Middle East and North Africa: Zakat as a Social Safety Net in Yemen

1. Joana Silva MNSHD Quentin WodonHDNDE Middle East and North Africa: Zakat as a Social Safety Net in Yemen

2. 1. Social safety nets in MENA • Social safety nets (SSN) are a crucial component of a well functioning economy to enable investment in human capital, manage household risk, and promote equity. • MENA countries spend significant amounts on SSN, but mostly on non-targeted subsidies that are inefficient, pro-rich, and result in significant fiscal liabilities in times of crisis. • Disappointing progress in human development outcomes and the recent crisis underscore important vulnerabilities. • This analysis on Zakat was made in the context of a policy agenda on SSN (including the MENA SSN ESW) which • takes stock of existing challenges; • highlights the importance of the political economy dimensions of SSN reform; • explores new aspects, such as the interplay of formal and informal SSN.

3. 2. Zakat as a social safety net • Zakat, one of the Five Pillars of Islam, is the giving of 2.5% of one's possessions (surplus wealth) to charity, generally to the poor and needy. It is often compared to the system of tithing and alms. • Typically, Zakat targets a number of categories of beneficiaries defined as being especially in need by the Qur’an. However, the way Zakat is collected and distributed varies significantly across countries. • In Yemen, most Zakat is privately managed • Not an obligatory tax but a transfer whose amount is calculated by the giving household. • Mostly distributed directly to the chosen beneficiary, or delivered for distribution to the Mosque or Sherif (neighborhood leader) (delivery to Gov. or NGO is less frequent). • Generally given in cash, once or twice a year (during Ramadan and/or Eid).

4. 3. The Yemen survey • Pilot survey covering traditional modules (socio-econ. characteristics, assets) as well as formal and informal safety nets. New modules on Zakat (by type of giver and time of the year), social networks, risk coping mechanisms. • 795 households; 5,500 individuals surveyed. • Representative sample of Sana’a city. • Joint effort between MNSHD, HDNDE, MNSPR and LSMS. • Preparation • J. Silva, L. Etter, H. Thirumurthy (MNSHD) • Q. Wodon, G. Joseph, H. Komatsu, P. Yetna (HDNDE), • T. Kilic (LSMS), • W. Engelke and A. Althibah (MNSPR) • Implementation • A. Althibah (MNSPR) • J. Silva and L. Etter (MNSHD) • T. Kilic (LSMS) • Data analysis • J. Silva and M. Allouche (MNSHD), • Q. Wodon and Y. Ying (HDNDE) Data collection completed March, 2010 June, 2010

5. 4. Facts on Zakat • Do most households give? • How much do they give? • Do many households receive? • 30% of all households give • 14% of all households receive

6. 5. The givers • The financial ability to give is the most important determinant of giving (both for the likelihood of giving and for the amount given). • Income (not wealth) is a strong predictor of the likelihood of giving and the amount given. • The amount given increases with income but at a decreasing rate. • Controlling for income, empathy for those in a similar situation (e.g. sick) and more education increase the likelihood of giving. • More religious households tend to give more, but are not more likely to give. • More years in the same address (as a proxy for community-level social network) increase the likelihood of giving and the amount given. Belonging to a political party increases the likelihood of giving only. • Trust in personal connections (family members, friends and neighbors) is also a strong predictor of the likelihood of giving and amount given (Zakat is mostly provided to households known to the giving household).

7. 6. The receivers • Zakat is a transfer for the chronic poor with whom people have a personal relationship, but it does not seem targeted to help households cope with a recent shock/income losses. • Wealth is a significant predictor of the likelihood of receiving Zakat and of the amount received, but income is not. • Having suffered from a shock is not significantly associated with a higher likelihood of receiving Zakat. • 60% of givers say the person to whom they gave Zakat last year already received Zakat from them for more than 3 years. • Vulnerable households are more likely to receive Zakat but among the target groups of Zakat (such as orphans, people with disability or severe illness, female widows, etc.), not all are equally likely to receive. • While the number of orphans in the household increases the likelihood of receiving by 19%, the number of persons with disability/chronically sick increases this probability by less than 1%. • However, the number of orphans does not appear to be strongly associated with the amount received, while the number of persons with disability/sick does.

8. 6.1. Zakat is an important source of financial support for the poor

9. 6.2. Zakat reaches the poor and is used mostly for necessities

10. 6.3. Zakat is well targated

11. 6.4. More poor households receive Zakat than any other form of SSN Note: Social Welfare Fund operates mostly in rural areas

12. 6.5. Connectivity matters

13. 7. Zakat versus other SSNs

14. 7.1. Overlap and No Crowding Out

15. 7.2. Zakat and poverty reduction among beneficiaries of Zakat Note: estimates based on inputted consumption using HBS 2005/06

16. 7.3. Perceptions on SSN design features

17. 8. Attitudes towards Zakat are generally positive

18. 9. Policy implications • Zakat is an important social safety net • Is an important source of financial support for the poor. • Most households that receive Zakat are poor and vulnerable. • Its coverage of the poor is better than other existing social safety net in Sana’a. • Still, Zakat needs to be complemented with other social safety nets • Zakatonly serves a part of the chronically poor • Only reaches 1/3 of the poor (in Sana’a). • Zakatbenefits households well connected to other households/social networks, with beneficiaries receiving repeatedly, while non-beneficiaries remain excluded. • Zakat does not serve all the functions of social safety nets • It does no deal with risk • the majority of Zakat in Sana’a supports the chronically poor. Zakatdoes not appear to be a mechanism to help households cope with temporary shocks. • It does deal with promotion: Zakatis a lump sum generally given once or twice a year, not a consumption smoothing mechanism throughout the year. • Zakat’s role is to ameliorate poverty not to promote the formation of HK. Public programs focused on the promotion of HK formation for the poor and vulnerable could leverage the effect of Zakat support. • Zakatoverlaps with (thus does not fully crowd out) other private/public social safety nets.

19. 9. Policy implications(II) • Zakat’s functioning brings interesting political economy issues • People trust Zakat; Zakat, an established safety net, sets a high standard for targeting and distribution system of formal safety nets. • Perceptions on SSN design indicate that transfers could be conditional, in cash, and targeted the poor (rather than to demographics-based categories).