ECON325: INTRODUCTION TO ISLAMIC ECONOMICS 1, FIRST SEMESTER, 2025,
DEPARTMENT OF ECONOMICS,
AHMADU BELLO UNIVERSITY, ZARIA GROUP ASSIGNMENT
GROUP 3
TOPIC 6: EXAMINE THE SOGNIFICANCE OF ZAKAT, WAQAF AND SADAQAH IN PROMOTING SOCIAL
WELFARE AND ECONOMIC STABILITY
GROUP MEMBERS
1. U21EC1009
OKUNADE NAFISAH
2. U21EC1021
Hamisu Muhammad-amin
3.U21EC1059
HABIB AMINA AHMED
4. U21EC1101
MUHAMMAD ISMAIL DANJUMA
5. U21EC1122
BUKAR ALMUSTAPHA GARBA
CHAPTER 1: INTRODUCTION
Islam being the core belief system of many around the world, it serves as the foundation
of the complete way of lif of the Muslim people. From food, to marital affairs, to state
affairs and finance, Islam has something to say about it all
Being the complete way of life of Muslims, it stipulates the do’s and don’ts as well as the
laws of interaction and dealings with other members of society .
Scholars like Muhammad Baqir al-Sadr, Ismail al-Faruqi, and Mahmoud
Abu-Saud emphasize that Islamic teachings, particularly Zakat, Waqf,
and Sadaqah, are vital for achieving social justice, equitable resource
distribution, and economic stability. These practices, rooted in both
revealed sources and scholarly consensus, promote communal well-
being.
Unlike the capitalist system that allows wealth to become concentrated in the hands of a
few, with the vast majority just managing to survive and thrive, Islamic economic
teachings emphasize the fair distribution of resources to prevent poverty, reduce
inequality, and strengthen social ties. These teachings are engrained in the common
practices we know as Muslims which are; Zakat, Waqf, and Sadaqah, which not only
encourage financial responsibility but also build a system where wealth serves the
community as a whole and not just those who have been endowed with it. These three
instruments reflect Islam’s holistic approach to economic and social issues, aiming to
create a society where economic stability and social justice are the norm. Wealth, in
Islam, is seen as a trust that must be handled with justice, care, and a sense of
collective responsibility. Rather than allowing wealth to be hoarded or misused, Islam
encourages mechanisms that ensure the circulation of resources among all members of
society.
Furthermore, Rooted in the principles of justice, compassion, and communal
responsibility, the injunctions given to us by the Supreme creator directly through the
Quran, and In directly through the Sunnah of prophet Muhammad SAW are designed to
redistribute wealth, alleviate poverty, and foster social stability . In contemporary times,
as our society struggles with socioeconomic disparities, economic inequality and
numerous ecological problems. Pondering upon the verses of the Quran and Hadith
offers valuable insights into alternative models of social welfare to achieve economic
development.
CHAPTER 2: LITERATURE REVIEW OF THE ECONOMIC FUNCTION OF ZAKAT,
WAQF, AND SADAQAH
The economic function of Zakat, Waqf, and Sadaqah has remained a topic of immense
interest among Islamic economic scholars, both in the past and present. These
institutions, at the core of Islamic teachings, aim to attain social justice, economic
stability, and community welfare through the reallocation of wealth, poverty relief, and
solidarity.
Historical Context and Theoretical Foundations
Historically, Islamic scholars have emphasized the role of Zakat, Waqf, and Sadaqah in
preventing wealth concentration and ensuring economic balance within society. Early
scholars like Ibn Khaldun and Al-Ghazali noted that wealth redistribution through these
practices could prevent social inequality and promote societal stability. Ibn Khaldun, in
his Muqaddimah, highlighted the relationship between economic prosperity and social
justice, while Al-Ghazali’s Ihya’ Ulum al-Din emphasized the role of charity in creating
sustainable social structures.
CONTEMPORARY SCHOLARS AND THEIR IDEAS
20th-century scholars like Muhammad Baqir al-Sadr, Ismail al-Faruqi,
and Mahmoud Abu-Saud explored the economic implications of Islamic
traditions. Al-Sadr viewed Zakat as a tool for wealth redistribution to
ensure social justice. Al-Faruqi emphasized integrating ethical values
into economic systems, advocating for institutionalized Zakat and
Sadaqah to foster equity. Abu-Saud highlighted the practical benefits
of organized charity in reducing poverty and promoting social
harmony.
