Is Zakat Tranfer Payment?

Muhammad Khairuddin Bin Ahmad
0920597

Is Zakat Tranfer Payment?

In economics technically Zakat defined as a “transfer payment” which Sahib-e-Nisab muslim pay to poor given rate in the month of RAJAB.

Many societies allocate a part of the income raised from their financially well off sections to support the poor and deprived segments of society. They tax the rich and spend this money on the poor. For example, in the United States nearly 13% of total personal income in the year 2000 came from transfer payments (Bureau of Economic Analysis, Washington DC). A transfer payment is a payment to a person for which that person has not rendered any service. A large section of transfer payments are made to very poor because either they are unemployed or their income is very low.

In the Muslim society, from the very beginning, believers were motivated and encouraged to allocate a part of their earnings for the uplift of poor. Some very early revelations (Al Qur’an 51:19 and 71:24 & 25) in Makkah motivate believers to assign a due share (Haqqul Maloom) of the needy and deprived in their possessions. In Madina, when a Muslim society had finally emerged, wealthy sections of this society were made responsible for improving the living conditions of the poor and deprived people. Share of the poor and deprived segments in the wealth of well-off Muslims was specified in the form of Zakat rates and Zakat payments were made compulsory for every rich Muslim. Laws for collection of Zakat were enacted and heads of expenditure were specified.

In above paragraph, we understand that transfer payment is a payment of people who got a money and give it to society whether the receiver is unemployed or low income. But different with zakat. Zakat had already stated by Allah s.w.t in quran and hadith about the asnaf which is the receiver of the zakat. Not only for poor but also for mu’alaf, amil and so on. And the purpose of zakat is not only give benefit to the receiver but also to those who give the zakat. In Al-Quran Allah stated that zakat is to purify soul such stated in Al-Quran. It also an obligatory payment that must be paid by a muslim who had wealth to give to others.

Gold Dinar – The Impacts On The Economic Social Order

From the article that created by Nuradli Ridzwan Shah Mohd Dali and Norhayati Mat Husin, we can understand about the impact on economic social order if the use of gold dinar was implemented. The idea of gold dinar occurs after the financial crisis of 1997 left an indelible mark in several countries. The phenomenal pace and extent of the destructions resulted in many reason being put forward to account for its occurance, by as many commentators. Capital cronyism and lack of corporate governance etc were the amongest the causes banded around.

The OIC countries are encouraged to use the Gold Dinar as an alternative international payment settlement through the Bilateral Payment Arrangement Mechanism (BPA) with coorporation from central banks to avoid currency crisis from recurring. Eventhough the Gold Dinar is not a legal tender, the bimetallic gold and silver system has been used as medium currencies before it ended in the year 1875 when fiat money was introduced.

There are two options that are available in implementing the Gold Dinar instead of using fiat money as the curret system which is having the Gold Dinar as the international medium of exchange while maintaining the Malaysian Ringgit for domestic uses, or to wipe out the fiat money entirely in the economics system replacing it with Gold Dinar. Futhermore, the success of the Islamic Banking system runs parallel with conventional banking system demonstrates that Gold Dinar should also be implemented side by side with the fiat money.

The implementation of Gold Dinar as a currencies will give an impact on social order that will be categorize in several ways. The first impact is crubing greed and other negative elements followed by creation of focused wealth accumulation, creation of decipline corporate society and reducing dependency of debts.

In the Gold Dinar economy, interest is strictly prohibited since the nature of Gold Dinar prevents itself from being compounded. One Gold Dinar could not be compounded because one Gold Dinar will only be one Gold. The reason is Gold Dinar could only be increased from real gold production such as the exploration of new gold mining and production of gold.

As Islamic Economics prohibit interst, this will puverize the economy as a whole and promote injustice between the rich and the poor. The rich would be able to assist the poor in the economic system from the payment of zakat. The Dinar economy also promotes Mudharaba (profit and loss sharing) and Musyarakah ( partnership) concepts as the engine in society.

Contradict to the present fiat money, which depend heavily on the interest and inflation, with profit and loss sharing and partnership system, the society will turn out to be less individualistic and be more helpful to each other, which in return reduce poverty problems.

In the current fiat money system, we could see a lot of problems arise due poverty which led other societal negative elements such as incest, rape, murder and many more. Another reason that could increase the negative elements in the fiat money system is the nature of fiat money, which could be rented out in example usury or interest that promotes unemployment.

However this argument is not supported by empirical evidence. The author had create a hypothesis testing to make an evidence whether there is a relationship between savings interest rate and unemployment rate. Unfortunately, there are no relationship between savings interest rate and unemployment rate. Eventhough the result contradicts, the result might be different if monthly data is tested instead of yearly data especially during the currency crisis period. From the above explaination, we can understand how the impact of Gold Dinar on social order in term of curbing greed and other negative effect.

