Humanomics

The effectiveness of zakat in alleviating poverty and inequalities: A measurement

using a newly developed technique
Naziruddin Abdullah Alias Mat Derus Husam-Aldin Nizar Al-Malkawi
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Naziruddin Abdullah Alias Mat Derus Husam-Aldin Nizar Al-Malkawi , (2015),"The effectiveness of
zakat in alleviating poverty and inequalities", Humanomics, Vol. 31 Iss 3 pp. 314 - 329
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Lukman Raimi, Ashok Patel, Ismail Adelopo, (2014),"Corporate social responsibility, Waqf system
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H
31,3
The effectiveness of zakat in
alleviating poverty and
inequalities
314 A measurement using a newly developed
technique
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Received 4 February 2014

Revised 4 February 2014
Accepted 30 April 2014 Naziruddin Abdullah
Business School, Universiti Kuala Lumpur, Kuala Lumpur, Malaysia
Alias Mat Derus
International Islamic University Malaysia, Kuala Lumpur, Malaysia, and
Husam-Aldin Nizar Al-Malkawi
Department of Finance, King Abdulaziz University, Jeddah, Saudi Arabia

Abstract
Purpose – The purpose of this paper is to examine the role of zakat (the Islamic tax) in alleviating
poverty and inequality in Pakistan using a newly developed index, namely, the Basic Needs Deficiency
Index (BNDI).
Design/methodology/approach – The study formulates an index (BNDI) to measure the deficiency
and effectiveness of zakat as one of the different items of government expenditure/spending to alleviate
poverty. In this paper, Pakistan is chosen as a case study for two reasons: the availability and
accessibility of data required for computing BNDI; and, in the past, no index such as this had been used
to measure poverty in Pakistan.
Findings – The results obtained from the computation of the BNDI have been able to explain the
effectiveness of zakat in alleviating poverty and inequality in Pakistan.
Practical implications – The findings of the study can be used by policymakers to measure and
improve the effectiveness of zakat in reducing poverty and inequality.
Social implications – As the ultimate beneficiaries of zakat are the poor people, the outcome of this
study may help improve their quality of life.
Originality/value – The paper develops a new methodology to measure poverty alleviation in
Pakistan, focusing on the poor households’ consumption/expenditure on basic needs, government
spending in terms of zakat and the number of zakat recipients as the three main determinants. The index
developed in the present study can be applied to measure the performance of all Muslim countries whose
provision of zakat is embedded in the national agenda to alleviate poverty.
Keywords Pakistan, Poverty alleviation, Zakat, Basic needs deficiency index (BNDI)
Paper type Research paper

1. Introduction
Humanomics Poverty knows no boundary, and Pakistan is without an exception. In fact, the history of
Vol. 31 No. 3, 2015
pp. 314-329
poverty in Pakistan can be traced back to 1947, the year when the British relinquished
© Emerald Group Publishing Limited
0828-8666
its dominance and power to the people of Pakistan. Specifically, according to Burki
DOI 10.1108/H-02-2014-0016 (2004), at the time of independence, Pakistan had as many as 21 million people, but some
 60 per cent of the population lived in absolute poverty, a condition of life in which the Effectiveness
basic needs of those who are affected by it are not fulfilled[1]. of zakat
In the period of 1947-1958, the situation had turned from bad to worse when the
country added eight million people to its population. The main reason was the arrival of
millions of people as refugees from India. A very large number of these people arrived as
destitute, leaving behind their properties and most of their possessions. As of October
1958, it has been recorded that the pool of poverty had increased by another 5 million to 315
about 26 million people in a population of some 44 million.
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As of March 1969, it has been estimated that Pakistan’s population had increased to
56 million. Of this some 40 per cent – or 22 million people – lived in poverty. This
estimation, by and large, is based on the writings and speeches of the Pakistani
economist, the late Dr Mahbub ul Haq, who introduced the concept of the “bottom 40 per
cent” in development thinking.
In 1971, owing to a sharp slowdown in economic growth and to a series of failed
monsoons together with the deep restructuring of the economy undertaken by the
government in power, the incidence of poverty has increased. In July 1977, Pakistan’s
population had increased to 72 million of which 28 million were absolute poor. This was
six million more than in 1969.
In August 1988, Pakistan had a population of 97 million, of which only about 18 per
cent or 17.5 million were poor. This was a remarkable development. That is to say, while
the size of the population in this 11-year period had increased by 25 million, the number
of poor declined by 11 million. It is worth mentioning at this juncture that such a decline
in poverty was made possible partly due to the Islamization program, much of which
was focused on the introduction of zakat (the Islamic tax) that had contributed
significantly to this advancement (Malik, 1988). Specifically, according to Faiz (1991),
zakat had benefited 7.21 million or 42.58 per cent of the total poor households in Pakistan
in 1988[2].
Notwithstanding, this trend was not persistent. The incidence of poverty was
reversed during the decade of the 1990s. Once again a slowdown in the rate of economic
growth played an important role. This period also witnessed a significant decline in
remittances, particularly after the first Gulf War when a large number of Pakistani
workers in the Middle East were repatriated. By 1999, the incidence of poverty had
climbed back to 36 per cent of the population. Since the population increased to 131
million, the number of people living in poverty reached 47 million[3].
In FY2000-2001, 34.5 per cent of the people lived below the poverty line, while, in the
middle of 2003, despite growth returned to the country, there were some 50 million
people living in the pool of poverty, the largest number the country had ever
experienced. However, the number of poor people in Pakistan has shrunk to 23.9 per cent
in the FY2004-2005. In the FY2005-2006, the percentage of poverty has further
decreased to 22.3 per cent[4]. Figure 1 shows the trends in poverty in the period from
1999 to 2008, the highest with 34.5 per cent of the population was recorded in 2001 and
the lowest with 17.2 per cent in 2008.
Meanwhile, as shown in Table I, during the period of 2004-2006, the amount of zakat
collected and disbursed to alleviate poverty and inequality in Pakistan was Rps 9.0
billion and Rps 7.2 billion, respectively. Of the said amount several billions had been
allocated to Q1 (Rps 4.6 billion) and Q2 (Rps1.5 billion), the two groups of the poorest
population.
 H
31,3

