Zakat standards

For Institutions that manage and deliver Zakat

In the UK, millions of Muslims give their annual Zakat to a range of Zakat Institutions. Institutions, in turn, have a religious duty to ensure that the Zakat collected is managed and disbursed in line with Islamic teachings and good sectoral practice. With so many Zakat Institutions (and ever-growing), people need to trust that their Zakat will be spent efficiently and effectively. In return, Institutions need to show that they are fit for purpose, governed well and transparent.
The Zakat Standards are an attempt to provide a basic framework for Institutions to follow. It sets out three basic standards alongside the numerous actions that Institutions can take to improve the quality, efficiency and effectiveness of the Zakat they provide. The standards draw together and integrates foundational Islamic teachings with the modern requirements and good practices from the not-for-profit sector. It is a voluntary and measurable standard. Resulting from an extensive consultation process, and open to continual development.
The Zakat Standards are an attempt to provide a basic framework for Institutions to follow. It sets out three basic standards alongside the numerous actions that Institutions can take to improve the quality, efficiency and effectiveness of the Zakat they provide. The standards draw together and integrates foundational Islamic teachings with the modern requirements and good practices from the not-for-profit sector. It is a voluntary and measurable standard. Resulting from an extensive consultation process, and open to continual development.

Applying the standards:

The standards are designed to apply to all institutions that deliver Zakat and has been written with the intent of making them relevant and achievable in all contexts. Zakat Institutions using and applying these standards should contextualise and adapt the actions identified based upon their own internal and external realities.

Standard- 1

An approved, shariah-compliant, and contextually appropriate Zakat Policy

Why is this standard important?

A Zakat Policy is the foundational document for any Zakat Institution. Policies articulate the “why” and provide critical positions and approaches to Zakat while setting out the parameters for decision-making and providing clarity on roles and responsibilities. A Zakat Policy represents the go-to document for understanding how an institution approaches Zakat – often primarily focused on management and delivery.

Required Actions

Actions that Institution should take in order to achieve the Standard.

1.1. The Policy is approved by an appropriate Islamic scholar or Institution and the Board of Trustees.

The Policy must be approved by the Board of Trustees (or equivalent as per the scheme of delegated authority) and an appropriate Islamic Scholar. An appropriate Islamic scholar is defined as a person or even a team of people with;
Shariah Degree(s) from a recognised Islamic Seminary.
Relevant experience in dealing with and knowledge of Zakat.

1.3. Where Institutions operate offices in external countries, the Zakat policy is translated and contextualised.

Zakat institutions may operate in countries with ranging local norms, restrictions, and pertinent charity and Zakat related legislations. It is imperative that Zakat Policies are contextualised and translated to ensure utility and appropriateness. For example, some institutions may need to register with local authorities or Zakat bodies to collect local or even distribute Zakat funds formally in the country or from overseas.

1.2. The Policy is reviewed regularly

Outdated policies can leave Institutions at risk; old policies may fail to acknowledge real institutional challenges learnings and may fail to comply with new laws and regulations. As such, the standards recommend that policies be reviewed every two years.

1.4. The Policy is adequately structured and written clearly and appropriately for ease of access.

Institutional policies should be designed with the end-users in mind, staff, donors, partners and recipients alike. The Policy must be structured well; written in simple and direct language to facilitate ease of use. At a minimum, the Policy should include;
Objective/rationale, and scope of Policy. Definitions for terminology used.
Clear statement on Zakat and positions taken.
Well-defined commitments and reference to approach taken towards eligibility, management, distribution of Zakat Funds.
Clear roles and responsibilities, including an indication of a policy owner.
References should be provided for all/any Islamic position taken or considered.

Standard- 2

Fit for purpose institution-wide procedures for the management, delivery, and accountability of Zakat funds.

Why is this standard important?

After establishing a Zakat policy, Institutional procedures are the natural next step. Policies explain the “why”, while procedures form the “how”. Whether written as formal guidelines or informal processes, Zakat procedures represent the Policy inaction by clarifying the specific step-by-step instructions required through the Zakat management cycle. Together, policies and procedures guide Institutions, strengthen internal controls and reduce risk.

Required Actions

Actions that Institution should take in order to achieve the Standard.