Another impact on social order that can be derive is creation of a focused wealth accumulation. Wealth accumulation could be divided into two categories, the artificial wealth and real wealth.
But like all empires, there will come a crisis of “comfidence” which will cause a run on the currency. The holder of new “electronic wealth” will want its full face value in paper, but paper won’t be there which will cause a migration from paper to some “commodity”. The artificial wealth will be discovered and the economy will collapse.


Based on one of the diagram given shows that the percentage of Mo from 15% in 1982 drop to 8% in 1999. It shows the percentage of currency in circulation keeps on decreasing from year to year. This question is what will happen if banks run out occurs.

The other impact of implementation Gold Dinar to society is creation of discipline corporate society where through corporate governance as one ofthe measures to prevent another financial crisis. Corporate governance is “the process and structure used to direct and manage the bussiness and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking into the interest of other stakeholders”.

The implementation of gold dinar could have helped to improve company’s corporate governance by improving its transparancy especially in the investment area, one of main contributors for company’s income. In the current international monetary system, arbitrage and speculation is made possible due to the different currencies and the cross exchange rate between them. However, through the use of Dinar as single currency, all these exchange rates are eliminated, which then would remove any attempt for speculation and abitrage.

In the present monetary system, there are business transactions that involve something that is real and virtual. This situation has widened the opportunity for corporate society to manipulate their operations that defeat the purpose of corporate governance. Dinar, on the other hand, is real and therefore, each transaction is exchange only within the real sector.

Last but no least, gold dinar will reduce dependency on debts. In the fiat money economy, the wealth that the society gained will lead to artificial wealth, as the wealth is not real as compared to the Gold Dinar, which has its own instrinsic value. Looking at the nature of human beings who has no discipline in fullfiling their needs and wants, paper money has encouraged society to spend more than what they are earning through creation of debt. The using of credit cards is one of the example to illustrate this situation.

The dependency on debt could have been reduced by the introduction of Gold Dinar whereby all transactions isgold blacked. There is no need for creation of intermediate credit like credit card in the interest based monetary system.

In addition, Dinar system could narrow the gap between the riches and the poor through the elimination of interest as Gold Dinar has made it possible to introduce a banking system that discourage debt and encourage Musyarakah or profit or loss sharing. This is due to the fact that each Dinar must be represented with actual money that contains a certain weight of gold and silver, which make it difficult to simply create or print or controlling its supply and demand through the use of interest.

From the implementation of Gold Dinar, this will preserve the chance to decrease the gap between lower income and higher-income society, which in turn improve economic social oreder. It may be too idealistic to say that this will create a new Malaysian society but there is no doubt that the implementation of Gold Dinar could change the enviroment and behaviour of Malaysian society as a whole.

Is Production Affect Inflation?

~Bismillahirrahmanirrahim~

Ucapkan setinggi kesyukuran buat Allah SWT serta selawat dan salam buat junjungan baginda Rasulullah.

Hari ni macam biasa, saja nak post assignment FIE yang mungkin boleh bawa manfaat bagi kita.

Muhammad Khairuddin Bin Ahmad
0920597
Fundamental Islamic Economics
Section 6

Is Production Affect Inflation?

Inflation, by its definition, will only change the nominal values of the numbers involved; it would not affect anything else, including product structure or relative income.

However, other characteristics that in the real world always accompany inflation does change both, but in unpredictable ways. You would need more detail to determine what ways they are affected. But with inflation, all prices and wages do NOT increase by the same amount at the same time. Inflation is basically an "average" based on a predetermined "bundle" of goods. This "average", besides not including every price and wage in the economy, consists of many different changes in prices. Since price and wage changes are not all the same, the production structure will vary as costs vary, income will vary as some wages are more sticky than others (and sticky wages means that workers are always at least one step behind inflation).

Another characteristic that influences the effect of inflation is the accuracy of its predictability. If inflation could be predicted with 100% accuracy, then its effects would be written into every contract (including interest rates), and there would be no associated wealth redistribution. But to the extent that it is not predicted 100%, there will be some kind of gains and losses between creditors and debtors.

In the other words, production will effect the inflation to be gone. It can be done by decreasing the wages of the worker for instant. If, the wages decrease the purchasing power of people also decrease, so that the inflation rate will decrease until economy become stable. Actually it depends on how the concept of inflation been interpret in economy. Because there are two type of inflation, which, demand-pull inflation and cost-push. If demand-pull occured in economy, the economy will be leakage only on production because prices increase because spending increases faster than production. This situation will terminated by decrease of wages. When the wages decrease, purchasing power of consumer also decrease, without doubt inflation also will be eliminated.

However, it’s differ for the cost-push whenever price increase because of increase in (per unit) cost of production. It usually caused by supply shock. If this situation happen, production should be decrease so that, spending will run in smoothly. If spending does not also increase, economy will die out in recession.