316
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Figure 1.
Trends in poverty
(1999-2008)

Amount Amount Amount

Year collected (100%) disbursed (80%) retaineda (20%) Q1b (64%) Q2 (21%)

2004-2005 4,665 3,732 933 2,388.5 0.784

2005-2006 4,337 3,469.6 867.4 2.221 0.729
Table I.
Pakistan overall: Notes: a The amount of zakat retained accounts for two motives: to count for costs incurred to
amount of zakat administer the collection and disbursement of zakat at the central, provincial and districts levels; and to
collected and reckon for the amount of zakat unspent; b the sum of zakat disbursed to Quintile 1 (Q1), the poorest, and
disbursed by the Quintile 2 (Q2), the second poorest, is 85%; the remaining 15% is estimated to have been received by the
government to Q1 “non-poor” who were technically fallen into the non-zakat recipients’ category (Arif, 2006, p. 29). The
and Q2 (in millions same ratio is used to compute the amount of zakat disbursed to Q1 and Q2 at the regional (urban-rural)
rupees) and provincial levels

Tables II and III provide a snapshot of the amount of zakat disbursed to the two poorest
populations, Q1 and Q2, who dwelled in the urban and rural areas for the period
2004-2006.
Tables AI through AVIII (Appendix) exhibit the amount of zakat disbursed to each
province according to urban-rural and Q1-Q2 classifications in the periods 2004-2005
and 2005-2006.

2004-2005 2005-2006

Total amount of zakat disbursed 3,73,20,00,000 3,46,96,00,000

Table II. Urban Rural Urban Rural

Zakat disbursed by
the government of Amount of zakat
distributed to Q1 2,38,84,80,000a 83,31,01,824 1,55,53,78,176 2,22,05,44,000 71,05,74,080 1,50,99,69,920
Pakistan to Q1 by
urban and rural: Notes: a Amount of zakat disbursed to Q1 is computed as follows: 3,732,000,000 (Total amount of zakat disbursed by the
2004-2006 (in Central Government) *0.64 [% of zakat recipients associated with Q1 (Arif, 2006, p. 29)]. Meanwhile, the figure (Rps
millions rupees) 83,31,01,824) is obtained by multiplying Rps 2,38,84,80,000 with the ratio of urban and rural to total population
 It is also obvious from the tables that zakat has contributed significantly to poverty Effectiveness
alleviation in Pakistan in the periods 2004/2005 and 2005/2006. Hence, it is very of zakat
intriguing to evaluate how the government has fared in alleviating poverty, improving
income distribution and providing people access to basic needs vis-à-vis the collection
and disbursement of zakat. In other words, it is of interest to everyone to know what role
zakat had played in alleviating poverty and inequality in Pakistan and how effective it
was in fulfilling this role. Indeed, to this end, this study is conducted. 317
The remaining sections will be in the following sequence. Section 2 is the Literature
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Review, which will elaborate the various research techniques used by other researchers
to appraise the measures taken by the government to alleviate poverty in Pakistan.
While Section 3 outlines the data and methodology used to measure poverty in Pakistan;
Section 4 deals with the results and analysis of the study. Section 5 concludes with some
policy recommendations.

