Figures cited for the potential global zakat pool from different sources vary widely from US$ 200 billion to US$ 1 trillion. Given the wide range of potential estimates, a question arises how these figures are arrived at. The problem to estimate the global pool of zakat accurately partly arises because while zakat is levied predominantly on wealth, accurate estimations of wealth for Muslim countries are not available. Due to lack of wealth estimates, zakat is estimated by using different assumptions on the percentages of the gross domestic product (GDP).
The GDP-based estimations have origins in studies done by Dr. Monzer Kahf in the 1980s in which he estimated the zakat proceeds that could be collected in various countries based on three different opinions on what should be included as zakatable assets. The first opinion takes the traditional view and includes only agricultural output, livestock, trade inventory, and cash holdings as zakatable items. The second opinion includes returns on fixed assets and salary and wages. The third opinion is the broadest and also includes the capital value of fixed assets as a zakatable item. Using these assumptions, the average zakat rates from different countries were estimated to be 1.8%, 3.9% and 4.3% of GDP for the three opinions respectively.
Given the total GDP of Organization of Islamic Cooperation (OIC) member countries of US$ 7.341 trillion in 2019 (constituting only 8.4% of the global GDP valued at US$ 87.39 trillion) reported by SESRIC, the corresponding zakat collections according to three opinions would be US$132.1 billion, US$286.3 billion and US$315.7 billion respectively.
While the percentage of GDP gives approximate estimates based on different assumptions, there may be issues on their accuracy since zakat is levied mainly on wealth. However, different problems arise when trying to estimate zakat based on wealth. The first issue relates to how wealth is defined during contemporary times. The published figures provide different perspectives on the way wealth is defined. For example, Boston Consulting Group (BCG) defines total net wealth as financial assets plus real assets minus liabilities. BCG reports the size of the global wealth to be US$ 431 trillion in 2020, with financial assets constituting US$ 250 trillion (52%) and real assets being US$ 235 trillion (48%). World Bank provides a much broader definition of wealth to include produced capital, natural capital, human capital, and net foreign assets and published data on these for selected countries for 2014.
Second problem is that the wealth figures for specific OIC member countries are not reported in most global wealth reports. This would require estimating the wealth of OIC member countries by using the available data from different sources and extrapolating this to estimate the wealth figures. Using the information on the produced wealth and data on financial assets (total deposits, stock market capitalization and domestic securities) from different World Bank data sources, the wealth of OIC members countries can be estimated to be US$ 26.973 trillion (US$ 7.230 trillion financial assets and US$ 19.742 trillion produced capital). As in the case of global economy, the total estimated wealth for OIC member countries is significantly higher than the GDP (US$ 7.341 trillion).
Third issue in estimating the potential zakat collections based on total wealth relates to the difference of opinions on the how zakat is levied on assets. While one view states that payable zakat is 2.5% on the total value of capital, a second opinion is that zakat is 10% on the income of income-generating assets. Using the former view on the total wealth of US$ 19.742 trillion for OIC member countries would produce zakat valued at US$ 674.3 billion and the latter view would lead to zakat collection of US$ 134.8 billion (assuming an average of 5% return on the assets). However, a more reasonable approach would be to apply the rule of capital on financial assets (zakat of US$ 180.7 billion) and the rule of income for produced capital (zakat of US$ 79.9 billion) giving a total of 260.7 billion.
A more realistic calculation of zakat pool would be to mix the wealth and GDP approaches by adding zakat on wealth and agricultural production. The total value of agricultural production in OIC member countries in 2019 was US$ 808.4 billion which would produce zakat of US$ 40.4 billion (at 5% zakat rate). Thus, the total global zakat collection potential from financial assets, produced capital and agricultural output gives a figure of US$ 301.1 billion. Interesting this estimated figure appears to be the average of estimations of opinions 2 and 3 of the GDP based approaches.
Note that the above wealth and GDP based figure of zakat pool is a conservative estimate and the global zakat pool could be potentially higher due to several reasons. First, traditional assets such as gold and silver are excluded from the estimations. Second, some important natural capital such as oil, gas, minerals, forests are not included. Third, the rate of return on produced capital is assumed to be 5% and this could be higher. Finally, the figures for produced capital are from 2014. This number is likely to higher in 2019-2020. Thus, we can conclude that the minimum global zakat pool that can be potentially collected annually is US$ 300 billion, but the amount could be much higher.
By Professor Habib Ahmed, Director of Research and Development