zakat Policy

Admin / or Support Cost – Direct Support and Indirect Costs

• Direct Cost: Direct project delivery costs that include programme costs and country office costs.
• Direct Support Costs: Link directly to the project but are shared between different projects/ services.
• Indirect Costs: These include IT, HR, or finance costs that cannot directly be linked to the project.

Charities SORP: A Statement of Recommended Practice which sets out how charities should prepare their annual accounts and report on their finances. The SORP is an interpretation of the underlying financial reporting standards and generally accepted accounting practice.

IR: Islamic Relief (refers to members of the Islamic Relief family).

IRW: Islamic Relief Worldwide.

IR Member: This refers to Islamic Relief Offices that have signed a licence agreement with IRW.

IR Family Council: This consists of the CEOs or Directors of the IRW Members, and each IR-Members having signed the license agreement with IRW.

Poverty: According to the United Nations, poverty is the inability to have opportunities, and a violation of human dignity. It means the lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, being unable to access education or healthcare, not having assets from which to generate a dignified living, and not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households, and communities. It means susceptibility to violence, and often implies living in marginal or fragile environments, without access to clean water or sanitation (UN Statement, June 1998 – signed by the heads of all UN agencies).

Rightsholders: Individuals or social groups that have particular entitlements in relation to duty-bearers. Duty-bearers are defined as state or non-state actors, e.g., Islamic Relief, that have the obligation to respect, protect, promote, and fulfil the rights of rightsholders. A directly reached rightsholder will have either registered and received one or more project/programme inputs from IRW or its IR Family members, and/or participated as a registered attendee in activities organised by IRW or its IR Family members, and/or had documented access to services provided by IRW or one of its IR Family members.

Zakat:  One of the five pillars of the Islamic faith requiring Muslims who meet the necessary criteria to give a part of their wealth each year to a charitable cause.

Context

“The Messenger of Allah, may Allah bless and grant him peace said ‘Islam is based on five things: Testifying that there is no god except Allah and that Muhammad is the Messenger of Allah (shahada); establishing the prayer (salat); paying the zakat; the Hajj; and the fast (sawm) of Ramadan.“

– Imam Bukhari

 

“Alms are meant only for the poor, the needy, those who administer them, those whose hearts need winning over, to free slaves and help those in debt, for God’s cause, and for travellers in need. This is ordained by God; God is all knowing and wise.”

– Al Qur’an: Surah Tawbah: Verse 60

 

Zakat is a duty mandated by Allah (SWT) upon any Muslim who is in possession of wealth over a certain threshold. Throughout the Qur’an, zakat is mentioned alongside prayer, emphasizing the sacred and essential nature of zakat as an act of worship. Zakat is a unique mechanism which calls for the compulsory redistribution of wealth from the rich to the poorest and most vulnerable members of society. As a core pillar of Islam, the Qur’an teaches that zakat is not a matter of voluntary charity, but a matter of social justice and protecting the rights of the poor.

The benefits of zakat are both spiritual and worldly. Firstly, zakat purifies both the wealth and the heart of the payer of zakat, instilling in them virtues of humility, generosity, detachment from worldly things and providing them with a means to attain closeness to Allah (SWT). Zakat should provide the recipient with a means of lifting themselves out of poverty and need in a manner that protects their dignity. Secondly, by developing social security networks for the poorest and most vulnerable members of society and developing bonds of brotherhood and sisterhood between all levels of the community, zakat helps create flourishing societies, united by mutual love and concern.

As one of the fundamental pillars of Islam, Islamic Relief Canada believes that zakat should be at the core of our work. Islamic Relief Canada is in a unique position to assist Muslims in fulfilling their obligations by providing a means for their zakat funds to assist in protecting lives and dignity, strengthening communities, and lifting people out of poverty around the world.

As such, Islamic Relief Canada takes the responsibility placed on them by donors, rightsholders, and Allah (SWT) Himself seriously in order to distribute zakat in accordance with Islamic values and teachings. This policy seeks to ensure that Islamic Relief Canada’s global zakat activities are in full accordance with the teachings of Islam, thus enabling Islamic Relief Canada to fulfil its responsibility in the best way possible.

