Middle East and North Africa: Zakat as a Social Safety Net

in Yemen

Joana SilvaMNSHD

Quentin WodonHDNDE

Social safety nets (SSN) are a crucial component of a well functioning economy to enable investment in human capital, manage household risk, and promote equity.

MENA countries spend significant amounts on SSN, but mostly on non-targeted subsidies that are inefficient, pro-rich, and result in significant fiscal liabilities in times of crisis.

Disappointing progress in human development outcomes and the recent crisis underscore important vulnerabilities.

This analysis on Zakat was made in the context of a policy agenda on SSN (including the MENA SSN ESW) which ◦ takes stock of existing challenges; ◦ highlights the importance of the political economy dimensions of SSN reform; ◦ explores new aspects, such as the interplay of formal and informal SSN.

1. Social safety nets in MENA

Zakat, one of the Five Pillars of Islam, is the giving of 2.5% of one's possessions

(surplus wealth) to charity, generally to the poor and needy. It is often

compared to the system of tithing and alms.

Typically, Zakat targets a number of categories of beneficiaries defined as being

especially in need by the Qur’an. However, the way Zakat is collected and

distributed varies significantly across countries.

In Yemen, most Zakat is privately managed

◦ Not an obligatory tax but a transfer whose amount is calculated by the giving household.

◦ Mostly distributed directly to the chosen beneficiary, or delivered for distribution to the

Mosque or Sherif (neighborhood leader) (delivery to Gov. or NGO is less frequent).

◦ Generally given in cash, once or twice a year (during Ramadan and/or Eid).

2. Zakat as a social safety net

Pilot survey covering traditional modules (socio-econ. characteristics, assets) as well as formal and informal safety nets. New modules on Zakat (by type of giver and time of the year), social networks, risk coping mechanisms.

795 households; 5,500 individuals surveyed. Representative sample of Sana’a city. Joint effort between MNSHD, HDNDE, MNSPR and LSMS.

3. The Yemen survey

Our Survey HBS 2005/06 (Sana’a sample)

Coverage Sana’a All Yemen

Av. household size in Sana’a 7 7

Share illiterate in Sana’a 22% 20%

Preparation• J. Silva, L. Etter,

H. Thirumurthy (MNSHD)

• Q. Wodon, G. Joseph, H. Komatsu, P. Yetna (HDNDE),

• T. Kilic (LSMS),• W. Engelke and A.

Althibah (MNSPR)

Implementation• A. Althibah (MNSPR)• J. Silva and L. Etter (MNSHD)• T. Kilic (LSMS)

Data analysis• J. Silva and M. Allouche

(MNSHD),• Q. Wodon and Y. Ying

(HDNDE)

Data collectioncompleted

June, 2010March, 2010

4. Facts on Zakat

• Do most households give?

• How much do they give?

• Do many households receive?

• 30% of all households give

• 14% of all households receive

0.1

.2.3

.4D

ens

ity

0 2.5 5 10 15 20 25

Zakat as a share of giver's income (%)

4

6

8

10

12

14

Ln z

akat

giv

en, p

er c

apita

6 8 10 12 14 16 Ln total giver's income, per capita

Sample size

Population (#hh)

Mean Income

pc (last 12 months, in YER)

Mean Zakat

pc

Average # receivers per giver

Mean Zakat share

in income

All households 781 254,318 176,599

Zakat receivers 107 34,327 89,888 3,227 6%

Zakat givers 227 75,535 294,629 3,227 2.6 4%

5. The givers The financial ability to give is the most important determinant of giving (both for the

likelihood of giving and for the amount given).

◦ Income (not wealth) is a strong predictor of the likelihood of giving and the amount given.

◦ The amount given increases with income but at a decreasing rate.

Controlling for income, empathy for those in a similar situation (e.g. sick) and more

education increase the likelihood of giving.

More religious households tend to give more, but are not more likely to give.

More years in the same address (as a proxy for community-level social network) increase

the likelihood of giving and the amount given. Belonging to a political party increases the

likelihood of giving only.

Trust in personal connections (family members, friends and neighbors) is also a strong

predictor of the likelihood of giving and amount given (Zakat is mostly provided to

households known to the giving household).

6. The receivers

Zakat is a transfer for the chronic poor with whom people have a personal

relationship, but it does not seem targeted to help households cope with a

recent shock/income losses.

◦ Wealth is a significant predictor of the likelihood of receiving Zakat and of the amount received,

but income is not.

◦ Having suffered from a shock is not significantly associated with a higher likelihood of receiving

Zakat.

◦ 60% of givers say the person to whom they gave Zakat last year already received Zakat from

them for more than 3 years.

Vulnerable households are more likely to receive Zakat but among the target groups of

Zakat (such as orphans, people with disability or severe illness, female widows, etc.),

not all are equally likely to receive.

◦ While the number of orphans in the household increases the likelihood of receiving by 19%, the

number of persons with disability/chronically sick increases this probability by less than 1%.

◦ However, the number of orphans does not appear to be strongly associated with the amount

received, while the number of persons with disability/sick does.

6.1. Zakat is an important source of financial support for the poor

Poorest 2 3 4 5 6 7 8 9 Richest0%

5%

10%

15%

20%

25%

30%

Zakat as a share of pre-zakat income(Receivers only)

6.2. Zakat reaches the poor and is used mostly for necessities

Job Loss6%

Poor Health22%

Financial Difficulty49%

Orphan5%

Widow8%

Islamic10%

Why did you receive Zakat?

