Islam is a complete code of life that deals with every facet of human life. In the early centuries Islam was shortly to reign supreme in the Arabian Peninsula, Africa and Europe in regard to bringing about economic justice. Eradicating poverty and hunger from society is one of the prime objectives revealed in the Divine Book of Islam, the Qur’an. Therein, Allah ﷻ opposes the practice of taking interest; instead, Allah promises to give increase in the believer’s wealth in response to the charity he gives.
Allah condemns usury, and He increases charities. [Sûrah Al-Baqarah, 2:276]
Since the seventh century, Islam has been trying to inculcate the importance of the dole among its followers. Islam imposes an annual levy of 2.5 % called Zakah on the net wealth which exceeds a certain level —equal to 85 grams of gold or 595 grams of silver. If someone has 85 grams’ worth of gold in wealth for a period of one whole year, islamically he is obliged to pay 2.5% Zakah on his wealth. However, this calculation excludes the basic necessities of a person, like his house, means of transport and instruments of earning, which are a means of earning his livelihood. The collected Zakah is to be distributed among eight categories of people described in chronological order in the Quran:
Zakah (charity) are for the poor, and the destitute people, and those who manage them, and for reconciling hearts, and for freeing slaves, and for those in debt, and in the path of Allah, and for the traveller in need. It is an obligation from Allah. Allah is All-Knowing, Most Wise. [Sûrah Al-Tawbah, 9:60]
Narrated Ziyad ibn Al-Harith Al-Suda’i:
I came to the Messenger of Allah (ﷺ) and swore allegiance to him, and after telling a long story he said: “…Then a man came to him and said: ‘Give me some of the sadaqah (alms).’ The Messenger of Allah (ﷺ) said: ‘Allah is not pleased with a Prophet’s or anyone else’s decision about sadaqat till He has given a decision about them Himself. He has divided those entitled to them into eight categories, so if you come within those categories, I shall give you what you desire.'” [Abû Dâwûd, Hadith# 1626]
A careful study,  Fiscal policy and resource allocation in Islam, by multiple researchers has shown that Zakah is an effective tool for the complete obliteration of poverty. The Islamicly-mandated amount of Zakah (2.5%) is sufficient to bring about a just economy, directly as well as indirectly.
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The secondary goal of the distribution of Zakah —after alleviating the suffering of the poor— is to stimulate the circulation of wealth throughout society. Modern economics also endorses the idea of the circulation of money throughout the economy, which is quite similar to the concept of the distribution of Zakah, as revealed in the Quran 1,400 years ago. One of the root causes of financial crises of the economy in the early days before the Islamic state in Madinah —and in modern times also—was due to the stagnation and accumulation of money. Islam promotes the circulation of money in an economy through the distribution of Zakah and Sadaqat (voluntary Charity).
The hoarding of any goods for supernormal profit is forbidden in Islam, especially in the case of currency, which amounts to out-and-out transgression. A classical scholar of the first Islamic century, Imam Hassan Al-Basri, Rahmatullah alahi, has described the nature of money in Islam:
Consequently, whoever hoards money is doing injustice by defeating its actual purpose. The person who hoards money is similar to the one who detains a ruler or a postman in jail. For instance if a ruler is imprisoned, he would not be able to fulfil his duty towards his subjects, and similarly, if a postman is imprisoned thus, he would not be able to deliver a letter. The important message contained in a letter would not reach to the concerned person. Due to delay of the message, the concerned person could get a personal loss and this event could even cause loss to the entire community. Hoarding money is attempting to imprison money, and stopping money from circulation prevents it from rendering its duty.
There is minimal scope allowed for ‘hoarding’ in Islam. Holding in reserve is allowed for for the purpose of safeguarding and storing goods for better utility. This kind of withholding is not allowed for the exploitation of people or for profit maximization. Wealth —except for one’s personal house, his means of personal transportation, and one’s means for earning a living—everything else comes within the ambit of Zakah.
