Can Charitable Donations From Muslims Compensate for an Uncertain Giving Environment?

Recent months have seen charitable giving appear frequently in the headlines, following Chancellor George Osborne's decision to drop plans to cap tax relief on major donations. The original proposal, announced in the Chancellor's Budget in March 2012, provoked a vociferous reaction from a number of charities concerned that it would deter philanthropists from donating to their causes and result in millions of pounds in lost income to the sector.

The protracted saga demonstrated the huge strain on resources currently faced by charitable organisations as they struggle to cope within the post-recession landscape. But while the charitable sector continues to push for ways to make giving a 'social norm' in the UK, millions of Muslim adults will be fulfilling their financial obligation to help others as the holy month of Ramadan approaches. What lessons can be learnt from this spiritual act of giving and is there room for the model of Zakat to compensate for the downturn in the charitable environment?

Charities are experiencing a marked increase in demand for their services, putting them under greater pressure to deliver to their beneficiaries amidst dwindling resources. Direct public sector funding to the voluntary sector is expected to decline by over £3 billion between 2010/11 - 2015/16 . To add to their troubles, operating costs between 2008 and 2010 increased by £2.8 billion as a result of rising inflation.

The removal of billions of pounds of funding from public services will have further knock-on implications for charitable organisations as they attempt to shield those affected by the loss of government support. Charitable leaders are concerned, with 94 percent expecting the economic outlook of the voluntary sector to deteriorate over the next twelve months.

Plans to foster a stronger culture of giving in the UK were outlined in the Government's Giving White Paper in May 2011, although reaction to the proposals have been somewhat mixed. The government has pledged £40m towards 'social action and social investment' and aims to establish giving as part of everyday life, evidenced by the roll-out of ATM Giving at 12,000 cash machines. However, it remains unclear what kind of impact the policies will have on the giving environment.

Zakat is the mandatory form of charity for all Muslims based on the amount of wealth they hold over an Islamic year. Assuming they are in possession of the minimum amount of wealth on which Zakat is due (known as the nisab), all Muslims are obliged to pay 2.5 percent of this as Zakat each Islamic year. Completing one's Zakat is a fundamentally important part of Islam - it is considered an act of mandatory worship for Muslims and the way to purify their wealth, while honouring their duty to protect the well-being of others.

While Zakat amounts to only a small proportion of an individual's income, the amount of money donated each year under this model is substantial. Data on Zakat flows is limited, but Islamic financial analysts estimate that over £130 billion is given as both mandatory and voluntary alms in the Muslim world each year, approximately 15 times more than global contributions to humanitarian aid in 2011.

There are eight categories of recipients that qualify to receive Zakat funds. Zakat is generally paid towards causes that address international issues and humanitarian emergencies, such as poverty and helping people meet their basic needs. Ramadan, the Islamic month of fasting and a time of spiritual reflection and worship for Muslims, is the most common time for people to pay their Zakat, with rewards believed to be multiplied compared to other times of the year.

However, this standard practice by a large majority of Muslims tends to counteract the true spirit of Zakat. When Zakat payment is due - i.e. if an individual has been in ownership of the minimum Zakatable wealth for one lunar year - then it must be paid on time and not delayed, even if rewards for charity are increased during Ramadan. Traditionally, Zakat distribution would not be concentrated in one period but rather spread over a length of time to address needs throughout the year. This is because Zakat is designated as a means of redistributing wealth from the rich to the poor and to ensure communities in need were supported throughout the year. Local issues were also seen as a priority over international causes.

Zakat funds are separated from other methods of giving in Islam, as donors are obligated to calculate the due amount from their wealth and make the intention that the money being given is Zakat, as well as ensuring that it is distributed among the eight categories of eligible recipients outlined in the Qu'ran. Voluntary giving by Muslims - known as Sadaqah - also tends to increase more during Ramadan because of the promised extra rewards.

Yet at a time when UK charities continue to bear the brunt of the uncertain economic climate, the model of Zakat demonstrates the potential impact of mandatory charity. Early historical accounts of Islam demonstrate the system in place to ensure appropriate collection and distribution of Zakat funds. Many sayings of the Prophet Muhammad (pbuh) indicate that Zakat officials were appointed to collect and distribute Zakat proceeds on behalf of the Islamic state, tracking potential Zakat payers and distributing the due amount of their zakatable assets within the local region. Two reports from the first 100 years of Islam suggest that poverty was eradicated, with rulers in some regions claiming that Zakat proceeds could not be disbursed due to the lack of poor.

In more recent times, governments of several countries have taken responsibility for collection and distribution Zakat donations, including Saudi Arabia, Libya, Pakistan and Sudan. While some kind of Zakat is collected on a mandatory basis in these countries, there are differences in the kinds of Zakatable assets and properties. Government agencies in other predominantly Muslim countries such as Bangladesh, Indonesia and Bahrain have also been established to distribute Zakat paid to them voluntarily.

As ministers scramble to engrain a culture of giving on society - such as through 'nudges' at cash machines and supermarket check-outs - perhaps allocating a small proportion of each person's wealth to charity is the only way to ensure the UK's safety net is large enough to withstand the unfolding crisis.