APPLICATION IN MODERN ECONOMIC SYSTEMS
Today, Zakat, Waqf, and Sadaqah continue to play a central role in Islamic welfare
systems. Works by writers like M. A. Qureshi in The Role of Zakat in Poverty Alleviation
discuss the capacity of Zakat, properly handled, to mitigate poverty immensely among
Muslim nations. Similarly, Waqf institutions have been used to fund public goods like
healthcare and education with implications for sustainable development.
CRITICAL ANALYSIS
The literature rings our focus to the consensus regarding the sustainability of Zakat,
Waqf, and Sadaqah towards economic and social stability. These, nonetheless, can be
hindered by political differences, contrasting views/sects, ignorance, Islamophobia ,lack
of infrastructure.Scholars like Chapra and Abu-Saud reply that although these
institutions hold the potential for a better model than capitalism, they have to be
institutionalized and regulated to function effectively.
CHAPTER 3: SIGNIFICANCE OF ZAKAT IN PROMOTING SOCIAL WELFARE AND
ECONOMIC STABILITY
Zakat, one of the pillars of Islam, is more than a personal act of charity. Zakat is an
ordered system by Allah (SWT) to cleanse wealth, organize resources, and strengthen
the social and economic pillars of Muslim society. In Zakat, Islam has given an
operating system of not letting anyone behind in society while, at the same time,
encouraging long-term economic development.
ZAKAT AND SOCIAL WELFARE
Essentially, Zakat is a welfare system for the poor and needy in society. By mandating
the wealthy to donate a portion of their wealth, Zakat prevents the accumulation of
assets in the hands of a minority and promotes equal sharing among the people.
The Quran identifies the rightful beneficiaries of Zakat in Surah At-Tawbah (9:60):
"Spendings in Zakah are solely for the poor and for the needy, and for those who gather
it, and for freeing captives, and for debtors, and for the cause of Allah, and for the
wayfarer stranded without means – a duty enjoined by Allah. And Allah is Well-
Acquainted and Wise."
This verse specifies the following categories of individuals who are eligible for Zakat
namely;The poor and the needy(duafa), Those who gather zakat,For the cause of
freeing captives, For debtors, For the sake of Allah and For the traveler stranded with no
means
By paying this obligation, Muslims directly contribute to raising the living standard,
reducing poverty, and giving an opportunity to individuals who lag behind.
ZAKAT AND ECONOMIC STABILITY
Apart from its influence on society, Zakat is also essential to the role it plays in securing
economic balance. As a result of this annual obligation, Zakat prevents hoarding and
promotes economic turnover. This earns business profit while supporting their sustained
growth, gives employment, and stimulates sustainable economic development
Zakat is also intended to enrich the poor, not merely as temporary assistance.. If it is
used to fund education and small businesses, Zakat can make the people financially
independent, reducing long-term dependency and solidifying the economy from the
grassroots level.
It is a powerful tool given to us by Allah (SWT) to achieve social and economic goals. By
ensuring the just distribution of wealth and putting this wealth to productive use, Zakat
helps to create a humane, balanced, and prosperous society.
ZAKAT AS AN ALTERNATIVE TO THE CONVENTIONAL TAX SYSTEM
It is noteworthy to mention that although Zakat is an effective means of wealth
redistribution, it should should not be confused with the conventional method of tax
collection. Zakat is primarily focused on social welfare, particularly poverty alleviation,
and reducing the dospariry between the wealthy (Aqwiyyah) and the poor (duafah) and
cannot be used for broader public infrastructural projects. To fund such development,
other sources of revenue areutilized including Kharaj (land tax on agricultural produce),
Jizya (tax on non-Muslims for protection), Usher (tax on agricultural crops), and state-
owned assets such as natural resources . Additionally, the Waqf system (endowments)
allows for voluntary charitable contributions to maintain public goods such as roads,
hospitals, institutions, universities amongst others. . All these resources are managed
through the Bait al-Mal (state treasury), ensuring funds are allocated to both social
welfare and infrastructure development.