2.1. Fundraising for Zakat is transparent and in line with the policy.

Fundraising for Zakat funds can be challenging, with many difficulties entailed in conveying the injustice of poverty while striving to meet Islamic ethics. Institutions need to maintain a principled approach in all external communications. The desire to raise funds should never lead to harmful or un-Islamic practices. Due consideration should be given to represent Zakat recipients as dignified human beings. Their permission and informed consent must always be sought. Images, videos, and messages should seek to represent a complete, accurate and respectful picture of Zakat assistance and approaches.
Fundraising campaigns, pitches and collection will also need to comply with the Zakat policy. Zakat Institutions should ensure they fundraise towards Zakat eligible projects and goals while ensuring transparency during this process. Zakat Payers should be made aware of the Institutions Zakat Policy. At the minimum, this may involve signposting to the Zakat Institutions policy or relevant materials.

2.3. Zakat is treated as a restricted fund.

'Restricted Funds' are funds whose use is restricted by a particular purpose, often the purpose for which it was initially fundraised for. Zakat will need to be treated as restricted income funds, separated from other restricted or unrestricted funds. If Zakat is collected for a particular country, project or even person, the Zakat institution should ensure it is restricted further and thus expended and distributed as specified. This restriction will manifest in the accounting system and the disbursement process.

2.5. Zakat Funded Projects

Where the Institution expends Zakat funds through projects, the relevant Zakat distribution plans, procedures, and approaches should be in place and followed. These processes should include:
Planning Stages: Zakat funded projects should be planned. The following should be considered:
Who are the intended recipients, and are they eligible? Why them? Confirm and provide evidence of eligibility. How will the Zakat be provided (distribution modality), and for what purpose (if applicable)?
When will the Zakat be spent?
A proposed budget should be available, with eligible costs, compliant with the related Zakat restrictions in place.
Zakat Project / Grant Agreement:
It is good practice for Zakat Institution to have some form of Agreement in place with the funded partners, offices, communities, or Institutions. The clauses should cover the Zakat or relevant associated restrictions and terms and conditions; this could include (depending on project value and risk);
Grant Offer
Purpose or Objective of Grant
Funding Amount and Period
Grant Payments / Tranches
Grant Management Requirements (reporting, M&E, procurement, etc.)
Record / Archiving requirements
Audit and Inspections
Other standard clauses (confidentiality, data protection, dispute resolution, indemnity clauses etc.)
Payments: All payments and transactions between the parties should be documented.
Reporting: During the project and at the completion stage, the same framework provided above in the planning stage applies here, with the Institution reporting what was achieved against what was planned.

2.7. Administrative deductions from Zakat funds are eligible, reasonable, and transparent.

Administrative and operational expenses are required in order to cover or contribute to the proper collection, administration, management and implementation of Zakat funds, in line with these standards. These expenses should only be made against eligible expenses incurred and for what is needed. If a Zakat Institution can operate with a lower administration cost or can cover some costs through other funds, then it is recommended to do so.

2.2. Zakat funds are recorded and safeguarded from the Zakat Payer to the Institution.

The Zakat Institution will need to ensure that funds are recorded and safeguarded during the collection, management and disbursement process. This includes recording donations and the basic internal controls during bucket and cash collections, alongside the bank and online donations.

2.4. Aligned to the Zakat Policy, Zakat distribution procedures are fit for purpose.

Individual Grants:
Where Zakat Funds are distributed to individuals, clear zakat distribution (or grant-making) plans, procedures and if appropriate policies (and associated tools) should be in place. These should be contextual to the organisation, strategy, and target recipient communities. Where exceptions are required, this must be documented. These processes should include:
Assessment and Verification: Zakat Recipients should be assessed against an appropriate and robust screening criterion. A standard application form or tool is recommended. The screening may include;
Confirmation of identity
Confirmation of the level of need against nisab threshold
Confirmation that applicants are Muslim
Confirm willingness to accept grants and the terms and conditions set out.
This process may well include the submission of specific documentation for verification purposes and to mitigate against fraudulent applications or claims. The process should ultimately assure the Institution that the recipients are eligible to receive Zakat.
It is good practice for Zakat Institutions to produce some form of a basic agreement, information sheet or equivalent indicating to the recipients the restrictions, responsibilities, terms, and conditions in place.
Zakat disbursement(s) should be made to the recipients and documented. This may be concluded through a range of cash transfers systems or processes. The disbursement includes payment made to the recipient or on behalf of the recipient for goods or services.

