Dubai — Every year, somewhere between US$200 billion and $1 trillion are spent in "mandatory" alms and voluntary charity across the Muslim world, Islamic financial analysts estimate.
At the low end of the estimate, this is 15 times more than global humanitarian aid contributions* in 2011.
With aid from traditional Western donors decreasing in the wake of a global recession, and with about a quarter of the Muslim world living on less than $1.25 a day**, this represents a huge pool of potential in the world of aid funding.
But Islamic finance experts, researchers and development workers say much of the money spent in 'zakat' (mandatory alms) and 'sadaqa' (charity) is mismanaged, wasted or ineffective.
"Wealth is growing in the Muslim world. So is the poverty. Where have we gone wrong?" asks Tariq Cheema, president of the World Congress of Muslim Philanthropists (WCMP), an organization which advises Muslim donors - including some of the thousands of millionaires living in the Gulf - on how to increase sustainability and accountability in their donations.
Islam requires Muslims to give 2.5 percent of their wealth and assets to the poor every year. Much more is given in voluntary 'sadaqa'. But that money is usually donated in small amounts at local levels to feed the poor, help orphans, or build mosques. Muslims say many of them give, almost without thinking, to fulfil a religious obligation. "Our rituals are there, but often they lack the spirit," Cheema told IRIN. "We just give the money and forget."
Very little of the money goes towards sustainable development.
"Billions of dollars worth of giving in 'zakat' and 'sadaqa' are unfortunately ineffective by and large," he said. "Our giving shouldn't be driven by our desire to prove that we are good people... Our giving should be smart and effective."
"We are here to bring that shift in the culture: the paradigm shift from conventional and generous giving to strategic giving... There is a lot of money around that needs to be channelled towards development."
In the early years of Islam, 'zakat', 'sadaqa' and 'awqaf'( religious endowments) played a large role in society - not only in poverty alleviation, but in the building of infrastructure and provision of social services. In Ottoman times, some Turkish towns were almost entirely based on religious endowments - the real estate donated, with the rent going towards charitable or social ends: educational and health facilities, research institutes, even the lighting of streets. The endowments are credited as one of the reasons for the "Golden Age" of Islamic civilization from the eighth to the 13th centuries.
But due to colonization, the stagnation of Muslim institutions, mismanagement of 'awqaf' and the inability of their laws to adapt to changing times, these charitable traditions lost their central place in the organization of society.
Cheema said many Muslims today do not know how to calculate the amount of 'zakat' they should pay and do not have the channels through which to pay it. Governments collect a very small percentage of what they could.
In 2004, economist Habib Ahmed calculated that if all potential 'zakat' were collected in Muslim countries, between a third and half of them could move their poor out of poverty.***
"The potential is tremendous," Ahmed, now chair in Islamic Law and Finance at the Institute of Middle Eastern and Islamic Studies at Durham University, told IRIN. "But in most countries, it is not being used to the potential."
Among the reasons, he said, are that people do not trust governments, who have a history of mismanagement, and prefer to give their money to people they know are in need.
Syed Wafa is a former professor who headed a research group that advised the Malaysian government on distributing 'zakat' funds. He said even Malaysia - one of the most advanced countries in 'zakat' collection - is not strategic in its disbursement of funds.
"The 'zakat' authority does not have a long-term investment plan," he told IRIN. "They depend on the yearly collection... Their mindset is: We get the funds; we try to disburse them as fast as possible."
Wafa's recommendation to the government that it disburse 'zakat' funds through loans or micro-credit financing was rejected based on the perception that 'zakat' should, according to religious edict, be owned by the poor, and thus given in the form of direct assistance. In the Malaysian state of Johor, however, the 'zakat' authority allows funds to be spent on student loans for tertiary education.
Feeding the poor and helping orphans are encouraged repeatedly in the Koran and have thus become preferred forms of 'zakat'. Building mosques has been a popular form of 'sadaqa', largely due to the Prophet Muhammad's saying that he who helps build a mosque will have a castle built for him in heaven.
Muslim NGOs have at times struggled to convince donors to support "intangible" activities like capacity-building or empowerment, over these more tangible causes, according to Marie Juul Peterson, a researcher in politics and development at the Danish Institute for International Studies, who wrote her PhD thesis about transnational Muslim NGOs.
