The Zakat multiplier effect

Sound and efficient management of Zakat allows its full potential to be explored, and opens it up to the multiplier effect. Only by pooling our collective resources can we give rise to this full potential.

Far from being a new concept, in the first half of the 20th century, the renowned English economist John Maynard Keynes published theories about the multiplier effect. This principle asserts that as overall demand increases, growth will be stimulated at a rate that is higher than proportional to the revenue. In other words, the more that is invested in an economy, the greater the chance that the economy will flourish. In macroeconomic jargon, overall demand includes consumption, investment and a country’s public spending. Using this as a basis for his argument, Keynes explains that a change in the amount of spending, for example public spending, can have a multiplier effect on national income or global economic activity. Zakat has the potential for the same effect, or even greater.

Zakat and the multiplier effect

We know that consumption, investment and public spending are all components of overall demand, so it is clear to see the potential links with Zakat. Constituting an annual payment of 2.5% of every individual Muslim’s wealth, Zakat equates to a sum of around 600 billion dollars each year (World Bank, 2015). As such, when thought of in terms of the Keynesian multiplier effect; within an economy, Zakat is just as important as any other type of investment or public spending.

Above and beyond just money

Zakat can therefore act as an annual economic stimulus package which would, in turn, facilitate the redistribution of wealth within the economy. Taking a closer look, we could even assert that Zakat’s multiplier effect could have further-reaching results than the Keynesian effect. Going beyond just the financial aspect of Zakat, the objective is not merely redirecting wealth from the rich to the poor, but also having a positive impact on society in multiple areas (spiritual, psychologic, financial and educational). In this way, the role of an institution that can guarantee correct management of Zakat is not limited to establishing links between payers and recipients, but should strive to reach the ultimate goal of Zakat which is to bring about positive change within a society.

Zakat brings us closer together

The 2.5% of wealth that we pay as Zakat may be as much as 100% to the person who receives it. In our era of digitalisation, the world we live in is more interconnected than ever. However, it has become obvious that this is unfortunately not the case within our community in Switzerland. Zakat creates links between us. It allows contributors to carry out the third pillar of Islam and at the same time to offer such vital help to a family in need, who may even live in the same town or city.

Zakat brings us closer together on a humanitarian level. The link between those who pay and those who receive Zakat should not be limited to the purely financial aspect of Zakat. Each and every donor provides a human contribution and not merely a monetary one. As such, every individual who contributes to Zakat has their own unique and personal skills. When put into action, this wide range of skills could provide a Zakat beneficiary with resources and incalculable support. This can be done by helping to open up future career paths, internship applications or even personal coaching to help people to become financially independent or to launch their own business venture or start-up. In this way, Zakat brings us closer to each other, builds links and creates human and social ties that are needed now more than ever.

Saâd Dhif

Swiss Zakat Foundation

Chairman

RELATED POSTS