2.6. Zakat funds are expended in an efficient manner

Zakat Funds need to be expended as soon as possible. But given the significant logistics involved and the challenging and ranging context of work that may Institution engage in, it is recommended within the lunar year (354 days), beginning on the date that the Zakat was received from a Payer to the Institutions. This can be viewed better with the perspective that all funds received by a Zakat Institution in the current year will need to be expended by the end of the next year.

2.8. Zakat expenditure is evidenced and documented.

In order to ensure Zakat funds are appropriately expended, the Institution must verify the end-use of funds by ensuring money has both physically reached the intended Zakat Recipients and/or that it has been spent correctly and as the Institution intended. The key elements of verifying the end-use of funds usually include:
Ensuring there is an audit trail for the movement of funds from the Institution to the Partner, Office or Recipient.
Ensuring there is an audit trail and proper records (e.g. report, receipts, invoices, etc.) that show and demonstrate legitimate expenditure towards the delivery of Zakat funds.

2.9. Zakat Recipients are treated with dignity and not negatively affected or at risk because of engagement with Zakat Institutions.

Zakat Institutions must have policies and systems are in place to safeguard Zakat Receipts, their dignity, their privacy, and their data. This will include the development of the following or equivalent policies/procedures/processes;
Code of Conduct
Data Protection
Anti-Corruption / Bribery / Fraud

Standard- 3

Zakat expenditure is monitored and evaluated, Zakat Institutions are accountable.

Why is this standard important?

Monitoring, evaluation and accountability is important in ensuring funds are used towards their purposes. It involves tracking and assessing the progress of projects programs, assessing the outcomes and, if required adjusting.

Required Actions

Actions that Institution should take in order to achieve the Standard.

3.1. Zakat expenditure is monitored and evaluated.

Zakat Institutions must be able to demonstrate that funds have been used for the purposes for which they were intended. Monitoring and evaluations (M&E) are an important way of ensuring this. Institutions should develop appropriate and robust M&E processes that will ensure that funds are adequately protected from abuse, misuse or other loss and are being put to their most effective use.
M&E will take a variety of forms depending on the Institutions, the particulars of the project, funds involved and risk. M&E approaches can be embedded with the Zakat grant or project or separate processes, manifesting in a range of methods, tools and products. The goal is often to ensure:
Funds can be accounted for with an audit trail showing fund transfers and expenditure by the parties involved.
The degree to which the Zakat project or grant have been delivered as agreed (to scope, cost, time and quality).
Zakat funds have been used for the Zakat Recipients identified and agreed.
To assess the quality of work, impact, effectiveness and efficiency of the Zakat disbursement
To assess operational compliance to the Zakat policy and relevant national and international standards.

3.3. Zakat Institution should transparently report on the collection, management and distribution of Zakat.

Zakat Institution should provide public reporting on its;
Zakat donations and income
Zakat spending and related work
This can be achieved via the following reports;
Annual financial statements and Annual report
Trustee reports
Zakat audit / assessment reports (should be externally published)
Other external reports

3.2. Zakat recipients are aware of their rights and entitlements

Zakat Institutions should have processes in place for information-sharing to promote a culture of open communication and transparency. Information should be shared with Zakat recipients effectively and transparently. This can include, for instance, information about the Institution or agencies involved, their roles and responsibilities, entitlements and targeting or eligibility criteria. This should be tailored in the languages, formats and media that are easily understood, respectful and culturally appropriate for different members of the community, especially vulnerable and marginalised groups.

3.4. The Zakat Institution can be held to account by Zakat stakeholders

Zakat Institution should have a complaints policy and procedures in place. This should include a documented and operational complaints-handling process for Zakat payers, recipients, and other stakeholders. The process should cover programming, sexual exploitation and abuse, and other abuses of power. Complaints should be handled with the intent of resolution in a timely, fair and appropriate manner that prioritises the complainant's safety and those affected at all stages.
Zakat Institutions must develop a culture where complaints are welcomed, accepted and taken seriously. Institutions thus must ensure they communicate with stakeholders on how these mechanisms can be accessed.