Food

Cloth

s

Health

Car

e

Housin

g

Educ

atio

n

Fune

ral

Other

0%

20%

40%

60%

80%

100%

Did you use the Zakat you receiveid for []?

If cause of receiving was finantial dis-tressIf cause of receiving was job loss or poor health

Poorest 2 3 4 5 6 7 8 9 Richest0%

5%

10%

15%

20%

25%

30%

35%

01,0002,0003,0004,0005,0006,0007,0008,0009,00010,000

Probability of receiving versus amount received, by wealth decile

Probability of receiving Zakat Amount Received

6.3. Zakat is well targated

Poorest 2 3 4 Richest0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Distribution of the Zakat receiving households

Sanaa wealth quintile 2010Sanaa income quin-tile 2010Sanaa consumption quintiles 2005

Poorest 2 3 4 Richest0%

10%

20%

30%

40%

50%

60%

Distribution of Zakat benefits, by wealth quintile

Zakat Pension Remittances Formal Safety Nets Charity0%

5%

10%

15%

20%

25%

30%

35%

40%

% of the poorest quintile of wealth that say they have received assistance from [.]

6.4. More poor households receive Zakat than any other form of SSN

Note: Social Welfare Fund operates mostly in rural areas

6.5. Connectivity matters

Not related to me or my household

Related to me or my household

Family member

Neighbor

Poor person from the same neigberhood

Not a Family member, but from the same tribe

Works for my household

17.58

82.42

28.48

23.64

14.24

13.64

1.51

Connectivity matters:Please describe which expresses the rela-tionship between the recipient and you or

your household

Poor=WQ1+WQ2

Under-coverage (% poor not receiving)

68%

Leakage (% benefits received by non-poor)

39%

7. Zakat versus other SSNs

Poorest 2 3 4 Richest0%

5%

10%

15%

20%

25%

30%

35%

40%

% Received assistance from [.] based on wealth quintiles

Zakat Pension Remittances Formal Safety Nets Charity

8.50%***

4.77%***2.22%

0.01% 0.23%

Receiving assistance from [] increases the (conditional) probability of receiving Zakat by

7.1. Overlap and No Crowding Out

completely agree36%

agree29%

neither agree nor disagree

18%

disagree18%

"People who receive social assis-tance from Social welfare fund are

likely to be poor and therefore should receive Zakat“?

Formal Saftey Nets Remittances Pension Charity Organizations0%

5%

10%

15%

20%

25%

Zakat Receivers also receive []

7.2. Zakat and poverty reduction among beneficiaries of Zakat

Note: estimates based on inputted consumption using HBS 2005/06

Poverty rate

Effect on poverty among Zakat receivers

Poverty without transfers

Zakat 41% - 5pp

Remittances 40% - 4pp

Social Fund 38% - 2pp

Social Welfare Fund 39% - 3pp

Poverty with transfer 36%

7.3. Perceptions on SSN design features

completely agree65%

agree19%

neither agree nor disagree

9%

disagree7%

Do you agree with the following statement: "Zakat should be distrib-

uted in cash because only the re-ceivers know their own priorities"

0

10

20

30

40

50

60

70

Zakat and conditionality: do you think it is legitimate to ask [] in return for

receiving Zakat

poor

orphans

the sick

widows

homeless

elderly

victims of oppression or persecution

other

0 10 20 30 40 50 60 70

Who should, in your opinion, receive Zakat? (first priority)

8. Attitudes towards Zakat are generally positive

completely agree65%

agree22%

neither agree nor disagree

4%

disagree7%

completely disagree

2%

Is Zakat the best way to fight poverty?

Mosque Gov NGO0

10

20

30

40

50

60

70

80

Share satisfied and dissatis-fied with the way Zakat is

given by

Satisfied Dissatisfied

NGO: Unclear how the money is used

Gov: Local of-ficials keep the money

If dissatisfied, indicate main reason:

Zakat is an important social safety net

◦ Is an important source of financial support for the poor.

◦ Most households that receive Zakat are poor and vulnerable.

◦ Its coverage of the poor is better than other existing social safety net in Sana’a.

Still, Zakat needs to be complemented with other social safety nets

◦ Zakat only serves a part of the chronically poor

Only reaches 1/3 of the poor (in Sana’a).

Zakat benefits households well connected to other households/social networks, with beneficiaries

receiving repeatedly, while non-beneficiaries remain excluded.

◦ Zakat does not serve all the functions of social safety nets

It does no deal with risk

the majority of Zakat in Sana’a supports the chronically poor. Zakat does not appear to be a mechanism to help

households cope with temporary shocks.

It does deal with promotion: Zakat is a lump sum generally given once or twice a year, not a consumption smoothing

mechanism throughout the year.

Zakat’s role is to ameliorate poverty not to promote the formation of HK. Public programs focused on

the promotion of HK formation for the poor and vulnerable could leverage the effect of Zakat support.

Zakat overlaps with (thus does not fully crowd out) other private/public social safety nets.

9. Policy implications

Zakat’s functioning brings interesting political economy issueso People trust Zakat; Zakat, an established safety net, sets a high standard for targeting and

distribution system of formal safety nets.

o Perceptions on SSN design indicate that transfers could be conditional, in cash, and

targeted the poor (rather than to demographics-based categories).

9. Policy implications(II)