Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1694269193903.pdf (Pakistan)
ZAKAT AS A SOCIAL SAFETY NET: EXPLORING THE IMPACT B y Imran Ashraf Toor Abu Nasar 1.

INTRODUCTION Zakat is the most important cash transfer scheme in Pakistan.

It is mandated under Islam and is officially collected only from Sunni Muslims.

Those eligible to receive Zakat i.e.

the Mustahiqeen, include the needy and the poor (especially widows and orphans), as well as people with disabilities.
Two main types of support are provided through the scheme: a monthly subsistence allowance to each Mustahiq and a rehabilitation grant.

These two categories constitute about 70 percent of the support.

Grants for Jehez (marriage dowry), and educational and medical expenses, make up the remaining 30 percent.

Zakat has emerged as the government’s central program of social safety instruments.

However, its potential and scope in fighting poverty is yet to be fully realized.
At present annual Zakat collection is around Rs.

5 billion.

It is estimated that the Zakat system benefits about 2 million Pakistanis, of which about 0.5 million are receiving assistance on a regular basis1.

To understand the institutional arrangement for Zakat disbursement and to assess its impact on household welfare, the Social Policy and Development Centre (SPDC) conducted a survey of Zakat rec ipients in the four poorest districts of Pakistan.
This paper presents the finding of this survey and is organized as follows.

Institutional features for Zakat system are provided in 1 Interim Poverty Reduction Strategy Paper (I-PRSP), Government of Pakistan, November 2001.

ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 Section 2.

Section 3 describes the methodology for conducting the survey, while the main findings are analyzed in Section 4.

The last section is reserved for concluding remarks.

2 2.
2 2.

INSTITUTIONAL FEATURES Zakat system performs well on a number of the criteria as established of a good social safety net.

Administrative costs, as a whole, are low, primarily because of voluntary inputs provided by members of the various committees.

One of the strongest points in favor of Zakat has been its access to an earmarked source of revenue Reliance on a specific source not only ensures sustainability, but the nature of the tax (i.e.
being based on financial assets) is such that the burden falls mostly on upper -income households.

Therefore, Zakat has the potential of playing a strong re -distributive role.

Following is a brief summary of the systems organizational and institutional features.

2.1 Collections and Disbursement Zakat has traditionally been a compulsory, annual deduction paid by Sunni Muslims at the rate of 2.5 percent on the value of specified financial assets.

It is collected from persons who are Sahib -e-Nisab, i.e.
those who own or posses certain assets on the valuation date which is the first day of Ramadan.

A judgment by the Supreme Court, however, has allowed all sects to file a declaration seeking exemption from payment of Zakat on financial assets.

This puts in jeopardy the mechanism of compulsory deduction and thus, the level of contributions.

Collections in 2000-01 were at Rs.

4.4 billion, a drop from the peak of Rs.

4.7 billion in 1993-94.


More than 50 percent of the revenue comes from a tax on savings accounts and about 16 percent from fixed deposits.

The amount of Zakat, deducted by the financial ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 institutions and by the Public Debt Office at source is deposited in the Central Zakat Fund and is not part of the federal budget.

The State Bank of Pakistan maintains this account.


3 The Central Zakat Fund retains a portion of the proceeds, which is invested on non-interest basis.

The outstanding cash balance as far back as January 1997 was almost Rs.

11 billion.

Provincial disbursements are based on population, although this criterion is not strictly followed.

Distribution of funds by the provincial Zakat council is formula driven, with 60 percent going to the local Zakat committees and 40 percent to institutions (e.g.
public hospitals, schools, vocational training institutions etc.).

Those who are eligible to receive Zakat, receive such payments through the banks.

2.2 System Hierarchy The Zakat and Ushr Ordinance was passed in 1980.

An autonomous Central Zakat Council administers the Central Zakat Fund maintained by the State Bank of Pakistan.

This council is supported by the Zakat and Ushr wing of the Ministry of Religious Affairs.
The Provincial Zakat Councils regulate disbursement in the provinces and are further responsible for disbursing funds to each District Zakat Committee in the province.