2. Literature review
In the past, many indices were formulated and applied to the study of poverty in various
countries including Pakistan. To name a few, Kakwani (2000) introduced the poverty
reform index, Kakwani and Son (2001) established an improvised version of Kakwani’s
(2000) index, UNDP (1995) calculated the well-known Human Development Index and
Sen (1976) coined the concept and method to compute composite poverty index.
In the case of Pakistan, much has been written on poverty trends, focusing separately
on rural and urban areas (Aftab and Khan, 2005). A number of studies also provide
provincial and regional poverty estimates Anwar et al. (2005). A closer look at the
literature reveals that poverty estimates are available for all the years that the
Household Integrated Economic Survey (HIES) was carried out; the first survey round
was in 1963/1964 and the most recent was in 2008/2009 (Ali and Tahir, 1999; Amjad and
Kemal, 1997; World Bank, 2002).
These works on poverty which include, among others, those studies that estimate the
incidence of poverty for 1998/1999 and 2001/2002 and, as recent as 2005-2006, have not
only helped determine the magnitude of and trends in poverty but also helped
policymakers in designing strategies for poverty reduction in Pakistan. The estimates
were done based on the primary data set that the HIES/PIHS (Pakistan Integrated
Household Survey) provides.

2004-2005 2005-2006

Total amount of Zakat disbursed 3,73,20,00,000 3,46,96,00,000

Urban Rural Urban Rural

Table III.
Zakat amount Zakat disbursed by
distributed 78,37,20,000a 27,33,61,536 51,03,58,464 728,616,000 23,31,57,120 49,54,58,880 the Government of
Pakistan to Q2 by
Notes: a Amount of zakat disbursed to Q2 is computed as follows: 3,73,20,00,000 (total amount of zakat urban and rural:
disbursed) *0.21% of zakat recipients associated with Q2 2004-2006 (in
Source: Arif (2006), p. 29 millions rupees)
 H At this juncture, it is also worth noting that while several earlier studies such as Ali and
31,3 Tahir (1999) and Amjad and Kemal (1997), and more recent studies, such as SPDC (2004)
and Anwar et al. (2005), revealed FY1988 or FY1991 as the turning point for the reversal
of poverty trends; the World Bank’s (2002) estimates were completely different. The
latter study shows that overall poverty declined continuously between 1984/1985 and
1993/1994 in both rural and urban areas, although the decline was more rapid in the
318 latter. However, according to the World Bank (2002), poverty increased between FY1994
and FY1999, but interestingly, the overall level of poverty in FY1999 (32.6 per cent) was
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lower than what it was in FY1991 (34.0 per cent) or even in FY1988 (37.4 per cent)[5].
The same is also true in the case poverty study on provincial level. Several studies
show conflicting results. For example, the World Bank (2002) shows the North-West
Frontier Province (NWFP) as a whole to have a higher level of poverty than other
provinces in the 1990s: in FY1994, 38 per cent of NWFP’s population was estimated to be
poor. The incidence of poverty appears lowest in Sindh for the years FY1991, FY1994
and FY1997. For FY1999, the incidence of poverty is estimated to be lowest in
Baluchistan. On the other hand, the World Bank (2002) considers these poverty
estimates for rural Baluchistan a deviation from previous years as well as inconsistent
with other important indicators of well-being, where Baluchistan scores well below the
national average. Jafri (1999) produces estimates that are completely different, showing
that the incidence of poverty was lowest in NWFP between FY1988 and FY1994 and
highest in Sindh.
There are also differences in estimates for the period of 2001/2002. SPDC (2004)
shows that, compared to Punjab and NWFP, where it was less than 30 per cent, the
incidence of poverty in Sindh was over 30 per cent and approximately 50 per cent in
Baluchistan. This report identifies the emergence of a north–south divide in the country.
In contrast, other studies such as Anwar et al. (2005) showed that the highest levels of
poverty for this period occurred in NWFP. Poverty was lowest in Punjab according to
Anwar and Qureshi (2002), but Malik’s (2004) estimates point to it being lowest in
Baluchistan.
Arif (2003) examines poverty transitions in rural and urban areas for the period
FY1999 to FY2001. The study divides the Pakistan Socio-economic Survey-sampled
households into five categories based on their distance from the poverty line. Only a
quarter of the poorest households in 1998/1999 moved out of poverty in 2000/2001.
Approximately half the rural households in this category could not change their status
during the two-year period. The incidence of transition for the poorest urban households
was relatively higher, indicating that limited economic opportunities prevent the
poorest rural households from making the transition from poor to non-poor (Arif, 2006).
Another interesting issue related to poverty, including that of Pakistan, is the
technique used to measure it. In Pakistan, there are several measurements used to
estimate the severity of poverty. One of them is human development index (HDI); the
other is “deprivation level”[6]. Both studies reach similar results for province-level
estimates. Baluchistan emerges as the most deprived province with 88 per cent of its
population settled in high-deprivation districts. The province ranks lowest according to
the HDI as well. The HDI ranks Punjab as better off than any other provinces, followed
by NWFP and Sindh. Jamal et al.’s (2003) deprivation level indicates stark rural– urban
inequality in Sindh: while 49 per cent of the rural population resides in high-deprivation
areas, 63 per cent of the urban population is settled in low-deprivation areas. Urban
 Sindh stands out as the least deprived region, and according to HDI rankings, indicates Effectiveness
the highest index figure. This is primarily due to Karachi’s large share of the total urban of zakat
Sindh population.
These rankings, however, are not entirely consistent with the poverty estimates
discussed earlier. The only good thing about this measurement is that the indices
provide better and more consistent province rankings than those based on income (or
consumption) poverty estimates. 319
At the district level, the HDI and deprivation-level approach have more in common
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than not. For example, districts in southern Punjab are the most deprived and show a
low HDI. Muzaffargarh, Rajanpur and Dera Ghazi Khan are among the poorest districts.
Districts in northern Punjab are relatively better off. In Sindh, districts with a very low
ranking include Tharparkar, Jacobabad and Shikarpur. Shangla, Kohistan and
Batagram rank lowest in NWFP, while Dera Bugti, Jhal Magsi, Musa Khel and Kharan
are the poorest districts in Baluchistan. Interestingly, these district-level rankings
largely correspond to zonal estimates of (income or expenditure) poverty.
Having surveyed the literature, we may conclude that the problem of poverty in
Pakistan had been well-studied. However, there were too many conflicting results.
Moreover, none of the above-surveyed studies used an index that enables the
researchers to measure the poverty directly using zakat as one of the variables. This is
the distinctive feature of our newly crafted index, which will be applied specifically to
the case of Pakistan[7]. The index, referred to as the Basic Needs Deficiency Index
(BNDI), can be used to measure and rank poverty in Pakistan more directly where zakat
is incorporated in the model.
More specifically, the BNDI is significant because it enables us to compare basic
needs deficiency between countries, states, regions or various sub-groups of the
population such as types of employment, sectors or ethnic groups. Such comparisons are
considered important mainly because an overall assessment of a country’s progress in
poverty alleviation reflects the level of its economic development. Moreover, a
representative profile of the BNDI can help to reveal a number of aspects of basic
needs-reduction policies like in specific regions, provinces and poverty-stricken groups.
To sum up, the BNDI is formulated so as to measure the deficiency as well as the
effectiveness of zakat as one of the different items of government expenditure/spending
to alleviate poverty.

