There has of late been much excited talk about how financial technology, or fintech, could transform Islamic finance in the way that it is currently revolutionising conventional finance. One area of Islamic finance that is often overlooked in this conversation is zakat – wealthy Muslims’ obligation to donate a proportion of their wealth to the poor – but this is the one area that could be transformed the most if the right technology can be developed.
It is estimated that the total zakat currently mobilised around the world is around $10-15 billion. Yet the potential zakat that could be raised is estimated variously from $200 billion to $1 trillion. Whatever the true figure, this represents a massive shortfall.
Zakat traditionally tends to be localised
There are a number of reasons for this, each of which fintech is capable of overcoming. First among these is that zakat has traditionally been highly localised. Partly this is due to the particular hadith – or record of the sayings of the Prophet Mohammed – which sets out the obligation.
This states that “Allah has made it obligatory for them to pay the zakat from their property and it is to be taken from the wealthy among them and given to the poor among them.” This has often been taken to mean that the zakat should be provided to the local needy.
Another reason for zakat being often restricted in this way is the cost involved in providing charity to the needy if they are far away, and the logistical difficulty of providing zakat in non-monetary form such as food or livestock.
Another challenge is one of trust. People providing zakat need to be confident that their money gets to those who need it, and again this makes it practical to distribute zakat locally. By better establishing the identities of zakat beneficiaries, fintech can not only increase trust between donors and zakat managers, but prevent activities such as money laundering or terrorism funding.
For those that can also overcome the hurdles that all financial technology platforms face, such as security and ease of use, fintech zakat platforms could make an enormous contribution to combatting poverty and other social problems throughout the Muslim world.
Finocracy and AID:Tech already boosting zakat through fintech
One organisation committed to boosting global zakat through financial technology is Finocracy. This Dubai-based fintech start-up last year partnered with health financing organisation The Global Fund and faith-inspired media and entertainment company Awakening to form Human Crescent – which by means of a digital zakat platform aims to support Muslim refugees around the world, beginning with Rohingya refugees in Bangladesh and Syrian refugees in Jordan and Lebanon. Human Crescent provides a one-stop platform for directing zakat contributions towards refugee projects that can have a long-term impact.
Finocracy CEO Raafi Hossain has compared Human Crescent with Amazon, saying: “If you want to buy a television, you don’t go to Sony.com, you go to Amazon. That’s what we’re trying to do in the zakat space. The charities already exist; we’re just trying to aggregate opportunities for people.”
Another such start-up is Dublin-based AID:Tech, which uses blockchain technology to allow organisations and individual donors to track their zakat contributions while providing the unbanked and those such as refugees lacking documentation to gain access to welfare, aid and healthcare.
The company believes that the security and transparency its system provides can unlock some of the estimated $2-3 trillion a year that could be made available for social programmes.
Zakat platforms such as these can also help the United Nations achieve some of its Sustainable development Goals, or SDGs, and specifically tackle some of the huge socioeconomic challenges currently facing the Muslim world such as poverty and health.
The Global Islamic Economy Summit (GIES) is the world’s largest and most comprehensive forum dedicated to the Islamic economy. It is organised by the Dubai Chamber of Commerce and Industry and Dubai Islamic Economy Development Centre (DIEDC) and strategically supported by Thomson Reuters.
Any opinions expressed here are the author’s own.
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© Opinion 2018