The most important tier within the system is the local Zakat committee, which identifies the Mustahiqeen.

The Central Zakat Council (CZC) provides policy guidelines for Zakat and supervises and maintains control over matters relating to them.

The composition of the Council is broad- based as its members are from a range of backgrounds.
Federal ministries of Religious Affaires, Zakat and Ushr and Minorities, Finance, Health and Education are represented in the CZC.

Further, provincial representatives of Ulema, Women and judiciary are also part of the CZC.

The secretary of the Ministry of Religious Affairs acts as the Administrator-General ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 of the Council.

The members other than the ex-officio members hold office for a period of three years.
4 The provinces also follow a similar structure with the Chairman of the Provincial Council being either a serving or former judge of the provincial high court appointed by the Governor.

The next tier is the District Zakat and Ushr Committee (DZS) which is constituted by the Provincial Zakat Council (PZC).

The chairperson is nominated by the PZC, while other members including women, Ulemas and other non-official members are appointed on the advice of the chairperson.
Deputy Commissioner of the district is an ex-officio member of the Committee.

The functions of the committee are as follows: ?

To assess Ushr and other private donations ?

To disburse and utilize the moneys in the district Zakat fund and local Zakat fund ?

To prepare and maintain the accounts of the district Zakat fund ?
To compile accounts of the local Zakat fund in the prescribed manner and arrange for an audit of the local Zakat fund The Tehsil Committee performs functions similar to the District Committee but at the Tehsil or sub-district level.

Other than the Assistant Commissioner, the chairperson of the Tehsil Committee selects six members.

The most important tier is the Local Zakat and Ushr Committee (LZC), which identifies the Mustahiqeen.

The LZC is responsible for disbursing the funds it receives from the DZC.
It consists of nine members (including two Muslim women) who are not less than forty-five years of age, must posses a secondary school certificate, be of sound moral and financial character and, not engaged in any form of political activity or an employee of any ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 governmental organization.

The residents of the locality select these members.

Once the committee is constituted, it then elects one of the members as the Chairperson.
5 A LZC is constituted for: (a) each revenue estate in a settled rural area; (b) each deh or village in a non-settled rural area; (c) each ward in an urban area.

The LZC follows guidelines laid down by the three preceding tiers of the system.

Their duties are as follows: ?

Determination of istehqaq (eligibility) for subsistence allowance; ?

Rehabilitation, either directly or indirectly through educational, vocational and social welfare institutions; ?
Treatment through public hospitals, charitable and other institutions providing healthcare; ?

Collection of private donations or Zakat for onward depositing in the District Zakat Fund; and ?

Preparation and maintenance of accounts.

After receiving the application, the committee makes an inquiry to determine the applicant’s eligibility.

The Committee can pay a monthly Guzara (subsistence) allowance to 10 persons.
After every six months these beneficiaries are re-evaluated and the persons no longer eligible are substituted with those on the waiting list.

For other assistance from the Zakat Fund, the Local Zakat Committee recommends the cases to the District Zakat Committee for final approval and provision of funds.

3.
3.

THE SURVEY METHODOLOGY This study uses a quantitative approach to explore the perception of Zakat recipients regarding disbursements, procedural problems, needs fulfillment etc., and to examine the impact, if any, on the household standard of living.

It evaluates the system of Zakat in both ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 rural and urban environments.
For impact analysis, the ‘with and without’ approach of evaluation is applied and interviews with recipients and non-recipients were conducted.

6 3.1 Sampling and Stratification To ensure nation wide representation, four districts were chosen; Badin from Sindh, Muzaffargarh from Punja b, Haripur from NWFP, and Khuszdar from Balochistan.

The poorest district in each province was chosen on the basis of the Multiple Index of Deprivation (SPDC, 2001).
Haripur was the exception in this case as it was chosen for its logistic convenience.

At the next stratum, one tehsil/taluka was chosen in each district, with the highest number of Local Zakat Committees.