3. The data, variables and mathematical expositions of the BNDI

3.1 The data and variables
In addition to data published by HIES/PIHS, this study relies on sources of other
publications, which include, but not limited to, unpublished theses, journal papers,
reports and discussion, seminar and conference papers. It is thought necessary to widen
the sources of data as:
• the officially published data are insufficient to meet our data requirements; and
• to avoid inconsistencies in poverty trends caused by the use of one data set that
are not comparable in sample size or survey period and location.

To construct the BNDI for the periods 2004/2005 and 2005/2006, data that are related to
several variables associated with poverty in Pakistan are gathered. They are:
 H • Total population and total number of households whose incomes are below poverty
31,3 line in the periods 2004/2005 and 2005/2006. In our study, the poverty line refers to the
one used by the Government of Pakistan in their definition of poor households.
• Total expenditure of the poor households on basic needs. In this study, the basic needs
refer to an amount of money used by a poor household, which will be confined to
Quintile 1 (Q1 – the poorest) and Quintile 2 (Q2 – the second poorest) to maintain a
320 minimum livelihood of its members. This will include expenditures on food, shelter
(rental), clothing, health care and education. Figures 2 and 3 exhibit the expenditures
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of Q1 and Q2 on basic needs in the periods of 2001-2002, 2004-2005 and 2005-2006. It

is very obvious from the figures that food item takes the lion share of the overall
expenditures; approximately 70 per cent.
• Government spending on poverty alleviation programs, i.e. the safety nets, and its
sources. Foremost, is the source of fund used to alleviate the poverty, which, in this
study, is the zakat collected and deposited at the State Bank of Pakistan. The amount
collected in turn will be distributed to four provinces and subsequently to the zakat
recipients in the respective province. The zakat recipients in the periods 2004/2005 and
2005/2006 are Q1 and Q2, respectively[8].

400
350
300
Consumpon on Basic Need by Q1
250
in Yr 2001/02
200 Consumpon on Basic Need by Q1
150 in Yr 2004/05
Figure 2. 100 Consumpon on Basic Need by Q1
Pakistan: in Yr 2005/06
consumption on 50
basic needs of Q1 for 0
2001-2006
Food Items Clothing Housing Medical Educaon

600

500

400 Consumpon on Basic Need by

Q2 in Yr 2001/02
300 Consumpon on Basic Need by
Q2 in Yr 2004/05
200
Consumpon on Basic Need by
Figure 3. Q2 in Yr 2005/06
Pakistan: 100
consumption on
basic needs of Q2 for 0
2001-2006
Food Items Clothing Housing Medical Educaon
 Pakistan is chosen as a case study primarily for two reasons. First, because of the Effectiveness
availability and accessibility of data required (food, clothing, education and health care, of zakat
the value of housing expenditures, total number of households in poverty and the
government expenditures on zakat) to compute the Index. Second, in the past, no index
such as ours had been used to measure poverty in Pakistan.
In this study, the choice of sample will be divided into three categories: national,
regional and provincial, and the data cover the periods 2004/2005 and 2005/20 06, i.e. the 321
two fiscal years. There are two reasons for choosing the aforementioned two periods:
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(1) because of data availability and reliability; and

(2) for the sake of comparison and ranking.