SIGNIFICANCE OF SADAQAH IN ACHIEVING SOCIAL WELFARE AND ECONOMIC
STABILITY
Sadaqah, derived from the Arabic root sidq meaning sincerity, embodies the essence of
selfless giving in Islam. Unlike Zakat, which is obligatory, Sadaqah is a voluntary act of
charity that reflects genuine compassion and altruism. Its importance extends beyond
individual benevolence, but is deep rooted in the love for the creator and the
understanding that we are simply acting as vicegerents upon all that we own and
absolute ownership belongs to Allah. “ have faith in God and his apostle and give alms
of that on which he has made you vicegerents. (Qur’an57 verse 7).
When people practice Sadaqah widely, it eases the struggles of those
in need, helping to reduce crime and social unrest. By giving, we
enable others to meet their basic needs or start small businesses,
which not only supports them but also boosts local economies. This
circulation of wealth fosters self-reliance and helps break the cycle of
poverty, making communities stronger and more resilient.
Unlike Zakat, which is obligatory and has a fixed amount, Sadaqah is given out of
compassion, love, and generosity, and can be in the form of money, deeds, or even a
kind word.
CHAPTER 4 : ROLE OF WAQAF IN PROMOTING SOCIAL WELFARE AMD
ECONOMIC STABILITY
Waqf, an Islamic form of endowment where property or wealth is set aside permanently
for religious, educational, or charitable purposes, has long been a pillar of support in
Muslim communities. It’s deeply rooted in the Qur’an and the Sunnah, reflecting the
Islamic values of compassion, justice, and care for others. What makes Waqf truly
special is its long-term impact. Once something is dedicated as Waqf, it’s no longer
owned by an individual but preserved forever to serve the community. Whether it’s land
for a school, a well for clean water, or a shop whose profits feed the poor, the idea is
simple: let your wealth continue to benefit people even after you’re gone. Waqf isn’t just
about giving; it’s about building lasting support systems that uplift the vulnerable and
strengthen the bonds of society. In this way, it transforms generosity into a legacy—one
that keeps on giving, year after year, person to person until it ceases to exist
When Uthman ibn Affan (RA) purchased the well of Rumah in Madinah and donated it
for public use after the Prophet Muhammad (SAW) encouraged someone to do so,
promising Paradise in return. This act allowed the community free access to water and
became a lasting charitable endowment. This relation shows is how Waqf, rooted in the
Sunnah, can create ongoing benefit for society while earning continuous reward for the
giver, long after their death.
ROLE OF WAQAF IN ACHIEVING ECONOMIC STABILITY
One of the unique features of Waqf in promoting social welfare lies in its permanence:
once a property is declared as Waqf, it cannot be sold, inherited, or otherwise alienated.
This legal and spiritual permanence guarantees that the asset remains in public service
perpetually.
One of the unique features of Waqf in promoting social welfare lies in its permanence:
once a property is declared as Waqf, it cannot be sold, inherited, or otherwise alienated.
This legal and spiritual permanence guarantees that the asset remains in public service
perpetually.
In many historic Muslim cities, Awqaf functioned not only as religious or charitable
endowments but also as vital components of the economic infrastructure. The economic
model of Waqf in Cairo and Istanbul, for example, supported vast urban services
without overburdening the state treasury. These Awqaf generated income, maintained
employment, and enabled long-term economic planning by creating institutions that
were both socially beneficial and financially productive. In Timbuktu, the Waqf system
supported education and intellectual exchange, creating ripple effects on local trade and
tourism. These historical examples show that Waqf, when properly structured and
managed, acts as a stable financial institution capable of transforming societies by
building both human capital and economic self-reliance
Furthermore, Waqf operates within a framework of transparency and religious
accountability, which gives it a unique advantage in building public trust.
Waqf’s religiously embedded culture of accountability and ethical stewardship naturally
enforces discipline, making it a cost-effective vehicle for development finance. This
accountability promotes the recycling of wealth into the economy in ways that support
education, healthcare, housing, and small-scale enterprise, creating both social and
economic returns.
