730,26 17,39 8,69 32,08
1996 877,75 13,93 5,79 24,66
1996 877,75 15,7 6,53
1999 772,63 27,1 12,80
2000 800,64 55,38 3,28 25,27
2002 844,30 55,42 3,10 21,64
Source : Karomah (2009,p.26)

Having seen the profile of number of poverty incurred based on a certain

measurement, now we are moving up to look at the scope and potential of Zakah in
reducing poverty. It means that the desired total amount of Zakah that can be
collected as compared with the Zakah rate applicable at the GDP level is needed.
According to Salama (1982) and Al-Thahir (1997), the appropriate estimates vary
from 2% up to 14%. This paper is trying to use approach developed by Kahf (1987),
whereby he used the average of several opinions and determine it to 1,8% and 4,3%.
This paper is attempting to utilize it in a such case for Malaysia.
Table below will show you in terms of the number of poor who’s income
supposed to be increase by 1US$ per day as impact transferring Zakah to individuals.
Accordingly, according to the table, the amount of poor people enormously are
affected by calling on Zakah as instrument of distributive income. These conditions
are probable incurred under a certain assumption that Zakah collected as a proportion
of GDP exceed the minimum required of poverty reduction. The table in detail
provides apparently information that by using 1,8% and 4,3% of Zakah collection,
absolutely 100% poor people are able to uplift their income by 1 US$ per day.

TABLE 3.7
PERCENTAGE OF POOR WHO’S INCOME CAN BE INCREASED
BY 1US$ THROUGH ZAKAH
Zakah Collection by 1,8% Zakah Collection by 4,3%
Year
Group 1 Group 2 Group 1 Group 2
1984 100,00 100,00 100,00 100,00
1987 100,00 100,00 100,00 100,00
1989 100,00 100,00 100,00 100,00
1992 100,00 100,00 100,00 100,00
1995 100,00 100,00 100,00 100,00
1997 100,00 100,00 100,00 100,00
Source : Karomah (2009,p.26)

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The another table below shows the potential Zakah in poverty alleviation in
cross-countries. According to table, the percentage of the poor is going to increase as
much as the larger amount of GDP percentage proportion toward Zakah proceeds.
Niger, Mali, Burkina Faso, Mozambique, Gambia, the revenues generated only enable
to lift up their poor’s percentage less by US$1 per day less than 10% both using
Zakah rate 0f 1,8% and 4,8%. On the contrast, Morocco, Jordan, and Tunisia record
that almost 100% the percentage of poor whose income can be increased. The
effectiveness of Zakah rate portion as compared with GDP also is determined by
capacity building in terms of establishing accountability in Institutional Framework,
promoting the professionalism in administration, and keeping strong commitment
among each other to gather poverty alleviation.

TABLE 3.8
PERCENTAGE OF POOR WHOSE INCOME CAN BE INCREASED BY US$1 PER DAY BY
ZAKAH TRANSFERS
GDP per Capita Zakah Collection by Zakah Collection by
Country
(US$) 1,8% 4,3%
Niger 208 1,7 1,2 4,0 2,9
Mali 292 2,0 1,6 4,7 3,8
Burkina Faso 250 2,0 1,4 4,8 3,4
Mozambique 213 2,8 1,3 6,6 3,2
Gambia 382 3,2 2,3 7,6 5,4
Bangladesh 386 6,5 2,4 15,6 5,8
Pakistan 517 8,2 3,0 19,7 7,2
Mauritania 502 8,7 3,6 20,7 8,6
Yemen Rep 316 9,9 3,5 23,7 8,2
Cameroon 696 10,3 5,3 24,5 12,7
Senegal 629 11,8 4,6 28,2 10,9
Cote d’lvoire 715 28,7 7,1 68,4 17,0
Uganda 355 60,3 5,6 100 13,5
Turkmenistan 1587 64,7 17,8 100 42,5
Indonesia 1034 66,3 9,2 100 22,0
Uzbekistan 512 76,5 9,5 100 22,8
Azerbaijan 460 100 23,6 100 56,5
Egypt 1229 100 11,5 100 27,5
Morocco 1436 100 94,4 100 100
Algeria 1616 100 52,8 100 100
Jordan 1639 100 100 100 100
Kazakhstan 1712 100 55,2 100 100
Turkey 2873 100 76,1 100 100
Tunisia 2562 100 100 100 100
Sources : World Development Indicators, World Bank, 2002,2003

Unfortunately, results from the potential Zakah collection above to alleviate

poverty is not suppose to be very promising, while looking at the actual collection are
underestimated and more discouraging. As shown in table 3.8 below that Zakah
collected in Egypt and Jordan during 1986 relatively small, namely are 0,02% of
GDP. While Saudi Arabia recorded only 0,01% during mid-1970s. Then, Kuwait and
Malaysia accounted for as much as in terms Zakah calculation,0,08% respectively.

