What Is Zakat?

Zakat is an Islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes. Zakat is a mandatory process for Muslims and is regarded as a form of worship. Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.

Key Takeaways

  • Zakat is a religious obligation, ordering all Muslims who meet the necessary criteria to donate a certain portion of wealth each year to charitable causes.
  • Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
  • Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim's total savings and wealth.
  • If personal wealth is below the nisab during one lunar year, no zakat is owed for that period.

How Zakat Works

Zakat is one of the Five Pillars of Islam: the others are declaration of faith, prayer, fasting during Ramadan and the Hajj pilgrimage. It is a compulsory procedure for Muslims earning above a certain threshold and should not be confused with Sadaqah, a term that refers to giving charitable gifts out of kindness or generosity.

Religious texts offer comprehensive descriptions of the minimum amount of zakat that should be distributed to those less fortunate. It generally varies, depending on whether wealth came from farm produce, cattle, business activities, paper currency, or precious metals, such as gold and silver.

Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim's total savings and wealth. 

Each year, between $200 billion and $1 trillion are spent in mandatory alms and voluntary charity across the Muslim world, according to Islamic financial analysts.

Zakat is often paid out at the end of the year once calculations on any leftover wealth are made. Recipients are the poor and needy, struggling Muslim converts, slaves, people in debt, soldiers fighting to protect the Muslim community and those stranded during their travels. The collectors of zakat are also compensated for the work they do.

Zakat vs. Nisab

Nisab is a term that often appears alongside zakat. It is a threshold, referring to the minimum amount of wealth and possessions that a Muslim must own before being obligated to pay zakat. In other words, if personal wealth is below the nisab during one lunar year, no zakat is owed for that period.

Special Considerations

As one of the Five Pillars of Islam, zakat is a religious obligation for all Muslims who meet the necessary criteria of wealth. This rule has played a major role in the history of Islam and has led to disputes, notably during the Ridda wars.

Zakat is considered to be a mandatory type of tax, although not all Muslims abide. In many countries with large Muslim populations, individuals can choose whether to pay zakat.

That is not the case for countries such as Libya, Malaysia, Pakistan, Saudi Arabia, Sudan, and Yemen. Those who fail to pay zakat in places where it is compulsory are treated like tax evaders and warned that they will face God’s punishment on Judgment Day.

Criticism of Zakat

There has been considerable controversy surrounding zakat. Islamic scholars and development workers argue that it has failed to lift people out of poverty, prompting them to suggest that the funds are being wasted and mismanaged.