ROLE OF WAQAF IN ACHIEVING SOCIAL WELFARE
“When a human being dies, his work comes to an end, except for three things: ongoing
charity, knowledge benefited from, or a pious offspring who prays for him.” (Sahih
Muslim)
Waqf helps to alleviate social inequality and foster a sense of community solidarity by
supporting orphans,, the poor, the elderly, and those in debt which ensures that these
groups have access to resources
In addition, Waqf presents a powerful and compassionate model for promoting social
welfare, rooted in the Islamic understanding that wealth is a trust from Allah meant to
benefit all of society, not just the individual. Unlike profit-driven systems that often widen
the gap between the rich and poor, Waqf encourages the wealthy to dedicate part of
their resources permanently for the common good—whether it’s land for schools,
income-generating properties for hospitals, or wells for clean water. This form of
ongoing charity, inspired by the Prophet Muhammad’s (PBUH) teachings, allows
individuals to support others not just in their lifetime, but long after they’re gone, turning
private assets into lasting public benefits. It promotes social equity by ensuring that
essential services like education, healthcare, and housing reach the most vulnerable
members of society without relying heavily on state spending. At the same time, Waqf
fosters a culture of responsibility, long-term planning, and community solidarity. It
humanizes economic development by placing mercy, justice, and sustainability at its
core.
CHAPTER 5: ROLE OF SADAQAH IN SOCIAL WELFARE
The beauty of Sadaqah is the mutual benefit that comes along with doing such a noble
deed. Both the giver and the receiver gain something, though ironically, what the giver
benefits far exceeds what the receiver benefits. Sadaqah, to a man without iman may
seem like giving without expecting anything in return.But the devoted Muslim is fully
aware that his reward for giving Sadaqah extends beyond the gratitude or reciprocation
by the recipient, but his reward lies with Al-Azizul-Kareem (The Mighty, the most
generous). according to the Prophet Muhammad SAW ,“The best of people are those
who benefit most others.’’Sadaqah differs from zakat in the sense that it is not restricted
to a certain sect of people but can be given to anyone and anything. Even watering a
plant is Sadaqah in Islam . Through Sadaqah , one develops a sense of brotherliness
by being kind to those around us.Sadaqah plays a crucial role in promoting social
welfare by addressing both material and spiritual needs within society. It alleviates
poverty and reduces inequality by redistributing wealth, ensuring that the basic needs of
the poor are met . It instills in us, compassion, solidarity, and a sense of shared
responsibility, encouraging Muslims to care for one another while nurturing
neighborliness in the society.Regular acts of charity create awareness of others’
suffering and encourage a culture of care and solidarity. Islam emphasizes collective
responsibility, urging Muslims to be conscious of the hardships faced by others. The
Prophet Muhammad (PBUH) highlighted this when he said that charity would be a
believer’s shade on the Day of Judgment
It is noteworthy that Sadaqah goes beyond financial assistance but also extends to an
emotional and spiritual bridge that binds people together and creates a society where
there is a true social balance.
Furthermore, it helps us to embrace humility. It Allows us to internalize the reality that
some people are not as endowed as us and as a result we are able to be more grateful
to our supreme creator Allah.
At its heart, sadaqah is an expression of love for Allah, for humanity, and for the world
we share. It teaches us humility, gratitude, and the joy of giving. In a world often marked
by selfishness and materialism, sadaqah stands as a quiet but powerful reminder that
we are all connected, and that our wealth, however small, can be a means of healing
and hope. Giving opens our hearts, not only to others, but to Allah Himself, drawing us
closer to Him through the act of compassion. In giving, we receive. In lifting others, we
are lifted. And in seeking the pleasure of Allah through charity, we find peace, purpose,
and an enduring place in His mercy.
ROLE OF SADAQAH IN ACHIEVING ECONOMIC STABILITY
Sadaqah plays a vital role in achieving economic stability by actively redistributing
wealth in a way that benefits the entire society, not just individuals. When people give in
charity, especially to those struggling to meet basic needs like food, shelter, or medical
care, they help close the economic gap between the rich and the poor.
In the same vein, Sadaqah helps.
As the saying goes, charity begins at home. From our family members, friends, and
neighbours—and when we uplift those closest to us, we lay the foundation for a
stronger and more economically stable society. Often, the people silently struggling are
not strangers, but those within our immediate circles. When we use Sadaqah to support
a sibling who’s out of work, a neighbour trying to pay school fees, or a friend battling
illness, we’re not just helping them survive a difficult moment—we’re restoring their
dignity, giving them a chance to rebuild, and helping them become stable contributors to
society again. Sadaqah plays a practical role in promoting economic stability by
addressing structural issues such as poverty, inequality, and limited access to basic
services. First, it serves as a mechanism for wealth redistribution, ensuring that surplus
income from wealthier individuals is redirected toward those who lack access to
essential resources. This narrows the income gap by caring for the vulnerable in our
society. It also acts as a safety net in times of natural disasters, pandemics, or
economic downturns, helping vulnerable populations absorb shocks and reducing the
pressure on government safety nets.
