The Role of the Waqf and Zakat as Islamic Social Finance Institutions on Sustainable Development

Abstract

Many Fiqh scholars have gone as far as to argue that when paying Zakah on stocks or shares, one must first deduct all real estate and fixed assets of the firm (Adnan & Abu Bakar, 2009). They justify this by the Ahadith that exempt tools of craftsmen and work animals of farmers from Zakah, such as a bullock used for ploughing (Al Zuḥaylī, 2001, Vol. 2). They drew an analogy between the tools of individual farmers or workers and today’s assets of large corporations. However, most real estate in today’s world did not exist a hundred years ago, and most current global wealth is invested in this type of assets. By not applying Zakah to major items of modern wealth, we face two main problems: on the one hand, we might infringe on the primary sources of Islam. On the other hand, Zakah collection might drop to meaningless levels and thus fail to fulfill its role as a pillar of Islamic faith and Islamic Economics. Consequently, Zakah may not play a significant role in poverty alleviation, although it has the potential to do so, as has been shown in several studies in various countries (Abdelmawla, 2014; Hassan & Khan, 2007). Several scholars in recent times have thus called for the inclusion of these types of wealth and income to fulfil the purpose of Zakah (Zarka, 1984; Kahf, 1989; Al Maṣrī, 1999). The consideration of new asset classes or means of payment is of utmost importance, as demonstrated by the rise of cryptocurrencies (Muneeza et al., 2023). One possible reason for the exclusion of these assets by Fiqh scholars is that real estate for investment purposes and business fixed assets were neither widespread nor did they constitute a major part of wealth or income during the lifetime of the Prophet (sas) and many centuries later. This could explain why the Prophet (sas) did not explicitly mention the zakatability of those assets. If the role of these assets was negligible, then the dominant Fiqhi perspective was justified for such a particular reality. If the share of commercial real estate and business fixed assets in the capital structure of the economy during the lifetime of the Prophet (sas) was significant, then this hypothesis would be disproven. The following paper intends to test this hypothesis. If the hypothesis is correct, this would allow for a reconsideration of the zakatability of these wealth items and contribute to the Fiqhi discourse. The enlargement of the Zakah pool in harmony with the primary sources, as well as today’s reality, could have major practical implications, including a reduction in inequality and accelerated poverty alleviation (Sulaeman & Sukmana, 2023). Otherwise, Zakah collection will remain at ineffective levels, as is the case in several Muslim countries (Asfarina et al., 2019).