Reporting of Zakat and charitable activities in Islamic banks: theory and practice in a multi-cultural setting

Zakat (also reported as zakah) is one of the five pillars of Islam. Zakat necessitates individual and collective socio- economic responsibility by Muslims. A number of verses from the Quran, practices of the Prophet Mohammad (pbuh) and analytical investigations in extant Islamic literatures reveal that every (eligible) Muslim is responsible for distributing their own zakat and establishing the zakat system in society. In order to pay the right amount of zakat, there are standards to calculate a zakatable fund. Individuals as well as corporate entities, such as Islamic banks, have to follow proper guidelines stated in Islamic shariah in order to contribute to the establishment of zakat in a society. In addition, charity is not complementary to zakat but is suggested as the Prophet Mohammad (pbuh) practised it. Charity for Islamic banks can also take the form of benevolent loans, such as qard hasana, which are loans given to borrowers with no profit charged by the lenders. Only zakat is considered a mandatory economic activity in Islamic economics and is top of the list of philanthropic activities for Muslims and Islamic institutions...