The system of Zakah discourages the hoarding of money in two ways: One, by requiring the giving of a specified amount of money as Zakah to the needy; secondly, by assuring people of a profitable return on the ‘investment’ they made with Allah as a result of their charitable giving. At the same time, this lessens the amount they would otherwise want to hoard due to fear of loss or poverty. Zakah applies to any idle asset —although a true believer does not hesitate to give Zakat— in spite of the fact that it is observed that human psychology drives one to hold onto money.
Regarding the motives for holding onto money, John Maynard Keynes, a British economist of the 19th century, has named three.  According to him, a person holds back money: (1) out of a transaction motive; (2) out of a precautionary motive, and (3) out of a speculative motive. The first two motives for holding back money are natural, but the third one is dangerous for a thriving economy and society. The principle of Zakah asks people to reduce their holding back of money out of a speculative motive.
The Holy Quran warns people to refrain from hoarding wealth:
Excessive competition in acquiring wealth and worldly luxuries diverts you from your objective until you have visited the graveyards. [Sûrah Al-Takâthur, 102:1-2]
Allah ﷻ says in the Holy Quran that he gives sustenance to all His creatures, as He sees fit. Allah ﷻ is the Sustainer and Creator of this universe; He provides sustenance to every living being on earth whether they are believers or non-believers, as well as to all his non-human creations, including animals and plants. As Allah ﷻ says in the Holy Quran:
There is no moving creature on earth, but its sustenance depends on Allah. And He knows where it lives and where it rests. Everything is in a Clear Book. [Sûrah Hûd, 11:6]
The following hadith addresses reliance on Allah ﷻ which teaches humankind to have complete trust in Him.
Umar ibn Al-Khattab reported:
The Messenger of Allah (ﷺ) said, “If you were to rely upon Allah with the reliance due to him, he would provide for you just as he provides for the birds. They go out in the morning with empty stomachs and return full.” (Sunan Al-Tirmidhi #2344 – graded saḥîḥ by Imam Al-Albani)
It is not defensible, Islamicly, that people should be discouraged from acquiring wealth beyond their minimal needs; yet it is true that in their pursuit of wealth, they must not allow their surplus to distract them from worship and generosity. Thus it is to be concluded that Islam reduces the love, affection and greed for holding onto wealth. Islamic Economics encourages people to give Zakah —charity and dole— to the needy so that money can circulate properly in every sector of the country and so that the economy can run smoothly.
Stagnation in distribution of wealth affects various factors in an economy as a whole — namely, consumption, production, and employment. Deterioration of these factors in any economy will be enough to ruin the economic condition of the entire country. The remedy? A just collection and distribution of Zakah eradicates poverty from the main thoroughfare of society.
Serving as an admonition for us, the implementation of Zakah principles was carefully observed during the dynasty of ‘Umar bin ‘Abdul ‘Aziz, the famous Muslim caliph of the Umayyad dynasty. No one remained poor in his period of governance. Imam Ibn Kathir has quoted this entire incident in his book, Al-Bidâya wa Al-Nihâya. 
So then, how does Islamic Economics make use of the principles of Zakah?
Zakah is considered a part of fiscal policy in Islamic Economics. Several Muslim economists —holding the requisite background in shari’ah and Arabic— have authored a few comprehensive research papers on this topic. The late professor Fazlur Rahman Faridi was one of them. He produced pioneering works  on the macroeconomic aspects of Zakah, which included the following points:
- Government uses various fiscal policies for boosting the economy.
- Systematic and just implementation of the Zakah system may wipe out poverty and starvation from society.
- Distribution of Zakah is the entitlement of the needy, to be collected from the wealth of the Zakah-givers.
- While giving Zakah, a person discharges a double-duty in Islam: Firstly, he pays the due Zakah and thereby discharges his religious duty. Secondly, he satisfies the rights of poor people, thereby working toward the objective of eradicating poverty and hunger.
Allah ﷻ says in the Quran that in the wealth of the Muslim community, there was to be a share for the beggar and the deprived.