The chosen tehsil/taluka was further disaggregated into an urban and rural sample on the basis of recipients’ shares.

Utmost care was taken in the selection of respondents.

The sample comprised 100 households from each district.

These households were randomly selected from two groups.
Group 1 (Recipients) comprised households who are currently on the list of Mustahiqeen and receiving Zak at.

The Group 2 (Non-Recipients) consisted of households who met the following criteria; first, those who were close to the recipient’s household, second those with similar housing conditions, and third, those who are not receiving Zakat and were not identified as Mustahiq.
The enumerators were asked to randomly select a Local Zakat Committee in the specific locality of the tehsil/taluka and enumerate two households (one Recipient and one Non- Recipient) from each chosen Local Zakat Committee.

The Recipient’s household was ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 randomly selected from the list of Mustahiqeen.

A schematic view of the sample distribution is given below in Table 1.
7 TABLE 1 SAMPLE DISTRIBUTION ACROSS REGIONS Districts Rural Areas Urban Areas Recipients Non- Recipients Recipients Non- Recipients Overall [#] Muzaffargarh Badin Haripur Khuzdar Total Average Age [Years] Female Respondents 60 % 48 % 84% 67% 54% 3.2 Survey Administration A structured questionnaire was administered to the sample respondents.
The core modules covered in the survey included, demography, education, health, housing quality, housing services, loan history, and expenditure patterns.

The survey was administered with the help of local enumerators.

SPDC staff supervised the survey and provided in-depth training (office as well as field based) to the designated local staff before staring the field survey.

The survey was conducted during the months of November and December 2001.

4.
4.

MAIN FINDINGS The insights from the field are discussed in the following three sub-sections.

First, the characteristics of Zakat recipients are presented to highlight the extent of targeting.

This is followed by the perception of Zakat recipients regarding the disbursement and monitoring ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 procedures.

Finally, the differences among recipients and non-recipients in important socio- economic characteristics are displayed.
An aggregated picture is portrayed; nevertheless striking provincial differences are indicated as and when felt necessary.

8 4.1 Characteristics of Zakat recipients Table 2 demonstrates the important socio-economic characteristics of Zakat recipients’ households in urban and rural dimensions.

It is evident from the table that the majority of recipients relate to large families that have few earners (8 being the highest as recorded in Khuzdar).
TABLE - 2 SOCIO -ECONOMIC CHARACTERISTICS OF HOUSEHOLDS RECEIVING ZAKAT Urban Areas Rural Areas Average Family Size Illiterate Recipients Households not sending any child to school Recipients with no Job Households with no Earner House Ownership Households with ‘Katcha’ outer wall Households with ‘Katcha’ floor construction Households with one room occupancy Households with no piped water Households with no electricity Households using wood as fuel Household per capita expenditure Landless Households Share of food expenditure to total expenditure 7 59 25 64 33 80 39 57 33 15 10 56 632 – 70 6 69 33 47 48 92 81 93 47 66 46 93 593 91 70 Average Household indebtedness (Rs.)
16,000 11,000 ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 9 The survey revealed that around of 60 percent Zakat recipients are illiterate.

The remaining recipients have at most primary education and virtually no recipient has education above Matric level.

The highest illiteracy among Zakat recipients is found in Khuzdar, where more than 75 percent have no education.
Further, about 25 and 33 percent households in urban and rural areas respectively do not send their school-going children to school.

A large number of recipients (75 percent in Muzaffargarh and Badin) are unemployed and reported no regular source of income.

In fact 33 and 48 percent urban and rural households respectively reported no earning member in the family.
Although house ownership is reported by majority of the households that are receiving Zakat, the type of materials used in the construction reveals the exact situation on the ground.

About 39 and 81 percent of households in urban and rural areas respectively are katcha type (mud, wood or adobe are used in the outer walls).

The corresponding percentages for Khuzdar district are 88 and 97 for urban and rural areas respectively.
Further, in urban areas, 57 percent of households (94 percent for Khuzdar) that are receiving Zakat reported katcha (mud and not cemented) floors.

