The Key Role of Zakah as an Instrument of Financial System’s Stability in Pakistan: A Study of Punjab Province

Abstract

Zakah is the most important and beneficial system which plays key role as an instrument of financial system stability. According to this system, rich people have to pay Zakah at a certain rate in accordance with their income and wealth. This amount is then distributed among poor and needy people of the society to overcome their financial needs. This system was not properly managed in Pakistan due to which, financial system stability was lacking in the country. To overcome this problem, Zakah and Ushr Ordinance was promulgated in 1980 and the collection of Zakah was started through conventional and Islamic banks and Federal Board of Revenue (FBR). In 2009, Ministry of Zakah and Ushr was established which was responsible for this process in the country. However, under i8 Constitutional amendment in June 2011, Ministry of Zakah and Ushr was dissolved and this subject was transferred to all provinces of the country with the central control of Ministry of Religious Affairs. Since then, provinces are collecting Zakah through their respective departments and distributing it to the needy people of the society. Pakistan has 5 Provinces; Punjab, Sindh, Balochistan, Khyber Pakhtoonkhawa and Gilgit Baltistan. The current population of Pakistan is 197,200,000 and the population of Punjab Province is 100,590,000 which is 51% of total population of the country. Therefore, Punjab is the highest populated province of Pakistan. The budgeted allocation of Zakah of Punjab Province was Pak Rupees 3332.026 Million for the financial year 2014-15 which was increased to Pak Rupees 3415.00 Million in 2015-16 and to Pak Rupees 4147.464 Million for the financial year 2016-17. These funds are obtained from Federal Government, financial institutions, business organizations and individuals in the form of donations. Similarly, these funds are distributed on merit to the needy and poor people for their education, health, rehabilitation, marriages and daily life expenditures. Due to this process, the living standard of poor and needy people is increasing as this system is playing its key role for financial system stability in Punjab Province and in the whole country at large.