Productive Zakat with Free-Interest Loan Mechanism

As we know that zakat is an obligation of payment to all moslems over the world in order to reduce and act in poverty alleviation. Basically, zakat is for consumption purpose for the poor and needy people. But currently most zakat institution, especially in Indonesia make zakat as a fund source for productive activities  and help the poor and needy people to grow their own small businesses with zakat funds.  

The scheme or mechanism of productive zakat, which is developed in most zakat institutional in Indonesia is like loan mechanism with no-interest, but the recipients are obligated to repayment what they have received (qardh al hasan agreement). It is permissible in Indonesia, since there is a fatwa from Indonesian Ulama Council (MUI) in 2011 about productive zakat.

But, is it actually permissible in Fiqh or is this issue will be a shariah compliance debate material among islamic scholars, practitioners, and academician?

Regardless of this issue, we can see the application of productive zakat in our neighbour country, Malaysia. Lembaga Zakat Selangor (LZS) is a zakat institution which is located in Selangor, Malaysia. According to Patmawati and Ghazali (2014), They are using consumptive and productive zakat, but the last mechanism is not priority distribution zakat scheme in this zakat institution. This institution also divides productive zakat into two categories, which are : productive zakat with no-obligation in repayment, and productive zakat with obligation to repay.

Productive zakat is an innovation in zakat distribution research area. It is a new mechanism which, as long as I know, is not applied in Prophet Muhammad ages. Compared to consumptive zakat, productive zakat is more better to reduce poverty globally. Also it can reduce level of unemployment in one country by giving zakat as a capital to grow a small business.

Alim (2015) offers two ways to distribute zakat with productive purpose. It is to avoid debatable material which is mentioned in the second paragraph. Those are : distribution of productive zakat from amil zakat private funds, and saving account from recipients of zakat.

Distribution of productive zakat from amil zakat private funds is a mechanism which gives permission to give funds and do financing to poor and needy people with free-interest loan (qardh al hasan) for their small business. It is permissible, as long as the recipients are not obligated to pay any interest which can lead to riba (usury). 

Meanwhile, saving account from recipients of zakat is a mechanism to give zakat funds to poor and needy people, but they are obligated to save their income periodically to zakat institution. Their deposit will be theirs, not zakat institution’s funds. But zakat institution can utilize recipients’ saving account to do financing to the people who need the money as their capital through mudharabah or musyarakah islamic commercial agreement.

 

References

1. Alim, Mohammad Nizarul. 2015. Utilization and Accounting of Zakat For Productive Purposes in Indonesia: A Review. Presented on 2nd Global Conference on Business and Social Science-2015.