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Sponsors:
Islamic Research and Training Institute, IDB
Islamic Economics Research Bureau
Islami bank Bangladesh Limited
Abstract
The paper, first, analyses inadequacies of the market mechanism as well as the
current interventions both at government and non-governmental levels under it as tools of
poverty alleviation and points out the need for introducing a continuous basic minimum
initial asset/capital transfer mechanism like Zakah as follows:
Government safety net programs are often seasonal, poorly covered and aptly
regarded as least organized thereby having very marginal impact on poverty. The
important government safety net programs are Food for Works (FFW), Food for
Education (FFE), Vulnerable Group Development (VGD) Program for disadvantaged
women, and Test Relief (TR). It should be noted that the safety net programs are based
on donors’ humanitarian grants with high degree of fluctuations. At the same time, it is
hardly a net transfer mechanism since FFW, the major component of the safety net
programs, is given as wage to construct and repair rural infrastructure.
Market mechanism, on the other hand, has nothing to do with poverty except the poor
receive something by its trickle down effects emanated from higher growth. Setting
safety nets for the poor is an out of the market solution, which has been proved to be
extremely insufficient in taking care of poverty. Government transfer mechanism, another
out of the market intervention, works heavily against the poor favouring more who are in
higher income echelons.
small amount of loan hardly more than Tk. 5000/-. This puts borrowers’ sustainability
at stake; and,
The micro-finance institutions are mostly based on donors’ funds, which is not by
nature sustainable.
1. Introduction
In a situation of poor response to the public management of Zakah fund after
enactment of Zakah Act in Bangladesh, there should be a fresh look to the reasons why it
is so and what could be a new approach to organizing collection and disbursement of
Zakah. To this author, public management of Zakah in Bangladesh could not gain
adequate trust because of the nature of the government and the fact that payment of
Zakah by the Zakah Act has been made voluntary. Assuming that the present Zakah Act
will continue to be with same characteristic until a qualitative change in the nature of the
government, the paper attempts to respond to the query in Section-1 why an initiative of
the type of a pilot scheme should be undertaken. Section-2 argues why current safety net
programs of the government and the microfinance activities of NGOs can exert very little
effect on poverty and why Zakah (a regular transfer mechanism) needs to be put in place
to effectively address the poverty issue. Section-3 presents strengths of Zakah as an
effective poverty alleviation tool. While Section-4 deals with who should take the
initiative, Section-5 illustrates how the program should be approached. Section-6 tables a
preliminary thought “PARSHI” – The Neighbourhood Model and Section-7 provides a
brief idea on how to attempt institutionalisation of the PARSHI Model
Zakah collection by National Zakah Board has come down to a million for the past
few years. Zakah administration at governmental level has virtually been non-functional.
This reflects lack of confidence on the government machinery as regards its eligibility of
∗
Policy Leadership and Advocacy Unit, Ministry of Women and Children Affairs, Government of the
People’s Republic of Bangladesh.
collecting and disbursing Zakah. The other most important factor for undertaking
community initiative of Zakah management is the persisting high percentage of below
poverty line population in spite of so-called successful interventions by NGOs. This has
become rather inevitable when the traditional NGOs’ target group approaches face
difficulty in reaching the ultra poor. Following discussions throughout Section-2
summarises author’s recent policy research on the subject.1
Bangladesh has been ranked 139 (among 177 countries) in the Human Development
Report 2005 and categorized as one of the poorest countries of the world and worst
performer in South Asia. As per Human Poverty Index (HPI-1), Bangladesh ranks 86th
among 103 developing countries with HPI-1 value 44.1% again being worst performer in
South Asia.2 About half of its population live below poverty level in terms of per capita
daily calorie intake. Poverty line defined accordingly provides a worrisome picture of
poverty situation in Bangladesh. Rural population below poverty line is estimated to be
46% in 1993, which has declined to 40% in 1997. Below poverty line urban population is
reported to be 43.3% and 43.4% respectively during the same period.
Rural Bangladesh
Of the total 98.77 million rural populations in 1999 (model generated), 5.2 million are
ultra poor representing 4.1%. Number of moderate poor is estimated to be 54.37 million
representing 42.7% of the rural population.3
1
Akkas, S. M. Ali (1999). Simulating Role of Zakah in Poverty Alleviation of Bangladesh under a
Dynamic Computable General Equilibrium Model, Policy Studies Series 1, Centre for Development
Studies and Services Network (CDSSnet), Dhaka.
2
HDR 2005 – Country Fact Sheets, Bangladesh,
http:/hdr.undp.org/statistics/data/country_fact_sheets/cty_fs_BGD.html
3
Akkas, S. M. Ali (1999). Simulating Role of Zakah in Poverty Alleviation of Bangladesh under a
Dynamic Computable General Equilibrium Model, Policy Studies Series 1, Centre for Development
Studies and Services Network, Dhaka.
