Islam is a complete code of life that deals with every aspect of human life. Eradicating poverty and hunger from the society is one of the prime objectives revealed in the Divine Book of Islam, The Qur’ān. (Allahu urba sadaqa: Allah increases dole.) Since the 7th century, Islam is trying to inculcate the importance of dole among its followers. Islam imposes an annual tax of 2.5% called Zakah at the net wealth which exceeds a certain level equal to 85 gram gold or 595 gram silver. If one has wealth worth 85 gram of gold for a complete one year, Islamically he is obliged to pay 2.5% Zakah on his wealth. However, it excludes the basic necessities of a person like house, means of transport and instruments which are a means of earning his livelihood. The collection of Zakah will be distributed among eight categories of people described in a chronological order in the Qur’ān (Surah Taubah 9:60).
A careful study by many researchers has shown that Zakah is an effective tool for complete eradication of poverty. A given amount of Zakah may affect economy directly as well as indirectly. The secondary goal of the distribution of Zakah is to increase circulation of wealth in society.
Modern economics also endorses the concept of circulation of money. It is quite similar to the concept of distribution of Zakah revealed in the Qur’ān over 1400 years ago.
One of the root causes of financial crises of economy in the early days was due to the stagnation and accumulation of money. Islam emphasises the circulation of money through distribution of Zakah and Sadaqat (voluntary Charity).
Hoarding goods for supernormal profit is forbidden in Islam especially in case of currency, which amounts to sinning. A classical scholar of the first Islamic century, Imam Hassan Al-Basri (may Allah have mercy on him) has described the nature of money in Islam. He says, “Money is such a companion of yours that it does not benefit you, unless it leaves you.” Moreover, Imam Ghazali has said in Ahyaul Uloom Fiddeen that money is an instrument which facilitates exchange of goods. Islam does not perceive money as the ultimate goal, but an instrument that leads to a goal to achieve the objective. The one who uses money in a manner contrary to its basic purpose is in fact, disregarding the blessings of Allah.
Hoarding money (wealth) is doing injustice by defeating its actual purpose. The person who hoards money or wealth is like the one who detains a ruler or postman in a prison. For instance, if a ruler is imprisoned, he cannot fulfil his duty towards his subject; and similarly if a postman is imprisoned, he cannot distribute letters. The important news enveloped in a letter cannot reach the concerned person, and the delay in conveying it may cause loss to the person or even to the entire community.
Distribution of Zakah is very similar to the concept of circulation of money and those who do not pay just amount of Zakah are close in action to the person who imprisons a ruler or a postman.
Along with circulating money, Zakat has various economic effects. First, it affects the income level of poor people; secondly, it increases the consumption level in the national income; and thirdly, it increases the production level in the economy. In Modern Economics, consumption and production have very important roles to play.