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Even in Indonesia, in 2009 indicated around 0,02%. Among countries listed above,
Pakistan, according to Kahf estimation calculated as the largest in terms of Zakah
collection, roughly 0,30%.
TABLE 3.9
ZAKAH COLLECTIONS AS A PERCENTAGE OF GDP
Country Zakah Collections (as percentage of GDP)
Egypta 0,02
Jordana 0,02
Indonesiad 0,02
Kuwaita 0,08
a
Pakistan 0,3
Saudi Arabiab 0,01
Malaysiac 0,08
a.
Kahf (1993) for the year 1985
b.
Salama (1982) for the year 1975/1976
c.
Estimated from 2001 data on Zakah collections and GDP
d.
Syauqi Beik, Irfan (2009)

4. POLICY IMPLICATION

Given the above discussion, the important policy that should be issued by
government is the notion and action to promote the level of income, either the
productive household that lack the means and opportunities to earn decent income
levels, or the non-productive household that lack resources and entitlements. The
power of Zakah can be simultaneously done by incentive policies, macroeconomic
policies, and regulatory policies. All of these are eventually formulated into poverty
reduction strategies coverage by Zakah transferred. Appropriate sectors need to
develop, such as improvement of fiscal, monetary, sectoral policies, external
vulnerability whereby ultimately affect to enhance income of Zakah payer (calculated
as proportion of GDP) and growth of an economy. Again, policy redistribution
through distribution of opportunity and income should be brought up as priority
orientation as well. In spite of promoting opportunity, facilitating empowerment, and
enhancing security for the poor are considered as Zakah oriented-public policy to
optimalize the Zakah’s objectives. Finally, Zakah should be an alternative policy to
create opportunities in enhancing entitlements of the house hold or generating
capacity building, such as increasing trade capacity by providing the poor financial
capital to acquire the necessary inputs, improving production ability based on training
in terms of human capital, and establishing own-labor productivity based on skill and
knowledge.
In addition, having mention above that the power of Zakah in poverty
alleviation or reduction is regarding to the amount of Zakah collected as proportion of
GDP. In short, generating the amount of Zakah collected seems to be a priority and
main concern. However, lower Zakah collected is merely because of the small number
of Zakah payer imposed Zakah. The problems, issues, are related also with the Zakah
administration which is naturally going on in terms of assessment, coverage,
collection, and so on.
a. Fiqh Related Problems. It seems to be a source of problem in the
administration of Zakah. The fiqh problem, for instance, the scope or Zakatable
assets which are imposed Zakah because each countries tends to follow the
rules set by their traditional fiqh literature or local scholars. In Sudan, Zakah is
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not imposed on financial assets, and while in Saudi Arabia fixed business
assets are excluded from Zakah. If the unresolved fiqh do not deal yet, it may
affect to introduce the institution of Zakah, and in turn reduce the potential
Zakah collected from the Zakah payer
b. Coverage of Zakah. Different perspective in Zakah administration has
impacted the Zakatable resources for Zakah collection. for instance, in Saudi
Zakah is only imposed to “Zakah al-mal” excluding bank accounts and cash
assets. Moreover, in Malaysia every state has their own law for administration
of Zakah because of depending to the religious affairs which are under the state
of religious departments. For example, in the state of Kedah, Zakah collection
is only collected from paddy, and not other agricultural crop (Othman et al
1990. P.20).
c. Zakah Payment Through Non-Official Channels. One important issues which is
related with Zakah collection is Zakah payment to non-official channels. For
instance in Kelantan State which is only two-third of total Zakah are to paid to
the official channel (Othman 1990,pp.17-18). In Malaysia, the reasons for
payment of Zakah through non-official channels include ( Sadeq, 1994) : (1)
inconvenience of going to the council’s office which collects Zakah, (2)
inefficiency of the council’s collection efforts, (4) satisfaction received by
giving Zakah to known people, and also (5) political factors behind (Ghazali
1998,p.17). Meanwhile, sometimes, the Zakah payers believe that it is more
religious to pat and disburse by themselves rather than giving to the state
(Salama 1990,0.4).
d. Administration cost. The portion of administration cost determines how
efficient the administrators is. The spirit of disbursement Zakah to amil is to
administer the Zakah distribution in order to achieve the Zakah’s objectives. In
the case of Malaysia, the Zakah employees received 34% of the total
disbursement in the state of Perlis in 1985 as compared to 14% for
Fakir/Miskin. Again, the administrative cost was even higher in the Sate of
Negeri Sembilan during 1978-1982, which was 52% of Zakah disbursement
(Hasan, 1987,p.87). therefore, a need to develop an efficient and effective
mechanism of Zakah administration needs to be thought in order to optimalize
the redistribution of income from the rich to the poor.