Urban Area
Government safety net programs are often seasonal, poorly covered and aptly
regarded as least organised in terms of leakage. The important government safety net
programs are Food for Works (FFW), Food for Education (FFE), Vulnerable Group
Development (VGD) Program for disadvantaged women, and Test Relief (TR). Among
these programs FFW is the largest, but the fastest growing and second largest program is
the FFE. The author’s same study depicts extent and coverage of the safety net
interventions. It is evident that the highest level of delivery of these programs took place
in 1995-96 distributing 1078 thousand metric tons of wheat costing Tk. 13,970.9 million
4
Ibid
5
Ibid
and 70 thousand tons of rice valued Tk. 907.2 million. That means, food grains costing a
total of Tk. 14,878.1 million were distributed in 1995-96. It should be noted that the
safety net programs are based on donors’ humanitarian grants with high degree of
fluctuations. At the same time, it is hardly a net transfer mechanism since FFW, the major
component of the safety net programs, is given as wage to construct and repair rural
infrastructure.6
8%
have at their disposal a [low education HH] 5%
[illiterate HH] 8%
8%
basic minimum
[non agriculture HH] 17%
27%
asset/capital of their own to 10%
[large farmer HH] 5%
start with. Saying simply [small farmer HH] 9%
17%
7%
that the poor are efficient [marginal farmer HH] 26%
[landless HH] 1%
and that is why they are 4%
6
Ibid.
On the contrary, Zakah is an obligatory social security arrangement for making those fit
who are unfit as market player and also a security for survival of those who will never be
fit for the marketplace.
7
Ibid.
8
CDF: Microfinance Statistics, 2002.
Market system thus represents a transfer mechanism, which has built-in biases to
direct resources from low income to high-income groups. This trend has to be reversed.
Zakah can set such a reverse transfer mechanism.
Fig-2 shows
total amount of Fig-2: Zakah Collectable in Bangladesh
Zakah (Zakah & 160,000
110,517
Ushr) to be 140,000
100,919
91,777
120,000
collected in
83,751
In Million Tk.
76,080
100,000
69,254
65,149
61,175
Bangladesh
57,516
53,187
49,698
80,000
47,213
44,224
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
amount of Tk.
28,337 million Zakah Bangladesh
may be
collected as Zakah (including Ushr) in the base year of the simulation, which stands at
Tk. 47,213 million in 1998 and becomes Tk.110,517 million in 2010.
It is quite
evident from the F ig - 3 : P e rc e n t o f R u ra l P o v e r t y G a p
Fig-3 that Zakah c o u ld b e c o v e r e d b y R u r a l Z a k a h
poverty gap in 4 0 .0 %
2 0 .0 %
1997. The coverage
0 .0 %
rises over time and
97
98
99
00
01
02
03
04
05
19
19
19
20
20
20
20
20
20
becomes 24.7% in
2005. Z a k a h /P o v e rty G a p :R u r a l
Zakah/Poverty Gap 67.0% 71.4% 70.7% 74.1% 74.6% 75.8% 78.5% 81.3% 84.3%
Source: Model generated data based on simulation run of the 26-Sector CGE model.
The extremely low coverage of poverty gap by rural Zakah receipts shows severity of rural
poverty compared to urban poverty and the limitation of any poverty alleviation strategy solely
based on rural Zakah. This warrants for mitigation strategy with tools beyond Zakah with the
necessary condition that the intervention package must be rural biased and ensures net transfer of
resources primarily from the rich to poor and equally from urban to rural.
Step 1: Mobilise all rural Zakah to finance ultra poor– Cut off poverty eradication time 2
years: First year to create their asset base and 2nd year to form working capital.
The model projects that 10.5 years would be required to cover all moderate poor (marginal
farmer households and small farmer households) to bring them above poverty line if each
moderate poor family is provided with Zakah equivalent to the amount planned to be given to an
ultra poor family. Since the per capita income of marginal farmer household population is double
the amount of the ultra poor and thereby the poverty gap being smaller time to be required to
cover this group would be half i.e., 5 (five) years instead of around 10 (ten) years. The period
may lessen further poverty gap with the small farmer households is considered. Per capita income
of small farmer households being four times higher than that of the landless/ultra poor and the
poverty gap with this household group being further narrowed the actual time to be required to
cover all the moderate poor may be even less than 4 (four) years. If creation of asset base and
provision of working capital to these household groups are considered as in line with the ultra
poor, at best 8 (eight) years would be required to bring this moderate poor groups out of poverty.
At this stage it is important to recall that poverty income was defined to include only the calorie
intake. However, after having been covered all the poverty poor under this definition, poverty
may be redefined to include other essentials in the commodity bundle in phases with increase of
income level of the common people.