SADAQAH VS CONVENTIONAL PHILANTHROPY
Sadaqah and conventional philanthropy share the common goal of alleviating human
suffering, promoting social welfare, and fostering compassion through giving. Both
encourage individuals or organizations to use their wealth and resources to support
those in need, whether by funding education, healthcare, food security, or emergency
relief .. They both value generosity and often play a vital role in sustaining communities,
especially during crises. At their core, both are driven by a sense of responsibility
toward the well-being of others.
However what sets Sadaqah apart from conventional philanthropy is the deeply rooted
social mutual responsibility that comes with giving the act of Sadaqah. It, In and of itself
is form of worship( Ibadah) and the reward is not restricted to the gratitude of the
recipients nor is it bound by it or rather, Sadaqah is done only to seek the pleasure of
Allah without expecting gratitude from the recipient but only desiring the reward from
Allah and He is indeed the Most compassionate, the Most generous.
Moreover, often done quietly, with sincerity and humility, without expectation of praise
or public acknowledgment. The Prophet Muhammad (PBUH) even said, “The best
charity is that given in secret.” (Bukhari).
Moreover, Sadaqah extends beyond monetary giving. It includes every good deed done
with the intention of seeking Allah’s reward. Smiling at someone, offering a kind word, or
removing harm from the road. This makes Sadaqah more inclusive than conventional
philanthropy, in the sense that it is possible for anyone in society, rich or poor to give in
charity. revolves around financial contributions or structured giving through foundations.
the worth of sadaqah is not in the amount given, but in the intention and sincerity behind
it.
Citing this Hadith, Narrated by Aisha (RA):
“A woman came to me with her two daughters, and she asked me (for charity), but
she found nothing with me except one date. So I gave it to her, and she divided it
between her two daughters, and she did not eat anything from it herself. Then she got
up and left. When the Prophet (SAW) came in, I told him about what had happened,
and he said: ‘Whoever is tested with daughters and treats them kindly, they will ba
shield for him from the Fire.’”
This shows that Sadaqah is not restricted to the rich or those with abundant resources.
Even a single date—shared with sincere compassion—holds immense value in the sight
of Allah.
In essence, Sadaqah is far more than just giving—it is a reflection of who we are and
who we strive to be before Allah. It softens hearts, bridges divides, uplifts communities,
and draws us closer to our Creator. Whether it is a single date given in kindness, a
smile shared in empathy, or wealth spent in secret, every sincere act of charity carries
the weight of eternal reward.
CHAPTER 6
Comparative analysis
The study argues that while capitalism and socialism fail to ensure fair
income distribution, an Islamic economic system, if fully implemented,
could prevent excessive wealth accumulation and promote equity. Key
components include Zakat, the elimination of interest, and Islamic
inheritance laws, which together help reduce income inequality and
prevent wealth concentration. This is dissected below;
1. Spiritual Dimension: Conventional methods focus on the material aspects of
redistribution, where taxes are collected and welfare benefits are allocated based on
eligibility criteria, without incorporating spiritual or ethical values. Islamic
redistribution, however, integrates spiritual motivations such as giving for the sake of
Allah, fostering a sense of moral responsibility and communal duty.
2. Obligatory Charity vs. Voluntary Contributions: In conventional systems, income
redistribution is often voluntary or coerced through taxation, whereas in Islam, Zakat
is a compulsory form of charity that ensures regular contributions, thus creating a
more consistent flow of resources. Zakat’s regularity offers more predictability in
poverty alleviation.
3. Targeted Support: Conventional systems may distribute welfare based on income
thresholds or need-based assessments, but these mechanisms can be bureaucratic
and inefficient. In contrast, Islamic methods like Zakat and Sadaqah are more
directly targeted towards those deemed most in need, ensuring a more focused
approach.