Islamic Relief Canada recognises the importance of transparent and accountable governance of zakat funds based on the overarching principles outlined in the Qur’an and Sunnah from a theological perspective. In addition, Islamic Relief Canada abides by the legislative requirements as dictated by the Government of Canada Nonprofit Law, Income Tax Act, Canada Revenue Agency Charities Directorate, and the various provincial and territorial legislations.

This policy ensures a consistent approach to zakat funds and that detailed and relevant guidance is centrally disseminated. This policy will assist with:

• Guiding Islamic Relief Canada on which projects are eligible to receive zakat.
• Ensuring greater participation of country field offices in decision-making regarding the allocation of zakat.
• Scholarly clarification on issues relating to our zakat activities, such as questions around support costs or the disbursement of zakat to different types of rights holders.
• Developing processes to ensure the collection, financial transparency, allocation, distribution, monitoring and impact of zakat funds within Islamic Relief Canada are transparent, participatory, efficient, and compliant with Islamic principles.
• Greater internal and external transparency regarding the collection, allocation, disbursement, monitoring and impact of zakat funds.

This policy governs the whole of Islamic Relief Canada, including any organizations implementing projects using IRC’s Zakat funds. It will have implications on the following areas of our work:

Governance

• The IRC Board of Directors should consider the Zakat Policy and its application beyond their fiduciary duty to ensure that the Zakat policy has been reviewed and approved by the Zakat advisory board and that IRC’s Zakat funds are spent in accordance with this policy.
• The Board is also responsible for approving changes to the Zakat advisory board or this policy.

Programs

• The Programs Department will need to participate in decision-making processes to ensure zakat is spent on the most needed projects, in the most effective manner.
• Programs will need to work with Fund Development to ensure that zakat-funded projects adhere to the principles outlined herein.
• Programs and implementing partners should be encouraged to develop projects which can utilize zakat funds
• Programs will need to provide clear and regular reports (for both internal and external usage) demonstrating that zakat funds are being utilized in accordance with this policy.

Program Quality

• Islamic Relief Worldwide will monitor the extent to which zakat projects are helping those most in need and assess their impact.

Internal Auditing

• Department will conduct audits to ensure that Islamic Relief Canada complies with the policies, procedures, and systems on zakat, assess application of funds, accounting, and reporting. Audits will consider the use of zakat beyond the financial aspects, assess the programmatic application, end use of funds to the last mile and last stop.

Marketing

• The Annual Report will inform stakeholders of the following:
  • How much zakat was raised annually and the eligible projects the zakat was applied to
  • The difference and impact achieved through zakat projects.

Finance

• Finance should maintain a specific track of zakat income and zakat expenditure in the accounting systems.
• Internal reporting across IRC departments, and implementing partners should periodically ensure its management reports incorporate:
  • The executive and Board members analysis to show clearly and highlight costs charged to zakat funds and zakat funds raised
  • Which projects were approved as zakat eligible and what costs have been charged to zakat.

The overall aim of the Zakat Policy is to ensure that Islamic Relief Canada’s zakat activities are in full accordance with the teachings of Islam, thus enabling Islamic Relief Canada to fulfil its obligation in the best way possible.

The specific objectives are:

1. To ensure appropriate governance of the trust from theological and federal laws of charitable/zakat funds.
2. To provide clear guidance to IRC Board of Directors, management, and staff on how zakat should be fundraised, accounted for, allocated, distributed, monitored and the impact of social-economical value zakat has had to enhance communities/societies.
3. To provide transparency and accountability to stakeholders on how they should expect Islamic Relief Canada to collect, allocate and distribute zakat.
4. To improve internal and external communications on IRC’s distribution of zakat and its impact.
5. To ensure that IRC’s zakat activities are conducted in the most transparent and Islamically-compliant manner possible.
6. To enable IRC to utilize zakat within our programs in a manner that ensures the maximum impact and efficiency in reducing suffering and poverty.