Households that are receiving Zakat also reported a lack of essential housing services.

About 56 and 93 percent of households in urban and rural areas respectively reported the use of wood for fuel purposes.

About 46 percent of rural households have no electricity and 66 percent have no piped water (inside or outside).
The average per capita household expenditure is estimated around Rs.

600 per month, which is below the level of the official poverty line 2.

Another important feature of these households 2 Pakistan’s official poverty line is estimated at Rs.

650 per capita per month as reported in the Economic Survey 2001-2002 (Government of Pakistan, page 47).

No urban or rural difference in poverty lines is given in the Survey.
ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 10 is the share of food expenditure in the total expenditure.

The study estimated that these households spend 70 percent on food.

This shows a high level of deprivation.

The data also reveals that expenditure on staple food is more than 50 percent of the overall food expenditure.

On the average, these households use about 9 percent on education and about 14 percent on healthcare.
The crucial question remains as to what is left over for clothing and other emergencies.

Asset ownership per household is reported in Table 3.

The table clearly reveals the actual standard of living of these poor people.

Only 16 percent of households possess a sewing machine.

Ownership of a color Television set (TV) is reported by only 3 percent, while 6 percent have black & white TVs.

Only 30 percent of households report ownership of livestock, which is an important asset from the rural perspective.
TABLE 3 POSSESSION OF ASSETS BY ZAKAT RECIPIENTS’ HOUSEHOLDS (%) Ceiling Fan Refrigerator Color TV Black & White TV Radio/Tape Recorder Sewing Machine Iron Washing Machine Cycle Motor-Cycle Jewelry Livestock Agriculture Land 40 2 3 6 12 16 25 7 7 2 6 30 9 4.2 Disbursement at the Local Level: Insights from the Field One purpose of the field survey was to get a response from Zakat recipients regarding disbursement and other procedural issues.
Besides some structured questions, enumerators ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 were requested to further investigate and note the grievances of respondents.

Followin g are some important points, which were communicated to the field staff: 11 ?

The subsistence allowance, which is theoretically to be disbursed monthly, is highly irregular and not being paid for up to 6 months or more in some cases.
For instance, during the year 2001, it was only disbursed once, with all 12 installments combined.

The situation creates difficulty in evening expenditure levels and advances household indebtedness.

?

Recipients face a major difficulty in opening a bank account.

Many banks do not wish to keep the deposits of Zakat recipients and others insist on a minimum balance that is too high given the small amounts being received as Zakat.
It is often the personal intervention of the Chairperson, which has enabled some of the recipients to open a bank account.

Women, in particular, face problems going to the bank due to the long distance from their houses.

?

One of the major drawbacks of subsistence allowance, as perceived by recipients, is that it does not take into account the number of dependents – a small amount is prearranged to all households irrespective of size.

?
?

Ease of access is another major issue, since Zakat requires that all applicants must possess an Identification Card (ID card).

Illiteracy can also prove to be a hindrance to applicants, both in terms of filling out required application or other such forms and dealing with bank officials.

Women have the added disadvantage faced with problems of going to the bank without male escorts.
There is also the fear of a social sigma being attached to Zakat, which may deter some of the needy from applying for this form of assistance in the first place.

?

Zakat is largely spent on food, although some of the seemingly better-off families use it to pay their children’s school fees, especia lly in urban areas.

The study estimated that about 70 percent of Zakat is used for purchasing food items.
ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 12 It is also worthy to reproduce some important comments made by the members and Chairpersons of Local Zakat Committees.

?

Monitoring is highly irregular.

In one locality, the Guzara records, which should be checked once every six months by the District Zakat Committee, were only examined once in two years.
The District Zakat Committee appoints an audit clerk for 10 Local Zakat Committees on a contract basis with a monthly salary of Rs.

1500 to Rs.

2000.

A daily travel allowance of Rs.

25 only is also given.

It is perceived that with these terms and conditions the monitoring procedure is impaired.

