ECB’s move and the goals of Zakat
By : Alsir Sidahmed
The European Central Bank’s (ECB) recent unprecedented decision to cut interest rates to below zero for the first time ever reflects the deep economic and financial crises engulfing the whole euro zone. The move also highlights one of the main goals of levying zakat to combat hoarding.
Moreover, the ECB announced a package of up to 400 billion euros of cheap loans in an attempt to encourage lending and shore up small businesses with easy credits to help stimulate the economy, in addition to weakening the euro making it cheaper to borrow it as well keeping inflation suppressed.
In Frankfurt on Thursday, the central bank cut its main lending rate to 0.15 percent from its current historic low of 0.25 percent, and its overnight deposit rate from zero to minus 0.10 percent, becoming the largest central bank to lower rates to below zero.
It is interesting to note that all of the 24 governing councils’ members backed the package.
It is clear that nothing much in terms of economy kicking off has materialized six years after the economic crisis that started in the US and spread quickly to the euro zone and the continuing recession in Japan.
That is why it seems central banks do not have much of a choice than find resources to pump into the fledgling economies even if that involves unprecedented steps like cutting the lending rate to below zero percent.
Levying tax, or zakat, is a central theme in Islam and its financial policies are regarded as part of every Muslim’s religious duty like praying or performing pilgrimage and so on.
However, zakat is due on savings that have survived for a full year.
The main difference between the conventional zakat and the ECB’s move is that the former goes step further and decide on how levied zakat will be spent: mainly on combating poverty through the known eight areas.
The ECB’s move on the other hand takes what it levies by its latest decision to the state and does not pass it straight to the people, but still it serves one of the main goals of zakat to combat hoarding.
The decision, in effect, is one of the attempts in terms of soul searching to face up to the continuing and spreading economic and financial crises.
It is interesting to note that nothing much has been done by religious scholars to highlight the similarities between the ECB’s move and the zakat at least in terms of education and show that Muslims have something to contribute and in a constructive way more than the growing perception about terrorism and Islamophobia.
Zakat is not the only contribution offered by Islam. Of late, scholars have been exerting serious efforts to come up with some financial products that comply with Islamic principles in terms of avoiding interest, or riba, or what has come to be known as sukuk, which are asset-based financial instrument or a bond not involved in any business prohibited by Islamic Shariah.
This trend to operate along Islamic financial tools became so popular to the extent that it is estimated that a sum of $1.5 trillion is being managed along these lines.
Both London and Hong Kong are competing to be centers of Islamic finance activity. British Prime Minister David Cameroon went as far as to announce late last year that the UK treasury would issue a 200 million sterling sukuk in an attempt to attract more Islamic funds to his country.
Two months ago, the Hong Kong parliament matched the British move by passing a bill allowing the government to issue a $ 500 million sukuk bonds and raise money.
Though the ECB move comes as a concrete executive step hoping to address an economic problem, intellectual debate continues to rage regarding Thomas Piketty’s new book “Capitalism in the 21st Century.”
The book, a result of 15 years of research into the issue of inequality in wealth distribution is suggesting that progressive tax be imposed on capital as well as on income exceeding a certain level.
His line of argument is that there are no hidden factors that can balance wealth disruption and that inequality is in effect a product of political decisions and an environment that needs to be addressed.
The ECB’s decision brings the issue to a more lively and diverse debate and it is up to Islamic scholars and Islamic fiscal institutions to take the debate further.