3.2 Mathematical expositions of the BNDI

Basically, the index, BNDI, is a pioneering work of Abdullah and Al-Malkawi (2009) and
further refined by Abdullah et al. (2012). While a detailed description of how the index is
derived is available in the previously mentioned articles, in this paper, we will only
reproduce the modified version of the mathematical model with most of the important
equations remained intact.
To begin with, the Zakat Efficiency Index is derived as follows: first, the
expenditures on basic needs (EB) of the poorest population of a Muslim country, Quintile
1 (Q1), are mathematically expressed as:

m n
EB ⫽ 兺 兺E
i⫽1 j⫽1
Q1j
Bit (1)

where: i ⫽ (1,2 … m) are the basic needs (B), which, in this study, include food, clothing,
shelter, medical and education; j ⫽ (1,2 … n) are provinces or regions in the country; and
t ⫽ time period.
Second, government spending on safety nets (G), which, in this study, is confined to
zakat disbursement (Z), to the poorest population of the country, Q1, can be computed as
follows:

n
GZ ⫽ 兺G
j⫽1
Q1j
Bit (2)

where: j ⫽ (1,2 […] n) and t remained as in equation (1).

Third, the number of zakat recipients (ZR) associated with Q1 can be expressed as:

n
ZR ⫽ 兺Z
j⫽1
Q1j
Bit (3)

where: j ⫽ (1,2 […] n) and t remained as in equation (1).

Fourth, Basic Need Deficiency (BND) is obtained by subtracting equations (2) from
(1) and then dividing with equation (3), as shown below:
 H EB GZ
BND ⫽ ⫺ (4)
31,3 ZR ZR

While, the first term of the right side of equation (4) implies the average expenditures of
the zakat recipients associated with Q1 on basic needs, the second term implies the
average government spending in terms of zakat to Q1.
322 Finally, the BNDI is derived by dividing through equation (4) with the first term of
the right side of the equation. Specifically:
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E B / ZR GZ / ZR
BNDI ⫽ ⫺ (5)
EB / ZR EB / ZR

A further refinement to equation (5) will give rise to equation (6), the final equation[9]:

.
GZ
BNDI ⫽ 1 ⫺ .
(6)
EZ
. .
In general, GZ is smaller than EZ, otherwise poverty would not be a problem or there is
no basic needs deficiency. As such, the index measures the shortfall of the
amount of government spending devoted to zakat as compared to the total
consumption/expenditure on basic needs that is required for people in poverty to
have a decent minimum livelihood. As in the case of other indices, the BNDI has a 0-1
scale. While a large index implies poor performance, a small index indicates the
opposite. Perhaps, a simple example using three different hypothetical cases may
illustrate the point at hand more distinctly.
. .
• Case 1: If GZ ⫽ 0 and EZ ⫽ 1, then the BNDI is 1, which implies that the basic needs
deficiency has reached its maximum. This is the worst scenario.
. .
• Case 2: If GZ ⫽ 1 and EZ ⫽ 1, then the BNDI is 0, which implies that there is no
deficiency in basic needs. This is the best scenario.
. .
• Case 3: If GZ ⫽ 0.5 and EZ ⫽ 1, then BNDI is 0.5, which implies that a basic needs
deficiency exists but is tolerable.

In general, the BNDI lies within this scale: 0 ⱕ BNDI ⱕ 1.

4. Results and analysis

The results of the BNDI and other measurements of poverty are shown in Table IV.
While the results obtained from HDI, Poverty Headcount Rate (PHR) and GINI
coefficient (GC) tend to suggest that the state of poverty in Pakistan has improved over
the two periods, the results from BNDI tend to negate it. One reason is plausible. In
general, the expenditures of both quintiles, Q1 and Q2, are far greater than amount of
zakat they received from the government. Further, given the same amount of zakat
received by the two quintiles, Q2 suffers the most because their expenditures on basic
 needs are higher than Q1. In other words, in the case of Q1 the amount of zakat received Effectiveness
by them has been able to cover most of the expenditures required for them to survive. of zakat
Tables V-VII present the results of the BNDI by ranking them according to province
and urban-rural for the periods 2004-2005 and 2005-2006. From Table V, Punjab
appeared as the best performer, while Baluchistan was the hindmost performer for both
quintiles in 2004-2005. However, in 2005 and 2006, the positions had been overshadowed
by Sindh and NWSP, respectively. It is very interesting to note here that the result 323
measured using our technique, as shown in Table V, is comparable and consistent with
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the World Bank (2002), Anwar et al. (2005) and Anwar and Qureshi (2002), albeit the