"One thing is clear," said Cheema of WCMP. "Around the Muslim world, there is an increased awareness that if 'zakat' distribution and management is made effective, we can bring revolutions in terms of development - not only for the Muslims, but people around the world."
Role of government
Many countries have entire ministries of 'zakat' and 'awqaf', but they are mistrusted, ineffective and badly managed, Ahmed said. But as they wake up to the potential of proper 'zakat' management, some governments are making efforts to centralize the process, either directly through government, through non-profit corporations created by the government; or through hybrid systems, where NGOs also play a role in collecting 'zakat'.
Malaysia has made great strides: in 2010 it collected 1.4 billion Malaysian ringgit (US$443 million) in 'zakat', up from about $95 million 10 years ago, said Wafa, now head of a Shariah-compliant financial institution called KOPSYA, which finances cooperatives through no-interest loans.
Malaysians who give 'zakat' are given a tax credit. In Pakistan the government deducts 'zakat' on certain categories of assets, with bank account deductions on the first day of Ramadan every year directly deposited in the Central Zakat Fund maintained by the State Bank of Pakistan.
In 2010 the Egyptian government measured, for the first time, the amount of money Egyptians donate to charity, estimating it at about 4.5 billion Egyptian pounds ($745 million) in 2009. Others have made estimates two to four times higher. In strictly financial terms, this government estimate would be enough to pull nearly all of Egypt's poor out of poverty.****
Donor culture built on religion
Others are also targeting the "charity mentality" at the state level - lobbying governments in the Muslim world, especially the Gulf, to be more strategic with their aid.
"Our [Muslims'] whole donorship was built on religious charity," said Ibrahim Osman, director of the Middle East and North Africa region for the International Federation of Red Cross and Red Crescent Societies (IFRC). "That has infiltrated even governments and public institutions... Most Muslim countries do handouts, even with international organizations.
"The Arab world has to change from a charity culture to a humanitarian action business," he told IRIN. "This is what is missing. It's always charity."
But observers say that apart from a few notable exceptions, major reform at the government level is unlikely.
Billions of dollars worth of giving in 'zakat' and 'sadaqa' are unfortunately ineffective by and large...we are here to bring the paradigm shift from conventional and generous giving to strategic giving.
"We academics talk about the role of 'zakat', but ultimately, if there is no political will at the level of the government, there will not be a structural change which can bring this about," Habib said.
"It needs a different mindset," Wafa added. "The ideas have to come from the public."
Increasingly, it is civil society filling the gap. See IRIN's list of efforts to make Muslim aid more effective.
The role of NGOs
In Egypt, a start-up social business called Madad is trying to shift the billions of pounds spent in Egypt every year in donations and charity by highlighting those NGOs working towards sustainable development.
"As Muslims, we are raised that you have to pay 'zakat'," said Sameh Awad, head of Madad. "People just go to the poor people and give them money and they feel that they're fulfilled.
"We are trying to change the culture of giving among the donors," he told IRIN, encouraging them to take more interest in how the money they give is spent and whether it creates any lasting change.
Muslim NGOs, some of whom get up to 80 percent of their funding from 'zakat' and 'sadaqa', are increasingly turning to sustainable development projects like Islamic (interest-free) micro-finance and livelihood support.
Instead of giving money to individual orphans, some NGOs have tried to support them in more strategic ways, introducing human rights, empowerment and "mainstream aid activities", Juul Peterson, the researcher, said. Other projects have included developing sermons for imams on children's rights or training them in disaster preparedness.
"You have these new ideas of how good aid should be," she told IRIN.
In Egypt, a non-profit organization called Misr al-Kheir, led by the Grand Mufti of Egypt, the highest religious authority in the country, and funded by 'zakat' and 'sadaqa', has been a pioneer in the use of 'zakat' for sustainable ends. Leading by example, the Mufti has made it religiously acceptable to invest 'zakat' in Islamic micro-finance projects and scientific research aimed at improving human development.
Al-Rajhi Bank and Yousef Abdullatif Jameel Co. in Saudi Arabia and Amanah Ikhtiar Malaysia (AIM) are Muslim lending institutions which have attempted to replicate the successes of Grameen bank in Bangladesh.