Any Islamic Relief Canada regional team seeking to collect Zakat should:

• Undertake efforts to educate local Muslim communities on the importance of paying zakat and those who are eligible to pay zakat.
• Provide clear and accessible guidelines and support to donors around calculating how much zakat they are obliged to pay. For example, this could be in the form of leaflets, booklets, hotlines, online apps, etc. which are developed by the central office in consultation with local Imams and scholars.
• Provide training to fundraising staff & volunteers on the obligation to pay zakat and basic elements of calculating zakat. Fundraisers and Donor Care
• Specialists should be well-trained in organizational protocols in managing and reporting on zakat, so they may be able to provide clarity and understanding to stakeholders as inform fundraising staff which IR projects are eligible to receive zakat.

Zakat funds are given for a specific purpose and can only be used for zakat eligible purposes as defined in the eight categories of zakat. The accounting records of IRC should distinguish the income and spend between zakat funds and other funds.

Marketing & Fundraising

Islamic Relief Canada will respect the wishes and conditions which its donors place on their donations. However, in the case of zakat, IRC’s policy is that donors must be encouraged to give zakat to a general zakat fund.

This is due to the need to ensure that zakat is spent as swiftly as possible. Since the obligation of paying zakat will not be fully discharged until the right holder receives the zakat, donors should be advised against placing conditions on zakat that may prevent it from being spent in the most quick and effective manner on those who need it most.

As such, IRC’s policy regarding fundraising zakat is that:

• IRC should encourage donors to pay their zakat without further restrictions added.
• Fundraising and marketing teams should avoid options in their fundraising or marketing materials (e.g., website or leaflets) that allow donors to give zakat to restricted funds.
• Sector and country-specific zakat funds should only be made available only if our implementing partners have confirmed such projects can be delivered in accordance with the zakat policy.
• However, if IRC feels they are unable to respect the wishes (e.g., due to a lack of projects in that country/sector, or if the donor’s conditions contravene our policy), IRC must either:
  • Communicate to the donor that IRC may not be able to spend the zakat in the requested manner, and encourage the donor to give zakat to an alternative fund
  • Refuse the donation on the grounds that we do not have the capacity to spend the zakat in the requested manner
• Any communication with donors that constitutes direct marketing of zakat must follow any provincial and federal laws and regulations governing privacy and electronic communications.

Who is eligible to receive zakat?

The Qur’an clearly outlines the eight categories of people who are eligible to receive zakat:

“Alms are meant only for the poor, the needy, those who administer them, those whose hearts need winning over, to free slaves and help those in debt, for God’s cause, and for travellers in need. This is ordained by God; God is all knowing and wise.”

– Al Qur’an: Surah Tawbah: Verse 60

These boundaries are set by Allah (SWT), and IRC believes that we – as zakat – will be held accountable by Allah (SWT) for how we distribute zakat funds, and the extent to which we adhere to the conditions and parameters set by Allah (SWT).

As such, Islamic Relief Canada will only distribute zakat to rights holders (directly or through projects) making sure there is individual ownership for the categories outlined above. When allocating zakat to projects, or applying for zakat funds to utilize in projects, Finance and programs must keep records as to how this project matches the criteria of zakat.

While the categories themselves are clearly set, their definition and interpretation – particularly in the contemporary context – require some clarification.

 

1. Fuqara & Masakin (Poor & Needy)

1. Poverty is being in a state where one is unable to meet their essential needs. This can be assessed through local consultations and needs assessments.
2. IRC recognises that in mentioning both fuqara (poor) and masakin (needy or extremely poor) Allah (SWT) is ensuring that we address the needs of both the poor and the ultra-poor. As such, it is critical that the needs of the ultra-poor are considered and prioritized where possible when identifying which projects to fund through zakat.
3. IRC will use zakat to provide adequate assistance to meet the essential needs of rights holders.
4. IRC believes that zakat can and should be used for emergency relief activities, such as the provision of food, shelter, clothing, medication and healthcare, water and sanitation, and other items or essential activities which can help alleviate the poverty or suffering of affected individuals.
5. Zakat funds cannot be used in cases where additional conditions are added for its receipt (e.g., cash for work projects).
6. Where possible, Zakat should also be utilized in a way that provides long-term solutions to the deprivations or needs of disadvantaged people. This could be achieved through developing sustainable livelihood projects, education, or health provision, or supporting other sustainable development activities for the poor and needy.
7. IRC will focus its zakat implementation in areas where there is a clear Muslim majority among the population. However, as a humanitarian organization, IRC will do this in a way that does not discriminate between people on the grounds of race, religion, sect, gender, or ability and is bound by the internationally recognised humanitarian principles of impartiality, neutrality, independence, and humanity. To ensure non-Muslims in such situations receive the same level of assistance, additional funding should firstly be sought from other sources of funds. If other funds are not available, then zakat may be used.