4. Empowerment through Community-Based Charity
Islamic income redistribution emphasizes community-driven charity and local
involvement, helping to strengthen social ties and foster solidarity within
communities. Unlike conventional welfare systems, which can create
dependency on government support, Islamic practices focus on empowering
individuals by promoting self-sufficiency and responsibility. This approach
aims to reduce long-term reliance on external aid, encouraging a more
resilient and self-reliant society.
5. Generosity and Empowerment through Community-Based Charity
Islamic income redistribution emphasizes community-driven charity and local
involvement, helping to strengthen social ties and foster solidarity within
communities. Unlike conventional welfare systems, which can create
dependency on government support, Islamic practices focus on empowering
individuals by promoting self-sufficiency and responsibility. This approach
aims to reduce long-term reliance on external aid, encouraging a more
resilient and self-reliant society.
Philanthropy: Islamic income redistribution fosters a culture of voluntary generosity, as
seen in Sadaqah, which can be done at any time in any amount. Conventional
systems, on the other hand, do not inherently encourage individual generosity
beyond taxation.
Challenges in Implementing Islamic Income Redistribution
1. Implementation and Enforcement
Islamic income redistribution depends on compliance with religious obligations like
Zakat. In secular or non-Muslim societies, this is hard to enforce due to the absence of
supportive legal frameworks or social encouragement. Local laws and social norms may
not only fail to align with Islamic principles—they may even oppose them—making
implementation more difficult.
2. Overcoming Cultural and educational barriers
Many Muslims lack full understanding of how Zakat works, which can
lead to inadequate giving. Cultural norms around self-reliance also
discourage people from seeking or accepting charity, even when
eligible. Raising awareness and addressing these barriers can ensure
Zakat and Sadaqah reach those in need and effectively reduce
poverty.
3. Islamophobia and Religious Resistance
The Islamic identity of the system poses challenges, especially in societies where Islam
is misunderstood or viewed with suspicion. Some people resist the system not because
it’s ineffective, but because it’s religious. Islamophobia and religious bias can block
support and prevent fair assessment or adoption of Islamic income redistribution.
4.. Coordination and Collaboration
For Islamic income redistribution to work well, there needs to be coordination among
individuals, mosques, community leaders, and sometimes governments. This is hard to
achieve—especially in non-Muslim countries—due to bureaucratic barriers or differing
values and goals. Without strong collaboration, efforts can become fragmented and less
impactfu
PROPOSED SOLUTIONS
1. Education and Awareness
Increasing knowledge about Islamic income redistribution principles ensures that
individuals understand their obligations and contribute effectively, helping to maximize
impact.
2. Infrastructure Development
Establishing transparent and efficient systems for Zakat collection and distribution builds
trust and ensures that donations reach those who need it most.
3. Collaboration and Coordination
Collaboration among Islamic financial institutions, NGOs, and governments enhances
efficiency, avoids duplication, and ensures a unified approach to poverty alleviation.
4. Innovative Solutions
Utilizing digital platforms for Zakat collection can streamline processes, increase
accessibility, and help reach a wider audience, making charitable giving easier and
more efficient.
5. Policy Support
Advocating for policies that support Islamic income redistribution, such as tax incentives
for donations and frameworks that integrate Zakat into national welfare systems, helps
institutionalize the practice and encourages broader participation, making the system
more effective and sustainable.
Chapter 7:
SUMMARY
Islamic income redistribution, through practices like Zakat, Sadaqah, and Waqf,
presents a beautiful and deeply meaningful way to support those in need. These
practices are about much more than just financial transactions—they are rooted in a
sense of spiritual and social responsibility. Zakat, as an obligation, ensures that those
who have the means to give are doing so regularly to help lift others up, while Sadaqah
allows for more spontaneous, heartfelt acts of charity, reinforcing a culture of
generosity. Waqf, on the other hand, is a way of giving that lasts beyond a one-time
donation, ensuring that resources are there to support communities for the long term.
Together, these systems aim to reduce poverty, bridge social gaps, and create a sense
of shared responsibility. However, like anything with great potential, they face
challenges. In societies where people may not understand or value these practices, or
in places where they aren’t legally supported, it can be hard for the system to take root.
The lack of awareness, infrastructure, and the reliance on voluntary donations can also
make it difficult for these systems to work as effectively as they could. But with the right
education, collaboration, and policy support, the full potential of Islamic income
redistribution can be realized.