2004-2005 2005-2006
Pakistan Urban Rural Pakistan Urban Rural

HDI 0.468c (2005) – – 0.471 (2006) – –

Consumption based Gini coefficienta 0.298 0.330 0.250 0.302 0.340 0.240
BNDI Q1 0.512 Q1 0.336 Q1 0.548 Q1 0.652 Q1 0.487 Q1 0.693 Table IV.
Q2 0.886 Q2 0.846 Q2 0.894 Q2 0.917 Q2 0.875 Q2 0.927 (Q1-Q2) Pakistan–
Poverty headcount rateb 23.9 14.9 28.1 22.3 13.1 27.0 BNDI, HDI, GINI
coefficient and
Notes: a Akhtar (2008) and PSLM 2004-06; b Pakistan Economic Surveys; c International Human headcount poverty
Development Indicators, available at: http://hdrstats.undp.org/en/countries/profiles/PAK.html by urban and rural in
(accessed 28 April 2011) 2004-2006

2004-2005 2005-2006
Ranking Province Q1 Q2 Q1 Q2

1st Punjab 0.329 0.845 0.626 0.911 Table V.

2nd Sindh 0.373 0.851 0.741 0.939 Ranking of BNDI by
3rd NWFP 0.751 0.941 0.771 0.945 province: 2004-2005
4th Baluchistan 0.852 0.965 0.771 0.946 and 2005-2006

Urban Rural
Ranking Province Q1 Q2 Q1 Q2

1st Punjab ⴚ0.119 0.740 0.316 0.841 Table VI.

2nd Sindh 0.262 0.830 0.556 0.894 Ranking of BNDI by
3rd NWFP 0.828 0.958 0.695 0.928 urban-rural: 2004-
4th Baluchistan 0.841 0.963 0.845 0.963 2005

Urban Rural
Ranking Province Q1 Q2 Q1 Q2

1st Punjab 0.311 0.875 0.605 0.906 Table VII.

2nd Sindh 0.479 0.905 0.692 0.926 Ranking of BNDI by
3rd NWFP 0.608 0.911 0.757 0.940 urban-rural: 2005-
4th Baluchistan 0.843 0.963 0.914 0.980 2006
 H periods between our and their studies were different. Having said so, as a corollary, our
31,3 results tend to suggest that the amount of Zakat received by all the provinces from the
Central government, which in turn distributed to Q1 and Q2, was not sufficient to rid
them of the poverty.
Table VI shows the ranking of the provinces according to urban-rural bifurcation. It
is obvious from the results that the position of each province is similar to that showed in
324 Table V. One striking finding is the negative sign that appears before the absolute value
of BNDI for the highest ranking province, namely, Urban-Sindh. This implies that the
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amount of zakat received by the Urban-Q1 in 2004-2005 had surpassed their

expenditures on basic needs, which surprisingly is consistent with Jamal et al.’s (2003)
study. In short, there is no deficiency. Turning to the rural side of the table, Punjab is the
highest in the ranking, while Baluchistan is the lowest. This finding, to a large extent, is
consistent with Anwar et al. (2005).
Finally, Table VII shows the BNDI results based on urban–rural bifurcation for
2005-2006. There is one major finding worthy of highlighting. Urban-Q2-NWFP and
Rural-Q1-Q2-NWFP stand out as the second best performer after Sindh and Punjab,
respectively. This tends to suggest that the amount of zakat received by the concerned
quintiles in 2005-2006 had helped them to bridge the expenditure–zakat gap more than
the poverty stricken group in Punjab and Sindh.

5. Conclusion and policy recommendations

This paper makes three major contributions:
(1) It develops a new methodology to measure poverty alleviation in Pakistan,
focusing on the poor households consumption/expenditure on basic needs,
government spending in terms of zakat and the number of zakat recipients as the
three main determinants.
(2) The results obtained from the computation of the BNDI have been able to explain
the effectiveness of zakat in alleviating poverty and inequality in Pakistan.
(3) The BNDI, as derived here, can be applied to measure the performance of all
Muslim countries whose provision of zakat is embedded in the national agenda
to alleviate poverty.

Based on the results and findings of the study, we submit the following policy
recommendations. First and foremost, as zakat proves to be a very effective way of
helping the poor to rid them of severe poverty, the collections and disbursements of
zakat must be pursued. Second, because the amount of zakat received by Q2, especially
who dwelled in the rural area, was far below the sum required for them to live a decent
live, a measure to increase the amount extended to them should be high on the Central
government agenda. Third, the old-fashion of distributing zakat based on the ratio of
province to national population should be removed. In place, a policy of zakat
distribution based on the number of Q1 and Q2 households inhabiting in a province
should be formulated and implemented.