TABLE 4.1
DISBURSEMENT OF ZAKAH ACCORDING TO BENEFICIARY TYPE IN THE
SATE OF NEGERI SEMBILAN (2002) (IN MILLIONS OF RM)
Amount of Zakah Percentage of Zakah
Beneficiary Type
Disbursed Disbursement
Poor and Needy (Faqir and Miskin) 2.573 21,3
Administration (Amil) 2.709 22,4
New Converts (Muallaf) 0,902 7,5
Bonded Persons (Riqab) 3.424 28,3
Indebted Persons (Gharim) 0,018 0,1
In The Path of Allah (Fisabilillah) 2.313 19,1
Wayfarer (Ibnu Sabil) 0,141 1,2
Total 12.082 100
Source : Baitumall, Negeri Sembilan Documents

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5. CONCLUSIONS AND SUGGESTIONS

CONCLUSIONS
Poverty happens to be acute diseases of social development, particularly to
promote welfare state and welfare societies. The another reason why poverty have to
be alleviated because of poverty is usually meant to be deprivation of wellbeing, and
basically there are many factors that cause it and various approaches to explain the
concept. Basu, 1984 stated that poverty is close to the condition whereby poor are
weak and vulnerable to hostile factors and events beyond their control. Again, poverty
is characterized to be persistently in what referred to as the vicious circle of poverty
Islam provides Islamic tool that has completely proved in combating poverty.
Institutional of Zakah has played important role in taking out Muslims from poverty
trap. Keep in mind the fact that the main objective of Zakah is the achievement of
socio-economic justice is not disputed (Kahf, p.2). Metwally (1983) also stated that
the Zakah disbursement has the ability to increase consumption since the marginal
propensity to consume of the Zakah payer is lower than the Zakah recipient, so that
increasing the purchasing power parity of the poor. Consequently, in Islam transfer
payment, from the wealthy to the poor for the purpose of redistribution of wealth and
income in the society has been taking a central principle in building the Ummah.
Furthermore, redistribution concept is also established that the Quran and the Prophet
act (Sunnah) do have overwhelming evidences which indicate that Islamic system do
not recognize and like any form of concentration of wealth or income in a few hands.
Therefore, the power of Zakah to poverty alleviation could be looked from
theoretical aspect and empirical evidence. The impact of Zakah could be regarded in
terms of consumption variable and investment variable. Thus, the more Zakah
disbursed by Muzakki, the more in increasing the amount of aggregate consumption
created into economy. In spite of in Islamic economic system, Zakah payer will
transfer their excess income or wealth to Zakah recipient which indirectly will
promote the higher propensity to consume of Zakah recipient. In contrast, in the
Zakah payer side, they will reduce the consumption, and turn into saving/investment
activities. However, finally it also will create real economy through investment
project financing or credit instrument.
The power of Zakah toward poverty alleviation can be observed by looking at
the scope and potential of Zakah, namely comparatively calculate the desired total
amount of Zakah than can be collected as compared to the the Zakah rate applicable at
the GDP level is needed. Whereby, Kahf (1987) had stated his opinion to utilize the
average of several opinions and determine it to 1,8% and 4,3% of GDP.
Unfortunately, results from the potential Zakah collection above to alleviate poverty is
not suppose to be very promising, while looking at the actual collection are
underestimated and more discouraging because of the Countries’s Zakah percentage
of GDP are less than 1% of GDP.
Given the above discussion, the important policy that should be issued by
government is the notion and action to promote the level of income, either the
productive household that lack the means and opportunities to earn decent income
levels, or the non-productive household that lack resources and entitlements. The
policy implication are both internal improvement and external improvement within
Zakah Institution its self.

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 Seventh International Conference – The Tawhidi Epistemology:
Zakat and Waqf Economy, Bangi 2010

Incentive policies, macroeconomic policies, and regulatory policies are policies

that are needed to promote and encourage Zakah collection. However, The others
issues and problems that need to be considered in to consideration are regarding
Zakah administration, namely
a. Fiqh Related Problems.
b. Coverage of Zakah.
c. Zakah Payment Through Non-Official Channels.
d. Administration cost.

SUGGESTION
The suggestion in this paper is related to the Power of Zakah distribution
poverty alleviation are as follows:
1. Government and Social Community should promote about Zakah in order to
enhance the awareness to the Moslem in terms Zakah as medium of poverty
reduction.
2. It should optimalize the role of ulama’ (fuqaha) to help amil to administer
Zakah particularly regarding with the law of Zakah as regulated in Qur’an and
Hadits
3. Zakah should be administered with Government regulation, and Zakah is
considered and stipulated as compulsory or mandatory payment to all Muslim
in order to maximize the Zakah transferred from the roch to the poor

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 THE POWER OF ZAKAH IN POVERTY ALLEVIATION
Dimas Bagus Wiranata Kusuma & Raditya Sukmana

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