The Power of Giving: Zakat

By
Wahed Editor
September 16, 2022
The Power of Giving: Zakat

Prophet Muhammad (Peace Be Upon Him) was ranked number one in Michael H. Hart’sThe 100: A Ranking of the Most Influential Persons in History1992 edition. Rightly so, because among the many wonderful things he has done for humanity, one of them was to deliver a key message from the great revelation of the Qur'an in economic and political human history; the importance of Zakat.

What Is Zakat?

Zakat in simple terms is a form of alms. Alms is a mandatory form of charity that comes under the religious duty of a Muslim who has saved above a certain amount. This certain amount is termed as ‘Nisab’ in Islam. ‘Nisab’ is the bare minimum of wealth that a Muslim must have after deducting necessary expenses in order to be eligible to contribute Zakat. It amounts to the current value of 3 ounces of gold (around 85 grams) and in terms of silver, it’s around 612 grams.

Concept And Purpose

There are five pillars in Islam, and Zakat is amongst the most important of them. The others are the declaration of faith, praying, fasting in the month of Ramadan and the Hajj Pilgrimage. 

The Qur’an, in Surah Al-A`raf 7:156, describes Zakat as one of the means of obtaining Allah's mercy. Giving Zakat purifies the giver's heart of selfishness and greed for wealth and fosters sympathy for the needy. For those who receive Zakat, it clears the heart of envy and hatred for the wealthy and prosperous as well as fosters a sense of community. This demonstrates that it has both spiritual and financial significance.

How Does It Work?

Zakat amounts to 2.5% of a person's total wealth accumulated every year. When we say wealth, we mean a surplus of one's earnings and other types of assets. For example: If Abrar earns $20,000 per year and has $200 in savings, he must calculate his Zakat based on the $200 in savings as opposed to his yearly income. One must also account for 2.5% of other assets he owns as well. Speaking of conditions in Zakat, there are a few other detailed preconditions, one of which is that he be debt-free. This form of charity is based on a lunar calendar year and is given annually at a set date, often Muslims choose to pay it during the holy month of Ramadan. In terms of who should receive your Zakat, there is a list of people who fall into this category mentioned in the Qur’an 9:60

  1. The poor (low-income or indigent)
  2. The needy (someone who is in difficulty)
  3. Zakat administrators
  4. Those whose hearts are to be reconciled (new Muslims and friends of the Muslim community)
  5. Those in bondage (slaves and captives)
  6. The debt-ridden
  7. In the cause of God
  8. The wayfarer (those who are stranded or travelling with few resources)

When you think about it, giving Zakat may create a reasonable wealth circulation system. The act of Zakat teaches us that those who are less wealthy and in need have rights in the presence of those with abundance in wealth. And the evidence of endless starving, poor, hungry, and homeless people around the world highlights the importance of putting this essential teaching into practice.

Disclaimer:

This material has been distributed for informational and educational purposes only and the opinions expressed represent the views of the author and not necessarily those of Wahed Invest LLC or any of its affiliates, directors or personnel (“Wahed”).  Any assessment of the market environment as of the date of publication is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice. Wahed assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security.

Furthermore, the information presented may not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented.

Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.

Other Articles

Employee Spotlight: Zayan Yassin- VP Business Operations

Employee Spotlight: Zayan Yassin- VP Business Operations

“Wahed is the place and opportunity for you to make a difference. Nothing beats the satisfaction of working with like-minded people who share a common goal and drive, to make an impact with everything we do. A growing company backed by real talents.”
What is market volatility and why should you care?

What is market volatility and why should you care?

The stock market has been very “volatile” throughout the year 2022. During the early stages of COVID-19, the stock market was "volatile.” Haven't we all heard the term "volatile" too many times in stock market discussions or market commentaries? But what does it actually mean in this context? Let’s find out. Basically, “volatility” occurs when stock markets experience frequent and unpredictable price movements, either up or down. A more technical definition is that volatility is the standard deviation of a stock's annualized returns over a given period and indicates the range within which its price can rise or fall. To simplify, a stock is said to have high volatility if its price fluctuates rapidly in a short period.Factors such as political and economic conditions, company performance, earnings reports, and interest rate decisions can all contribute to market volatility.
How do banks make money?

How do banks make money?

Banks, like any other profit-driven business, issue charges for the services and products they offer. These services primarily entail accepting deposits. Deposits are funds that people place in the bank with the understanding that they can withdraw them at any time or at a predetermined future date. But what do banks do with all of the money they receive as deposits? Here’s where a lending system comes into play. A significant amount of money the bank receives in terms of deposits is lent to other people. Loans are borrowed for homes, automobile purchases, education or personal requirements. Banks also provide loans to businesses that are looking for capital. While deposits and loans only play a small role in the overall banking game, the vital business of most banks is when interest is earned through this exchange. Profits start rolling in from interest earned by the banks!

Start your journey to wealth

Download the App now