Notes
1. This includes the absolute poor who go hungry most of the time, cannot provide basic health
care to themselves and their families and cannot send their children to schools. Worse still,
 those who have jobs fell into the absolute poor category because most of them were employed Effectiveness
in the low-wage informal sectors of the economy.
of zakat
2. In Pakistan, zakat is collected officially at the rate of 2.5 percent only on 11 assets contained
in the First Schedule of the Zakat and Ushr Ordinance of 1980. They are: Saving Bank
Accounts; Notice Deposit Accounts and Receipts; Fixed Deposit Accounts and Receipts;
Saving/Deposit Certificates Accounts and Receipts; National Investment Trust (NIT) Units;
Investment Corporation of Pakistan Mutual Funds Certificates; Government Securities on 325
which the return is receivable by the holder periodically; Securities including Shares and
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Debentures of Companies and Statutory Corporations on which return is paid; Annuities; Life
Insurance Policies; and Provident Fund Credit Balances. Meanwhile, ushr is collected on
compulsory basis at the rate of 5 percent of the produce from every land-owner, grantee,
allottee, lessee, lease-holder or land-holder (except the one excluded from the definition of
Sahib-e-Nisab). An individual farmer is exempted from ushr if he is himself a mustahiq or if
his produce is less than 948 kg of wheat or its equivalent in value. The farmer has been given
the opportunity to assess his ushr at his own but an LZC may also make its own assessment.
An assessee is allowed to reduce his ushr liability by one-third if land was irrigated by tube
wells and by one-fourth if irrigated by other means. In addition to zakat, the other factors that
had contributed to the decline in poverty were the high growth rates registered by the
agricultural sector and large amounts of remittances sent by the Pakistani workers in the
Middle East. For the latter factor, a thorough study has conducted by Kalim and Shahbaz
(2008).
3. We note here that the above-cited figures and years on poverty in Pakistan are consistent with
figures showed by Arif (2006).
4. See Pakistan Economic Surveys, FY2001/2002 and FY2007/2008.
5. A more detailed account on this trend is available in the study by Arif (2006).
6. See, for example, National Human Development Report. In this report, for the first time, an
HDI at the provincial and district levels is used. Meanwhile, Jamal et al. (2003) have also
developed a “deprivation level” for province and district estimates of poverty by combining
three indices for education, housing, and employment, based on the 1998 census.
7. The reason for applying this newly crafted index to the case of Pakistan is the richness of its
ready available data, and most of them are compatible with our data requirements. The same
index can be applied to other countries depending on data availability and reliability.
8. In our future research undertakings, we intend to incorporate to the computation of the Index
two other safety nets extended by the Government of Pakistan to the poor. They are: the food
subsidy program and the education subsidy program.
9. It is worth mentioning that with small manipulations to equations (1) through (6) we can
compute the following: the expenditures on basic needs; the government spending in terms of
zakat; and the zakat recipients of the poor population associated with Q2.

References
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Further reading
Arif, G.M. and Ahmad, M. (2001), “Poverty across the agro-climatic zones in rural Pakistan”, paper
presented at the National Workshop on Pro-poor Intervention Strategies in Irrigated 327
Agriculture in Asia: Pakistan, International Water Management Institute, Lahore.
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Asian Development Bank (ADB) (2002), Poverty in Pakistan: Issues, Causes, and Institutional
Responses, ADB, Islamabad.
Boltvinik, J. (1994), “Poverty measurement and alternative indicators of development”, in
van der, R. and Anker, H.Y.R. (Eds), Poverty Monitoring: An International Concern,
Macmillan, London and St. Martin’s Press, New York, NY, pp. 57-83.

About the authors

Naziruddin Abdullah has more than 28 years of experience teaching economics, both at the
graduate and undergraduate levels, at a couple of universities in Malaysia and abroad. He is the
author of two books and more than 30 scientific publications. He is now assuming the rank of Full
Professor of Economics at Universiti Kuala Lumpur Business School, Malaysia. In 2007-2009, he
was entrusted to spearhead the Administration and Financial Affairs of ALHOSN University,
Abu Dhabi, UAE, as Assistant Provost cum Chief Operating Officer. He is an award recipient of
several organizations: Tun Razak Foundation; Japanese Government Ministry of Education,
Culture, Sports, Science and Technology (Monbukagakusho); and, Emerald, among others. His
new position at Universiti Kuala Lumpur Business School is Head, Department of Research and
Postgraduate Studies.
Alias Mat Derus has more than 26 years of experience teaching economics, Business Maths
and Statistics both at the graduate and undergraduate levels. He is the author/co-author of several
books and has more than six scientific publications. He is now assuming the rank of Assistant
Professor of Economics at International Islamic University Malaysia (IIUM). His last
administrative appointment was as Head, Economics Department, Kuliyyah of Economics and
Management Sciences, IIUM.
Husam-Aldin Nizar AL-Malkawi is an Associate Professor of Finance at the Faculty of
Business, ALHOSN University, Abu Dhabi, UAE. He received his PhD from the University of
Western Sydney, Australia. He serves as a referee for several international journals including
Economic Systems, Emerging Market Finance and Trade, Economic Modelling, among others. His
works have appeared in journals such as Economic Modelling, Humanomics, Journal of Emerging
Market Finance and Journal of Accounting in Emerging Economies. His research interests are in
corporate financial policy, corporate governance, financial economics, Islamic finance,
e-commerce and applied econometrics. Husam-Aldin Nizar Al-Malkawi is the corresponding
author and can be contacted at: h.almalkawi@gmail.com
 H Appendix
31,3