Several people are also trying to involve the $1 trillion Islamic finance industry in the financing of development, by encouraging Islamic financial institutions to transfer a percentage of their capital towards sustainable livelihoods for the poor, or using Islamic capital market instruments to create 'awqaf'.
Sustainable forms of Muslim aid
Historically, 'awaqf' have contributed to sustainable development much more than 'zakat'; and Muslims are increasing finding innovative and modern versions of the old tradition, including collective and corporate religious endowments.
In 2009, the Organization for Islamic Cooperation's Fikh Academy, charged with setting religious laws, passed a resolution evolving the rules around 'awaqf' to make them more flexible, allowing temporary 'awaqf', corporate 'awaqf' (through shares of a company) and 'awaqf' in cash - but regulation is still up to the government in most countries.
NGOs have lobbied Muslim scholars to issue fatwas making it easier for Muslims to give their faith-based charity in non-traditional ways, expanding the forms of acceptable religious charity, reducing waste and increasing sustainability and impact.
In 2007, Egypt's Grand Mufti pronounced that contributions to a civil society campaign - including fundraising by text message - to open a new children's cancer hospital would constitute legitimate 'zakat'. The hospital, financed completely through donations, is now the second largest in the world dedicated to paediatric cancer care.
Muslim scholars have also allowed 'zakat' to be given towards relief operations, which has made a big difference in responding to humanitarian disasters.
Making the most of Eid
One source of waste, historically, has been during the Eid al-Adha holiday, in which Muslims are encouraged to slaughter an animal and donate the meat to the poor - another industry worth millions, if not billions, of dollars. As a result, millions of sheep are estimated to be slaughtered every year in a span of a few days. On such a scale, the meat cannot always be distributed quickly and efficiently enough.
In 2011, well-known Muslim scholar Yusuf al-Qaradawi approved the canning of meat for distribution abroad at a later point.
Other NGOs, like Muslim Aid and Awqaf New Zealand, are combining the ritual, known as 'qurbani' or 'udheya', with livelihood activities, in which poor farmers rear the animals and sell them to the NGOs during Eid or use other parts of the animal to create revenue.
"We maximize the donation for the best interest of the poor," said Husain Benyounis, secretary-general of Awqaf New Zealand. "We turn something out of everything they throw away."
The Koran says the one of the ways in which you can continue being rewarded for your good deeds after you die is by leaving a form of continuous 'sadaqa', a gift that keeps giving. In a Muslim version of "teaching someone how to fish", the Prophet Muhammad is said to have helped a beggar find a sustainable income, instead of giving him money.
"You find very different interpretations of 'zakat' and 'sadaqa'," Peterson said. "[But] people are increasingly using Islamic discourses to argue for sustainability."
Still, though the Arab Spring may speed up the process, most observers say it will be years before there is any significant shift.
Awad, the young Egyptian social entrepreneur, believes Egypt's revolution needs to spread to the civil society sector.
"We need a revolution in all the sectors," he said. "We need a revolution, not only in leaders, but in the mindset itself."
But many continue to have hope in the potential offered through 'zakat', 'sadaqa', 'awqaf' and 'qurbani', especially as social media helps raise awareness and change the feedback loop. Sami Yusuf, a Muslim musician whose involvement in the LiveFeed campaign helped raise funds for the World Food Programme, says people just need the right channels to give.
"I think we're going to be really surprised in the years to come in this part of the world."
*According to the UN's Financial Tracking System, global humanitarian funding in 2011 totalled just over $13 billion.
**Calculated by IRIN as an average of the percentage of population living under $1.25 a day in the 40 member countries of the Islamic Development Bank (IDB) for which there was data in the 2011 Human Development Index.
***See page 69 of the link. Calculated by Habib Ahmed using the upper limit (4.3 percent of GDP) of a model used to measure the impact of full 'zakat' collection in IDB countries. (The lower end of the model is 1.8 percent)
****Calculated by IRIN based on an Egyptian population of 85 million - about 2 percent of which live below the poverty line, according to the Human Development Index of 2011. At today's exchange rate, 4.5 billion pounds works out to about $1.19 dollars per day per person living under the poverty line.
[This report does not necessarily reflect the views of the United Nations]