?

Some members of the Local Zakat Committees also complained of the politicization of the Zakat disbursement system.
Political leadership does influence the appointment of the Chairperson of the District Zakat Council to gain un-due advantages.

?

Lack of coordination between the Chairman, District Zakat Committee and the administrative staff is also communicated.

Due to this problem, recipients often face difficulties in getting the subsistence allowance on a timely basis.
4.3 Tracking the Differences The important objective of this study was to observe differences in the socio-economic status of Zakat recipients and non-recipients.

For this purpose, utmost care was taken in selecting non-recipients (control group).

After randomly selecting recipients from the list, enumerators selected non-recipients that were close neighbors of the recipient, having very similar housing quality and condition, and neither receiving nor have ever received Zakat.
However, with all these considerations the following impact analysis is indicative and should be interpreted accordingly.

Table 4 and Table 5 present a summary of the statistical evaluation of differences in important socio-economic indicators among recipients and non-recipients.

It is evident from Table 4, which depicts the rural scenario that differences are not entirely striking.
No statistically significant difference is apparent in per capita expenditure; however, ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 13 per capita meat expenditure is significant according to the t-statistics.

An important finding of the study is the higher expenditure on education by the rec ipients.

The difference between rural recipients and non-recipients is also marked with respect to house ownership.
The household wealth status, which is represented by the Index of Assets, appears statistically similar in both groups.

The picture in urban areas is, although somewhat different but inconclusive.

According to Table 5, wealth of recipients’ households, on the average is significantly higher than of non- recipients.

Further, per capita overall and meat expenditure by recipients are also appearing significantly different from non-recipients.
TABLE 4 EVALUATING THE DIFFE RENCES [Rural Areas] Indicators Recipients Average Values Non- Recipients Mean Difference t-Statistics 593 384 22 10 16 33 Expenditure Pattern: (Rs.
per capita per month) Overall expenditure Food expenditure Meat expenditure Expenditure on education Expenditure on health Non-Food share (%) Housing Quality: (% of Households) House ownership Baked bricks in outer wall Cemented floor Gas or Oil used as cooking fuel Household Assets: (Average Value of Index)1 Index of Household Assets 92 19 .04 .07 3.72 575 412 16 6 15 21 83 17 .06 .08 18 -28 6 4 1 12 9 2 -.02 -.01 0.31 -0.91 1.96** 2.41** 0.23 1.78** 2.39** 0.43 -0.86 -0.24 3.94 -0.22 -0.31 1 Household Assets Index is computed using the following assets and weights.
One is assigned for the possession of a specific asset by the household, while zero its absence.

Index of Assets = (Motor Cycle*11)+(Refrigerator*10)+(TV*9)+ (Electric Motor*8)+(Washing Machine*7)+ (Sewing Machine*6)+(Radio*5)+(Fan*4)+(Iron*3)+ (Cycle*2)+(Hand Pump*1) ** Indicates that the difference is statistically significant at least at 10 percent level of significance.
ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 14 TABLE – 5 EVALUATING THE DIFFE RENCES [Urban Areas] Indicators Average Values Non- Recipients Recipients Mean Difference t-Statistics Expenditure Pattern: (Rs.
per capita per month) Overall expenditure Food expenditure Meat expenditure Expenditure on education Expenditure on health Non-Food share (%) 632 425 35 7 11 31 Housing Quality: (% of Households) House ownership Baked bricks in outer wall 80 61 Cemented floor Gas or Oil used as cooking fuel Household Assets: (Average Value of Index)1 Index of Household Assets 20 44 11.62 533 388 21 6 9 29 72 56 21 24 99 37 14 1 2 2 8 4 -1 20 1.99** 1.13 2.58** 0.51 1.41 1.03 1.06 0.54 0.00 2.32** 7.73 3.89 2.35** 1 Household Assets Index is computed using the following assets and weights.
One is assigned for the possession of a specific asset by a household, while zero in its absence.