And in their wealth and possessions [was remembered) the right of the [needy], him who asked, and him who [for some reason] was prevented [from asking]. [Sûrah Al-Dhârîyât, 51:19]
An empowered economy in Islam can come about only when the members of the Muslim community are committed to fulfilling their collection and distribution obligations of Zakah.
The amount of Zakah collected by the administration needs to be spent on eight kinds of people in any country. In fact, the general data available on poverty, worldwide, covers most of the people mentioned in these categories:
1) Al-Fuqarâ: The poor
2) Al-Masakîn: The needy
3) Al-Âmilîn: Those employed to administer/ distribute charity/ Zakah
4) Mu’allafat Al-Qulûb: Those whose hearts have been (recently) reconciled to Islam
5) Al-Riqâb: Those in bondage/slavery
6) Al-Ghârimîn: Those in debt
7) Fi-Sabîlillah: For works in the Cause of Allah
8) Ibnu Al-Sabîl: The wayfarer/traveler in need.
This poverty alleviation goal is the very purpose for which Islam emphasises the circulation of money in an economy. The institution of Zakat is how an Islamic society is induced to increase the limited means of some of its members so as for them to be consumers in an economy. When the governance of the community enables the economic participation of the poor —who are roughly more than 40% in any economy— this, in turn, will enhance the consumption, production, employment, investment and GDP of the whole nation.
Currently, the American economy is facing a problem of very high unemployment. The practice of “zakah” (American government stimulus checks sent to individual citizens) may decrease the effects of unemployment in the economy and cause an increase of production, investment and GDP (Gross Domestic Product).
The purpose of Zakah in Islam lays stress on the circulation of money(wealth) throughout the entire economy. Thus has Allah ﷻ established His distribution system to abolish poverty. Allah ﷻ says in the Holy Quran:
Whatever Allah restored to His Messenger from the inhabitants of the villages belongs to Allah, and to the Messenger, and to the relatives, and to the orphans, and to the poor, and to the wayfarer; so that it may not circulate solely among the wealthy among you. Whatever the Messenger gives you, accept it; and whatever he forbids you, abstain from it. And fear Allah. Allah is severe in punishment. [Sûrah Al-Ḥashr, 59:07]
In this way Zakah circulates money in all sectors of the economy, including primary, secondary and tertiary sectors. It incresases actual demand, creates a greater consumption level, and boosts employment by engaging labourers in production and generating income. It will also contribute to government revenue or estate income in the form of taxes and various duties collected from a prosperous economy. So here, in a nutshell, is how the art of giving in Islam empowers the economy.
 Ahmed, Z., Iqbal, M., & Khan, M. F. (Eds.) (1983) “Fiscal policy and resource allocation in Islam.” Institute of Policy Studies, Islamabad and Jeddah.
 سيراعلام النبلاء للذهبي، بیروت جلد ۴ صفحہ ۵۷۶
 Al-Ghazali, Ihyâ’ ‘Ulûm Al-Dîn, Vol. 4, p. 348, Beirut, 1997
 Keynes, J. M. (2012) The general theory of employment, interest, and money. Atlantic Publisher: Delhi, pp 176-189
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 Dr. Fazlur Rahman Faridi, Dr Monzer Kahf, Dr. Abidin Ahmed Salama, Dr. M. M. Metwally & Dr. Sabahuddin Zaim
- Faridi, F. R. (1983) “Theory of Fiscal Policy in an Islamic State,” Journal of King Abdulaziz University: Islamic Economics, 1(1).
- Faridi, F. R. (1980) “Zakat and fiscal policy,” Studies in Islamic economics, 119-130.
- Faridi, F. R. (1984) “FR Faridi: Theory of Fiscal Policy in an Islamic State, Rejoinder FR Faridi” الفريدي: نظرية السياسة المالية في الدولة الإسلامية، تعليق: رد الفريدي, Journal of Research in Islamic Economics, 1(2), 0-77.
- Faridi, F. R. “A Theory of Fiscal Policy in an Islamic State, Readings in Public Finance in Islam,” Islamic Research and Training Institute.