Paper Title: Block chain Technology for Efficient Zakat Management in India: An Exploratory Study

Author:        Arfan Ghouse Mohiuddin and Ibrahim Mohammed Saleh Abolola

Publisher:    Journal of King Abdul Aziz University: Islamic Economics, 38(1), 95 – 120.

This paper explores how block chain technology can improve Zakat management in India, addressing persistent transparency and trust issues. Zakat often falls short of its potential due to inefficiencies and a lack of accountability in the current system. This study highlights how block chain and smart contracts can transform Zakat collection and distribution.

Non-governmental organizations (NGOs), including numerous Zakat institutions, play a pivotal role in overseeing its administration in India.

The lack of a centralized authority for Zakat collection and distribution leads to variability in actual collection figures. Nonetheless, data consistently indicate that significant Zakat funds are collected and distributed annually, highlighting their importance in India’s charitable and social development. However, the distribution of Zakat in India faces obstacles due to the absence of a centralized system, raising concerns about fund utilization.

Many individuals prefer direct donations to relatives or local communities rather than through formal organizations, creating a discrepancy between actual and potential collections. Inefficiencies and transparency issues further widen this gap. Limited awareness and education about Zakat’s obligatory nature and the implications of not paying Zakat also contribute to low collection rates and inefficient fund utilization. Additionally, without a centralized system, ensuring that Zakah funds reach the truly needy remains a challenge.

Block chain technology presents a potential solution for enhancing Zakat management by providing a secure, decentralized, and transparent system for fund collection and distribution.

According to the National Zakat Survey Report by the Association of Muslim Professionals, 38% of Indian Muslims prefer giving Zakat to less fortunate relatives, while only 16% contribute to NGOs or community organizations. Encouragingly, 77% of the respondents believe that collective donations could significantly benefit India’s Muslim community. This highlights the need for organized Zakat administration.

With increasing internet usage, India is becoming more virtually engaged in this dynamic sphere. As globalization advances, aligning Zakat practices with modern technologies is essential.

Block chain, a revolutionary technology, enhances security and transparency by preventing unauthorized data manipulation. Using Distributed Ledger Technology (DLT) based on cryptography, distributed ledgers, and peer-to-peer mechanisms, block chain ensures secure data and transaction storage for future reference.

Muslims currently constitute 14.2 percent (approximately 200 million) of India’s total population. According to the National Sample Survey’s 55th round and the 2006 India Social Development Report, about 35% of urban Muslims and 31% of rural Muslims live below the poverty line, compared to just 10.1% of urban Hindus and 11.7% of rural Hindus. Developing an effective Zakat management mechanism is critical to addressing the challenges faced by the growing Muslim population.

Integrating block chain technology with Zakat management systems in digital India could help prevent fund misappropriation or misuse, given the country’s increasing reliance on internet-based financial transactions.

The Indian government does not provide a centralized system for Zakat distribution, as it is considered a personal duty of the Muslim community. Instead, various NGOs and organizations manage the distribution of Zakat within these communities.

Artificial Intelligence (AI), Machine Learning (ML), and big data have revolutionized Zakat distribution, replacing traditional human-operated systems with advanced automation. However, these technologies also introduce cyber security risks, making it essential to prioritize secure mechanisms for Zakat transactions. Block chain technology emerges as the most reliable solution for mitigating these risks.

This study highlights the potential of block chain technology to modernize traditional Islamic Zakat practices within India’s expanding digital ecosystem. By integrating block chain, Zakat management can become more transparent, secure, and efficient, addressing prevalent issues such as fraud and mismanagement. A block chain-based model involving Muzakki (donors), Zakat institutions, and Mustahiqeens (beneficiaries) can streamline transactions while ensuring compliance with Islamic principles through smart contracts.

Block chain’s secure, immutable ledger fosters trust and reduces fraud. India’s growing internet accessibility, robust mobile connectivity, and initiatives like Digital India create a favourable environment for block chain integration. Collaborative efforts among stakeholders are vital for successful implementation. By modernizing Zakat practices, block chain can enhance transparency, efficiency, and impact, increasing charitable contributions, promoting social equity, and advancing the socio-economic development of India’s Muslim community through improved education, healthcare, and self-employment opportunities.