The effectiveness of zakat in alleviating poverty and inequalities

Abstract

Purpose – The purpose of this paper is to examine the role of zakat (the Islamic tax) in alleviating poverty and inequality in Pakistan using a newly developed index, namely, the Basic Needs Deficiency Index (BNDI). Design/methodology/approach – The study formulates an index (BNDI) to measure the deficiency and effectiveness of zakat as one of the different items of government expenditure/spending to alleviate poverty. In this paper, Pakistan is chosen as a case study for two reasons: the availability and accessibility of data required for computing BNDI; and, in the past, no index such as this had been used to measure poverty in Pakistan. Findings – The results obtained from the computation of the BNDI have been able to explain the effectiveness of zakat in alleviating poverty and inequality in Pakistan. Practical implications – The findings of the study can be used by policymakers to measure and improve the effectiveness of zakat in reducing poverty and inequality. Social implications – As the ultimate beneficiaries of zakat are the poor people, the outcome of this study may help improve their quality of life. Originality/value – The paper develops a new methodology to measure poverty alleviation in Pakistan, focusing on the poor households’ consumption/expenditure on basic needs, government spending in terms of zakat and the number of zakat recipients as the three main determinants. The index developed in the present study can be applied to measure the performance of all Muslim countries whose provision of zakat is embedded in the national agenda to alleviate poverty.