 

2. Al ‘Amilina ‘Alayha (The Administrators of Zakat)

Islamic Relief Canada is a legitimate administrator of zakat. IRC in effect is a duty-bearer, with a responsibility to respect, protect and fulfill the rights of rights holders on whose behalf zakat funds have been collected.

1. As such, IRC is eligible to take a reasonable portion of 12.5% of zakat funds to cover the costs of delivery of zakat eligible projects. Costs are incurred firstly in raising awareness and collection activities for zakat funds, and then administering those funds to ensure they reach the rights holders entitled to these funds. Our implementing partners such as IRW are also zakat eligible for their overhead costs
2. Costs incurred by IRC are defined as direct, direct support costs or indirect costs. IRC must map and understand what costs are related to zakat projects and those that are eligible to be charged against the allowed administration charge from zakat funds.
   1. Direct costs are frontline delivery costs that include program costs and country office costs.
   2. Direct Support costs link directly to the project but are shared between different projects/services. Therefore, to arrive at the true cost of delivery, these costs should be charged to Zakat when needed.
   3. Indirect Costs include IT, HR, or finance costs that cannot directly be linked to the project.
   4. Costs associated with fundraising, marketing, event sponsorship, influencers, generic training, and governance costs are not eligible to be charged to the 12.5% administration category.
3. To ensure transparency and accountability the programs and finance functions of IRC should report on the usage of zakat funds. IRC must demonstrate consistency, accountability and transparency in its internal environment and reporting for zakat purposes.

 

3. Al-Mu’allafati Qulubuhum’ (Reconciliation of Hearts)

Whilst IRC is inspired by its values, and proactively seeks to educate our supporters regarding Islamic values and teachings on poverty alleviation, as a humanitarian agency we do not engage in any proselytization activity. As such, IRC does not undertake any zakat activities under the category of mu’allafati qulubuhum.

 

4. Riqaab (Emancipation of Slaves)

The use of Zakat funds can rightfully be used for the emancipation of slaves. While projects of this nature are not the primary focus of Zakat spending for IRC, where IRC finds people suffering from a modern form of slavery – such as bonded labour, forced labour, or human trafficking – zakat funds may be utilised to emancipate people from such forms of slavery (provided that the funds do not profit perpetrators of such acts who have violated national or international law).

 

5. Gharimeen (Those in Debt)

1. Zakat may be used to assist those in debt under the following conditions:
   1. The debtor must need financial aid (those with enough wealth to cover their debt cannot be assisted). However, they do not necessarily need to be destitute, but simply not have enough income or wealth to repay their debt.
   2. The debt should be due immediately. Those whose debts can be deferred may still be eligible to receive zakat but could be considered as less of a priority than those who need immediate assistance.
2. Zakat funds may be used to pay unsustainable/unrecoverable debts. For example, in microfinance programs, IRC is permitted to create an accounting write off against the individual’s loan records using the zakat funds if the individual has incurred such a debt.
3. IRC will rely on its implementing partners to use processes and criteria that verify that only those in genuine debt are supported. IRC should be able to have access to such information as and when needed.