2004-2005 2005-2006
Punjaba Urban Rural Punjab Urban Rural
328
Zakat amount received 1,37,00,32,128 1,273,704,038
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Zakat amount distributed 1,37,00,32,128 43,32,04,159 93,66,90,966 1,27,37,04,038 40,27,45,217 87,09,58,821

Notes: a The amount of zakat distributed by the Central Government showed in Table I to each
Province is in accordance with Section 9 of Zakat and Ushr Ordinance, 1980, published by the Ministry
Table AI. of Zakat and Ushr. Specifically, it has been stipulated in the ordinance that Punjab will receive 57.36%,
Punjab (Q1): zakat Sindh (23.71%), NWFP (13.82%) and Baluchistan (5.11%). For example, the amount Rps 1,37,00,32,128
received by the appears in Table AI is computed as follows: Rps 3,73,20,00,000 (the amount of zakat collected by the
province from the Central government in 2004-2005) *57.36% (percentage received by Punjab province) *64% (percentage
central government received by Q1). Further, the figure for urban (Rps 43,32,04,159) is obtained by multiplying Rps
and disbursed to Q1 1,37,00,32,128 with 31.6%. The same method of computations is applied to other provinces. However,
by urban and rural in the Supreme Court declared the payment of zakat voluntary for all persons
2004-2006 (in rupees) Source: Arif (2006, p. 23)

Table AII.
Punjab (Q2): zakat
received by the
province from the 2004-2005 2005-2006
central government Punjab Urban Rural Punjab Urban Rural
and disbursed to Q2
by urban and rural in Zakat amount received 44,95,41,792 41,79,34,138
2004-2006 (in rupees) Zakat amount distributed 44,95,41,792 14,21,45,115 30,73,51,723 417,934,138 13,21,50,774 28,57,83,363

Table AIII.
Sindh (Q1): Zakat
received by the
province from the 2004-2005 2005-2006
central government Sindh Urban Rural Sindh Urban Rural
and disbursed to Q1
by urban and rural in Zakat amount received 56,63,08,608 52,64,90,982
2004-2006 (in rupees) Zakat amount distributed 56,63,08,608 27,63,58,601 28,94,40,330 52,64,90,982 25,66,64,354 26,98,26,628

Table AIV.
Sindh (Q2): zakat
received by the
province from the 2004-2005 2005-2006
central government Sindh Urban Rural Sindh Urban Rural
and disbursed to Q2
by urban and rural in Zakat amount received 18,58,20,012 17,27,54,854
2004-2006 (in rupees) Zakat amount distributed 18,58,20,012 9,06,80,166 9,49,72,608 17,27,54,854 8,42,17,991 8,85,36,862
 Effectiveness
of zakat

329
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Table AV.
NWSP (Q1): zakat
received by the
2004-2005 2005-2006 province from the
NWFP Urban Rural NWFP Urban Rural central government
and disbursed to Q1
Zakat amount received 33,00,87,936 30,68,79,181 by urban and rural in
Zakat amount distributed 33,00,87,936 5,85,24,591 27,15,63,345 30,68,79,181 5,44,09,679 25,24,69,502 2004- 2006 (in rupees)

Table AVI.
NWSP (Q2): zakat
received by the
2004-2005 2005-2006
NWFP Urban Rural NWFP Urban Rural province from the
central government
Headcount poverty 2,30,755 57,664 1,55,498 2,01,143 21,048 1,22,850 and disbursed to Q2
Zakat amount received 18,58,20,012 10,06,94,731 by urban and rural in
Zakat amount distributed 10,83,10,104 1,92,03,381 8,91,06,723 10,06,94,731 1,78,53,176 8,28,41,555 2004-2006 (in rupees)

Table AVII.
Baluchistan (Q1):
zakat received by the
2004-2005 2005-2006 province from the
Baluchistan Urban Rural Baluchistan Urban Rural central government
and disbursed to Q1
Zakat amount received 12,20,51,328 11,34,69,798 by urban and rural in
Zakat amount distributed 12,20,51,328 2,91,58,062 9,28,93,266 11,34,69,798 2,83,67,450 8,51,02,349 2004-2006 (in rupees)

Table AVIII.
Baluchistan (Q2):
zakat received by the
2004-2005 2005-2006 province from the
Baluchistan Urban Rural Baluchistan Urban Rural central government
and disbursed to Q2
Zakat amount received 4,00,48,092 3,72,32,278 by urban and rural in
Zakat amount distributed 4,00,48,092 95,67,489 3,04,80,603 3,72,32,278 93,08,069 2,79,24,208 2004-2006 (in rupees)