Index of Assets = (Motor Cycle*11)+(Refrigerator*10)+(TV*9)+ (Electric Motor*8)+(Washing Machine*7)+ (Sewing Machine*6)+(Radio*5)+(Fan*4)+(Iron*3)+ (Cycle*2)+(Hand Pump*1) ** Indicates that the difference is statistically significant at least at 10 percent level of significance.

5.
5.

CONCLUDING REMARKS The system of Zakat has a source of funding which is independent of the government’s budget and indeed this appears as one of its great strengths as a social safety net in a resource impoverished economy where social sector outlays come under pressure from budgetary constraints.

To realize the full advantage from the system, comprehensive research regarding problems and prospects is imperative.
This study, is in essence following this direction and summarizes findings from 400 detailed interviews with recipients and non-recipients in the field.

Major insights from the field are recapitulated below: ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 15 ?

There are serious delays in the disbursement of the allowance to beneficiaries and absence of regular monitoring arrangements.

?
?

Ease of access is a major issue both in terms of entering into and getting benefits from the system.

?

There is a need to improve the targeting of beneficiaries and reduce leakage in the distribution of Zakat.

Criteria for eligibility should be carefully thought out and made explicit.

Members of Local Zakat Committees should be assisted in identifying individuals.

There should be more deliberate efforts to include widows, especially in the rural areas.

?
?

A fundamental concern is that the Guzara allowance breeds dependence among its recipients.

It is argued that it would be far better if the government uses the money to setup income-generating projects for the Mustahiqeen.

In fact, this seems to be the direction the present government is pursuing.

?

The disbursement of Zakat to districts according to the population share is also a major concern.

There should be some mechanism to incorporate the local deprivation level into the disbursement formula.
?

The study explored that all recipients are below the poverty line, have large families, majority is illiterate, and virtually have no durable household goods.

?

No significant dissimilarities in important socio-economic indicators be tween recipients and non-recipients are evident from the study.

However, this result is indicative due to caveats in selecting non-recipients.
In conclusion, it can be said that the need exists for a methodical review of the Zakat system, which suffers from relatively low coverage, targeting problems, and low ease of access.

It is important to note that some of the Zakat recipients may always need income-supplementing transfers.

Furthermore, the disbursement criteria will also have to be made responsive to considerations of greater backwardness and poverty in some parts of the country.
ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 16 BIBLIOGRAPHY Faiz, M. 1991.

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Pakistan Development Review 30(4): 1119-27.

Pasha, H. et.

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2000.

Evaluation of Social Safety Nets in Pakistan.

Research Report 32.

Social Policy and Development Centre, Karachi.

Shirazi, N.S.

1996.

System of Zakat in Pakistan: An Appraisal.

Islamic Research Institute Press, Islamabad.

Shirazi, N.S.

1996.


Targeting, Coverage and Contribution of Zakat to Households: The case of Pakistan.

Journal of Economic Cooperation Among Islamic Countries 17(3-4): 165-186.

Social Policy and Development Centre.

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Annua l Review 2000.

Oxford University Press, Karachi.

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2001.

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ZAKAT AS A S OCIAL SAFETY NET: EXPLORING THE IMPACT Research Report No.53 ZAKAT AS A SOCIAL SAFETY NET: EXPLORING THE IMPACT B y Imran Ashraf Toor Abu Nasar Zakat has emerged as the government’s central program of social safety net instruments.

However, its potential and scope in fighting poverty is yet to be fully realized.

This study presents insights from a fie ld survey, conducted in four districts of Pakistan.
It gives an understanding of the institutional arrangement for Zakat disbursement and assesses the impact of Zakat on household welfare.

The study explored the ideas that all recipients are below the poverty line, have large families, majority are illiterate and virtually have no durable household goods.

No significant dissimilarities in important socio- economic indicators between recipients and non-recipients are evident from the study.
Research Report No.53 ZAKAT AS A SOCIAL SAFETY NET: EXPLORING THE IMPACT By Imran Ashraf Toor Abu Nasar April, 2003