Zakat is the compulsory religious levy, normally 2.5% per lunar year, that every Muslim whose eligible wealth exceeds a minimum threshold pays to categories of recipients defined in the Quran, including the poor and people burdened by debt.
What makes zakat compulsory rather than voluntary?
As the third pillar of Islam, zakat is not a gift left to personal discretion: it falls due once three conditions are met, namely full ownership of the assets, a value above the threshold and possession lasting a complete lunar year.
Nisab and the lunar year of possession
The threshold known as nisab traditionally equals the value of 85 grams of gold or 595 grams of silver. The holding period, called hawl, is counted in lunar months: as the Hijri year is eleven days shorter, the due date moves earlier each solar year.
Which assets form the zakat base
Gold, silver, cash, account balances, inventory held for sale, recoverable receivables, livestock and harvests are all included. A primary home, a personal car and working tools are excluded, because they are used rather than hoarded as stored wealth.
Applying 2.5% to Islamic bank savings
A saver holding the equivalent of 20,000 euros in an Islamic investment account for a full lunar year owes about 500 euros. Distributed profits are added to the zakatable balance, while debts due in the short term may be deducted according to many jurists.
Eight recipient categories set by the Quran
Verse 60 of Surah At-Tawba lists the poor, the needy, the collectors, those whose hearts are to be reconciled, freeing captives, debtors, the cause of God and the stranded traveller. No other destination is permitted for these funds.
Zakat al-fitr, the end-of-Ramadan charity
Separate from zakat on wealth, zakat al-fitr is owed for every household member before the Eid prayer. It equals one sa' of staple food, often converted into a flat cash amount announced each year by local religious bodies.
How zakat differs from sadaqa and waqf
Sadaqa is free charity with no rate, threshold or restricted recipients. Waqf locks up capital and distributes only its income. Zakat is obligatory, quantified and reserved for the eight categories, which limits its use for infrastructure projects or general community spending.
May collected funds be invested before distribution?
Some contemporary jurists allow an agency to place zakat funds temporarily in productive projects that benefit eligible people, such as small businesses handed over to the poor. Others insist on prompt distribution. The collecting body's Sharia committee has the final say.
How institutions collect and redistribute zakat
Depending on the country, collection is handled by a government department, a national fund, licensed associations or charity platforms. The best schemes keep registers of recipients, separate zakat from other gifts and publish audited accounts showing administrative costs deducted.
Zakat for refugees and development
In 2022 UNHCR and the Islamic Development Bank launched the Global Islamic Fund for Refugees, which channels zakat, waqf and sadaqa to displaced populations. Such funds show how a religious duty can be linked to large-scale humanitarian financing.
Do Islamic banks pay zakat themselves?
It depends on local law and the articles of association. In some countries companies pay zakat on their net assets; elsewhere the bank calculates zakat per share and leaves shareholders to pay it. AAOIFI has issued standards governing this calculation.
What to check before entrusting zakat to an organisation
Ask whether donations are held in a dedicated account, what share covers collection costs, how quickly funds are distributed and which recipients are targeted. A Sharia committee opinion or a published audit report gives donors stronger assurance about proper use.
Specialist external source
The Islamic Development Bank describes its social finance programmes, including initiatives that combine zakat, waqf and donations for humanitarian relief and development.