Philosophies of charitable giving vary from culture to culture, as do allocation models. The Islamic faith takes a relatively straightforward approach: those whose earnings exceed a certain threshold must pay Zakat, or 2.5% of their qualifying wealth, to charity every year.
As the third of the Five Pillars of Islam, Zakat (also referred to as Zakah) is a core tenet for Muslims seeking to live a complete, faithful life. At the same time, it offers substantial and much-needed funds for individuals and communities across the globe.
While primarily monetary in nature—though in-kind donations are allowed—Zakat runs deeper than simply sending a payment to a nonprofit, according to the UK-based National Zakat Foundation. “It’s a unique form of religious social welfare which benefits the whole community,” the NGO says, adding that it provides a social safety net for Muslims in need while offering those more fortunate a way to “cleanse their own wealth.”
The bulk of Zakat is paid during the holy month of Ramadan. In some countries, the government collects and distributes the funds, while in others, third-party agencies handle the responsibilities. In non-Islamic countries, payments are sent to nonprofits, mosques, or directly to an individual needing assistance.
To determine the level of giving, Muslims calculate their eligible wealth above the nisab, which equals the value of 3.1 ounces of gold or 21.6 ounces of silver. Assets used to calculate wealth include stocks, mutual funds, retirement savings, precious metals, livestock, business inventory, and agricultural products, according to the Hidaya Foundation.
To ensure that individuals meet their responsibility annually, planning for Zakat is an essential element of Islamic investing. The payment is due by the end of the Islamic lunar New Year, and missing it is considered a sin.
Zakat and the SDGs
Given the varied nature of Zakat, determining the global annual level of giving is challenging, although the UN Development Programme reports that it totals between $200 billion and $1 trillion.
The emphasis on the impoverished and disadvantaged contributed to the decision of the Organization of Islamic Cooperation, which represents more than 50 countries, and the Islamic Development Bank to align with the UN’s Sustainable Development Goals (SDGs) shortly after they were ratified in 2015. Ties to the UN further led to the Refugee Zakat Fund‘s founding in 2019 to effectively channel annual giving to refugee and displaced families. In its first year, the organization received $43 million in contributions.
Pre-pandemic, UN officials cited an annual $2.5 trillion gap in financing to fulfill the 2030 Agenda, which includes the SDGs. Support from the Islamic investing community can help shrink that shortfall.
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