Step 2: Mobilise all rural Zakah to finance marginal farmer households and then small farmer households (moderate
rural poor) to create their asset base. The second year to form their working capital. Cut off poverty
eradication time 10.5 years.
Step 3: Redefining poverty to include other essentials in the commodity bundle in phases with increase of income level
of the common people.
60.0%
each year. Per capita Zakah
40.0%
receipts by urban ultra and
20.0%
very poor being Tk. 3,756 they
0.0%
can be brought under 1997 1998 1999 2000 2001 2002 2003 2004 2005
Zakah receipts of Tk. 25,326. The amount, if provided at a time, should form an initial capital for
running at least a subsistent level livelihood possibly without requiring further help in the next
year.
Assuming that ultra and very poor are covered in the first year of urban intervention
for poverty alleviation, all moderate urban poor can be covered immediately in the next 1
(one) year. That means, within two years time it would be possible to eradicate income
poverty (in terms of calorie intake). This will allow release of urban Zakah money from
the third year to make available for eradication of moderate poverty in rural Bangladesh.
This strategy, if pursued, will lessen the period of eradicating poverty of rural moderate
poor to 5 (five) years instead of 10.5 years.
Whoever possesses the above qualities can join their hands in taking the initiative.
Not necessarily that initiators must be the persons with nisab level income only. Anybody
who wants to contribute (including Zakah) to the cause of Allah out of his or her income
can be member of the Parshi. The Zakah Fund administration can help organize the
Parshi.
committee may take this responsibility. An effective motivation that establishing Zakah is a
compulsory religious obligation should be the starting task. This should be followed by forming
Zakah Forum with the Memorandum of Understanding that ZF would be a comprehensive
platform taking care of specific socio-economic and religious activities which will build a model
for hunger-free Muslim community capable of discharging responsibility as vicegerent of God.
Since institutionalisation of Zakah by the state authority under the present socio-
political context is not encouraging in Bangladesh, initiative should come from the
community who believes in and does have the commitment to the role as vicegerent of
Allah.
The first five verses of Suratul Baqara tell clearly about who should take the
initiative and why. The fifth verse categorically says about persons taking initiative who
will surely prosper. The translation of the verses read as follows:
“A.L.M.
This is the Book, in it is the guidance sure, without doubt, to those who fear God;
Who believe in Unseen, are steadfast in prayer, and spend out of what We have provided for them;
And who believe in revelation sent to thee, and sent before thy time, and (in their hearts) have the assurance of
the Hereafter.
They are on (true) guidance, from their Lord, and it is these who will prosper.”9
Whoever possesses the above qualities can join their hands in taking the initiative.
Not necessarily, initiators must be the persons with nisab level income only. Anybody
who wants to contribute (including Zakah) to the cause of Allah out of his or her income
can form Zakah Forum and be its member.
The program would be more than establishing charitable centres covering area of
population that forms neighbourhood. Basis of the program would be the notable sayings
of the Prophet (S.M) that “those who go to bed leaving their neighbours unfed are not
Muslims”. This will be an initiative, which will work for a hunger-free community able
to discharge their duty as vicegerents of God. The program components may include
Zakah assistance to eligible persons with a view to build enabling environment for them
so that they are able to lead a sustainable livelihood. Assistance, capacity building, socio-
economic uplift and religious orientations for discharging the responsibility as vicegerent
would be some of the important functions of the program. It would be ideal if the
neighbourhood community can be based centring a mosque.
An Overview
9
The Quran: 2: 1-5.
Division, Province or even a country. From the viewpoint of Zakah administration and its
management the wider meaning of PARSHI has great implication.
So far as program components are concerned, PARSHI may consist of the following
program objectives as outlined in Fig-5.
Abbreviating PARSHI/
The Program Objectives
Program Components:
Prayer 1. Establishing Salat
Rearing
PARSHI
Raising 3. Caring
Resourcefulness
Societal 4. Socioeconomic uplift
Savings
Honesty 5. Promotion of Human
Humanism Qualities & Human
Human Rights Rights
6. Income Generation
Investment through Growth
Promotion
These program objectives clearly spell out nature and dimensions of the
neighbourhood model. Along with establishing salat (prayer) and zakah (assistance),
caring (rearing, raising, resourcefulness), organisation building for economic wellbeing
(societal, savings), promoting human virtues (honesty, humanism) and undertaking
income generation activities (i.e., investment) are major activities of the model.
PARSHI
Program
Management
To be run by Centre for
Development Studies and
Services Network (CDSSNet)
initially for 3 years
PARSHI
Pilot Program 1
Parshi 1 Parshi 2
Mosque
Parshi 3 Parshi 4