 

6. Fi Sabeelillah (In the Cause of Allah)

1. IRC takes the opinion that it is permissible to fund communal welfare assets and programs – such as clean water sources, health clinics, critical medical equipment, temporary food producing outlets (e.g., bakeries), water containers, schools, training centers, seed banks, communal farmlands, water dams, etc. – to reduce poverty and hardship in disadvantaged communities.
2. Projects involving communal welfare will promote the principle of community empowerment through ownership. IRC will endeavor to adhere to the following conditions when funding communal welfare assets with zakat:
   1. The clear majority of the rights holders can be classified as being eligible to receive zakat (i.e., poor, needy, traveler, etc.).
   2. An assessment of the rightsholder community has been conducted, demonstrating the need for the asset in question in alleviating poverty and suffering.
   3. Consent should be sought from the target community to develop or implement the proposed asset.
   4. The project should ensure that rights holders can act as effective and responsible managers of the asset.
   5. Once completed, ownership and management of the asset is transferred to the local community (e.g., to a local community cooperative comprising an inclusive group of people), with an agreement to protect the asset’s intended usage for communities and individuals in need. It should explicitly state no person in need will be refused.
   6. The communal asset should always remain a not-for-profit property and for general welfare.
   7. The asset shall not be owned by any one person or a single group of people.
3. IRC will use zakat to fund essential service providers – such as teachers, doctors, health workers, disaster recovery personnel, trainers, agriculture specialists who provide vital services directly to rightsholders, specifically addressing their needs or deprivations with the following conditions:
   1. The service provider is not an employee who provides general operational support and management, but someone who works on direct project delivery.
   2. An assessment and consultation of the rightsholder community has been conducted, demonstrating the need for the service in question (for protecting lives and alleviating poverty and deprivation).
   3. IRC only pays essential service providers for a limited time (no later than the project-end).
4. Zakat funds can be used for education and training purposes to directly teach people about issues and skills that will allow them to come out of poverty. For example, learning how to start a home-based enterprise, farming methods, tailoring, animal rearing, health issues, hygiene and sanitation awareness and other livelihood options are all considered zakat eligible.
5. Any costs which are specific and limited to the distribution or implementation of zakat goods/projects (e.g., petrol for delivery of goods, short-term hiring of transportation/ storage space, etc.) and are not part of implementing partners’ long-term assets or costs may be covered by zakat.
6. Zakat funds can be utilized in conflict transformation projects that seek practical solutions that bring peace to communities, leading to a significant reduction in levels of hardship faced by people living in those areas.
7. However, under this category IRC will not fund communications or advocacy work due to the difficulties in establishing and measuring the direct benefit of these initiatives to those in actual need.

 

7. Ibn As-Sabeel (The Travelers)

1. IRC defines travelers as people who are at least 48 miles away from their home and unable to reach their destination (including refugees and internally displaced people) and who have been cut off from their wealth, assets, or source of income.
2. This would apply to refugees who have not re-settled and are not in the category of fuqara and maskin (poor and needy).
3. IRC may use zakat funds to provide sufficient food, clothing, shelter, transportation, education, healthcare, and any other needs.

 

Matters Relating to the Allocation & Distribution of Zakat

1. Where appropriate Islamic Relief Canada will conduct research to identify the level of poverty in Canada. Where poverty or need is identified, IRC will develop a strategy to utilize a portion of zakat funds domestically. This amount will need to be determined by the Board of Directors.
2. Islamic Relief Canada will not allocate funds to each of the categories of zakat in an equal measure, as some categories do not directly apply to its mission.
3. Islamic Relief Canada may allocate as much zakat to each category as is relative to the need of rights holders and our capacity in each geographical location.
4. Islamic Relief Canada will aim to allocate zakat funding within one year of receiving it and use it as quickly as possible.
5. Islamic Relief Canada will not use zakat funds to use for any type of endowment or similar investment projects.
6. Islamic Relief Canada takes the view that zakat cannot be given for loans or any other business enterprise.
7. Zakat funds can be used on projects that are both short term (e.g., immediate humanitarian response) and long-term (such as multi-year livelihood programs).

 

Free Reserves

The term “reserves” is used to describe that part of a charity’s funds that is freely available for its operating purpose not subject to commitments, planned expenditure and spending limits. Reserves do not include endowment funds, restricted funds, and designated funds.

Zakat funds held have a direct impact on calculating free reserves.

The zakat funds (less than 12.5% of total zakat funds) should be excluded in calculating IR’s free reserve position.