Zakah on non-current banking debts is an issue that has been repeatedly discussed in fiqh council and zakah conferences. The reason for the ongoing discussion on this issue is its importance and the necessity for a final word on the topic, which has yet to be heard. The Islamic banking industry is a constantly developing and evolving industry with an estimated worth of US$2 trillion at the end of 2014. _
The massive growth of the Islamic banking industry must be taken into account in any judgment, along with the long-term nature of the debts that Islamic banks deal with and the complexity of the contractual relationships involved. This led the International Shari’a Research Academy for Islamic Finance (ISRA) to conduct a research on the subject titled “Zakah on Non-Current Banking Debts: A Review and Assessment of the Theoretical Framework” (ISRA Research Paper No. 70/2014). Zakah on Debt: Theoretical Problems The researchers first focused on the theoretical problems associated with non-current banking debts. This was followed by an examination of the operational aspects and selection of an accounting treatment that will ensure ‘adl (justice) to both sides of the zakah relationship (those who must pay and those who have a right to receive). The main problems dealt with in the study are the conflicting contemporary juristic opinions on the issue of zakah on non-current banking debts as well as the conflicting ways that these opinions have been implemented. The study has identified the most important causes for the controversy on this issue to be the jurists’ differing opinions on two of the major conditions that make zakah obligatory:
1. The wealth’s potential for growth,
2. full ownership of it.
AS A PRELIMINARY STEP, the study defines non-current banking debt as referring to every transaction in which possession of the resulting claims is deferred until after the current financial year. A related category that has the same effect on the obligation of zakah is debt that the debtor is for some reason or another unable to pay, even though it is due. This point is followed by a description of the manifold classifications of banking debts based on varying considerations. The most important of these considerations are the identity of the creditor (what is owed to Allah and what is owed to a human) and whether the debt is unsecured or secured. Non-current banking debts are quite different from traditional debts in various aspects. Among the most unique features of non-current banking debts is that full payment, which is paid in instalments, is not due in the current financial year and may extend to periods as long as thirty years. This feature gives researchers cause to refer to the classical jurists’ differing opinions regarding zakah on debts which are not yet due. When repayment of such a debt is doubtful, the controversy is minor; scholars all agree that no zakah is due upon it at the time that zakah is normally due on a person’s wealth (i.e., when a lunar year has passed since the owner of the wealth completed possession of the nisab, the minimum amount of wealth on which zakah is due).
Considerable controversy, however, exists about debt which is not yet due but which is likely to be repaid. There are five classical juristic opinions about this category. Each opinion is clearly explained in the study, and the major views of contemporary jurists who have deliberated upon this issue are also highlighted. The team has reviewed the resolutions of the major fatwa-issuing bodies, including the International Islamic Fiqh Academy of the OIC, the Islamic Fiqh Academy of the Muslim World League, and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). After reviewing and analysing these resolutions and standards, the study identified the major opinions. THE RESEARCH TEAM selected, based on their preference, the opinion that comes closest to balancing the rights of all the stakeholders and achieving the objectives of the Shari’a (maqasid al-Shari’a) with regard to financial transactions without overburdening the financial institutions with zakah obligations that consume all or most of their profits.
This is, however, a provisional conclusion that requires empirical modelling studies to assess the impact of the major opinions on all the parties whose rights and duties are involved. The study also summarised the controversy among contemporary scholars regarding the percentage that could be levied on non-current banking debts into three major approaches. The final topic of discussion is the scholarly controversy as to whether zakah is due on the wealth of governmental financial institutions whose capital is owned by the state. The three major points of view on the matter have been briefly analysed and assessed.
Conclusions and Recommendations
The study concludes with a number of recommendations. The most important are as follows. It is vitally important to conduct empirical studies relying upon experts in the calculation of zakah to explore the economic impact of implementing each of the three views mentioned in the study and to choose the opinion that secures justice for both sides of the zakah function (those upon whom it is due and its rightful recipients). It is also necessary to critically reexamine the resolutions and standards on zakah issued by institutions that support the Islamic finance industry in order to ensure that the most recent research of Shari’a scholars and the comments of expert practitioners are taken into consideration.