Understanding the Islamic concept of zakat

Islam has a unique concept of wealth.

Islam has a unique concept of wealth, its ownership and distribution. Wealth in Islam is not an end in itself, but a means to higher values.

It should be earned, invested and spent in the correct avenues, and it should reward the individual, his family, and society as a whole. Its rewards span this life as well as the hereafter.

The most common misconception about Islam is that it discourages wealth accumulation among ordinary Muslims as well as among religious officials.

Islam actually encourages all Muslims to acquire wealth, subject to three major conditions:

1. Wealth must be accumulated in an absolutely honest manner.

2. Wealth must be managed in a highly responsible manner that benefits not only its owner and family, but also the community.

3. Wealth does not in any way distract Muslims from their faith in Allah.

Concept of wealth in Islam

Wealth is considered a gift from Allah and human beings are considered trustees of Allah’s resources on earth.

These resources are to be wisely earned, not abused, destroyed, wasted or left to become idle.

This dual ownership mitigates the selfish and unfair tendencies that result from the mistaken notion of absolute ownership.

Islam compulsorily retains a share of your wealth by paying zakat to the needy and other charitable deeds and therefore spreads wealth in the community.

Zakat and charitable deeds ensure the sharing of wealth.

Zakat in Islam

Zakat means growth, increase or multiply. This implies the psychological and material growth in the soul and wealth of the poor who receive zakat.

By paying zakat, you increase the religious merit and blessings from Allah. Giving zakat will increase your good deeds and thus your rank in the eyes of Allah.

Another meaning of zakat is to purify a Muslim’s wealth and soul. Wealth purification denotes the mobilisation of assets for the purpose of financial growth and justified distribution.

Purification of the soul implies freedom from hatred, jealousy, selfishness and greed.

Zakat, or giving alms, is the third pillar in Islam. Zakat is a fixed proportion collected from the surplus wealth and earnings of a Muslim.

Zakat recipients

In the Quran, there are several groups of rightful recipients of Zakat.

• The poor (al-fuqarâ’), meaning low-income or indigent.

• The needy (al-masâkîn), meaning being in difficulty.

• Zakat administrators.

• Those whose hearts need to be reconciled, meaning new Muslims and friends of the Muslim community.

• Slaves or captives.

• Debt-ridden group.

• For religious cause.

• The wayfarer, meaning those who are stranded or travelling with few resources.

This is because the objective of Zakat is that the prosperous uplift the poor, help those who are troubled and comfort those who are in hardship.

The law of zakat establishes the rights of the poor to get support and help, and releases those who are held captive as slaves or debtors.

If you have surplus funds, it is your duty to help the less fortunate.

Types of zakat

• Zakat Al-Fitrah charity to the poor.

• Zakat Al-Mal on wealth.

• Zakat on income.

• Zakat on business.

• Zakat on savings.

• Zakat on gold and silver.

• Zakat on shares.

• Zakat on livestock.

• Zakat on crops.

Zakat on wealth is an annual payment based on the amount of wealth owned by a Muslim individual or organisation. The payment is 2.5% out of the total wealth.

It is obligatory upon individual Muslims or organisations to base zakat on:

Nisab (The minimum amount of wealth is equivalent to 85g of market value of gold)

Hawl (The minimum period of wealth retention is one lunar year)

Children are treated as adults where zakat is concerned.

Do children have to pay zakat?

A child who possesses wealth above the nisab is liable for zakat, the same as an adult.

Children with savings above the nisab value are expected to pay zakat according to the specified rate, normally 2.5%. It can be paid for them through their parents or guardians.

Included in the balance is RM200 which is hibah (gift by the bank to the depositor after performing business for a year). Thus, the calculation of zakat is as follows:

A similar method is applicable to calculate zakat on other savings accounts such as fixed deposit and mudharabah. If a child has multiple accounts, a standard hawl has to be determined.

The lowest balance from each account will be added up. If the total amount is more than the nisab, zakat on saving will be imposed.


As a Muslim, it is your obligation to fulfil the calling stated in the Quran to share your wealth accordingly.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.