Admin / or Support Cost – Direct Support and Indirect Costs

• Direct Cost: Direct project delivery costs that include programme costs and country office costs.
• Direct Support Costs: Link directly to the project but are shared between different projects/ services.
• Indirect Costs: These include IT, HR, or finance costs that cannot directly be linked to the project.

Charities SORP: A Statement of Recommended Practice which sets out how charities should prepare their annual accounts and report on their finances. The SORP is an interpretation of the underlying financial reporting standards and generally accepted accounting practice.

IR: Islamic Relief (refers to members of the Islamic Relief family).

IRW: Islamic Relief Worldwide.

IR Member: This refers to Islamic Relief Offices that have signed a licence agreement with IRW.

IR Family Council: This consists of the CEOs or Directors of the IRW Members, and each IR-Members having signed the license agreement with IRW.

Poverty: According to the United Nations, poverty is the inability to have opportunities, and a violation of human dignity. It means the lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, being unable to access education or healthcare, not having assets from which to generate a dignified living, and not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households, and communities. It means susceptibility to violence, and often implies living in marginal or fragile environments, without access to clean water or sanitation (UN Statement, June 1998 – signed by the heads of all UN agencies).

Rightsholders: Individuals or social groups that have particular entitlements in relation to duty-bearers. Duty-bearers are defined as state or non-state actors, e.g., Islamic Relief, that have the obligation to respect, protect, promote, and fulfil the rights of rightsholders. A directly reached rightsholder will have either registered and received one or more project/programme inputs from IRW or its IR Family members, and/or participated as a registered attendee in activities organised by IRW or its IR Family members, and/or had documented access to services provided by IRW or one of its IR Family members.

Zakat:  One of the five pillars of the Islamic faith requiring Muslims who meet the necessary criteria to give a part of their wealth each year to a charitable cause.

The Messenger of Allah, may Allah bless and grant him peace said ‘Islam is based on five things: Testifying that there is no god except Allah and that Muhammad is the Messenger of Allah (shahada); establishing the prayer (salat); paying the zakat; the Hajj; and the fast (sawm) of Ramadan’ (Bukhari and Muslim)

Alms are meant only for the poor, the needy, those who administer them, those whose hearts need winning over, to free slaves and help those in debt, for God’s cause, and for travellers in need. This is ordained by God; God is all knowing and wise (Al Qur’an, Surah Tawbah, Verse 60)

Zakat is a duty mandated by Allah (SWT) upon any Muslim who is in possession of wealth over a certain threshold. Throughout the Qur’an, zakat is mentioned alongside prayer, emphasising the sacred and essential nature of zakat as an act of worship. Zakat is a unique mechanism which calls for the compulsory redistribution of wealth from the rich to the poorest and most vulnerable members of society. As a core pillar of Islam, the Qur’an teaches that zakat is not a matter of voluntary charity, but a matter of social justice and protecting the rights of the poor.

The benefits of zakat are both spiritual and worldly. Firstly, zakat purifies both the wealth and the heart of the payer of zakat, instilling in them virtues of humility, generosity, detachment from worldly things and providing them with a means to attain closeness to Allah (SWT). Zakat should provide the recipient with a means of lifting themselves out of poverty and need in a manner that protects their dignity. Secondly, by developing social security networks for the poorest and most vulnerable members of society and developing bonds of brotherhood and sisterhood between all levels of the community, zakat helps create flourishing societies, united by mutual love and concern.

As one of the fundamental pillars of Islam, Islamic Relief believes that zakat should be at the core of our work. Islamic Relief is in a unique position to assist Muslims in fulfilling their obligations by providing a means for their zakat funds to assist in protecting lives and dignity, strengthening communities, and lifting people out of poverty around the world.

As such, Islamic Relief takes the responsibility placed on them by donors, rightsholders, and Allah (SWT) Himself seriously in order to distribute zakat in accordance with Islamic values and teachings. This policy seeks to ensure that Islamic Relief’s global zakat activities are in full accordance with the teachings of Islam, thus enabling Islamic Relief to fulfil its responsibility in the best way possible.

IR recognises the importance of transparent and accountable governance of zakat funds based on the overarching principles outlined in the Qur’an and sunnah from a theological perspective and in addition the UK the Charity Commission regulatory aspect of the Charity SORP and Trust law.

This policy ensures a consistent approach to Zakat funds and that detailed and relevant guidance is centrally disseminated. This policy will assist with:

• guiding Islamic Relief on which projects were eligible to receive zakat
• ensuring greater participation of Country Offices in decision-making regarding the allocation of zakat
• scholarly clarification on issues relating to our zakat activities, such as questions around support costs or the disbursement of zakat to different types of rightsholders
• developing processes to ensure the collection, financial transparency, allocation, distribution, monitoring and impact of zakat funds within Islamic Relief are transparent, participatory, efficient, and compliant with Islamic principles
• greater internal and external transparency regarding the collection, financial transparency, allocation, disbursement, monitoring and impact of zakat funds.

The overall aim of the Zakat Distribution Policy is to ensure that Islamic Relief’s global zakat activities are in full accordance with the teachings of Islam, thus enabling Islamic Relief to fulfil its obligation to in the best way possible.

The specific objectives are:

1. To ensure appropriate governance of the trust from theological and charity trust law of zakat funds.
2. To provide clear guidance to IR trustees, management and staff on how zakat should be fundraised, accounted for, allocated, distributed, monitored and the impact of social-economical value zakat has had to enhance communities/societies.
3. To provide transparency and accountability to stakeholders on how they should expect Islamic Relief to collect, allocate and distribute zakat.
4. To improve internal and external communications on IR’s distribution of zakat and its impact.
5. To ensure that IR’s zakat activities are conducted in the most transparent and Islamically-compliant manner possible.
6. To enable IR to utilise zakat within our programmes in a manner that ensures the maximum impact and efficiency in reducing suffering and poverty.

Any Islamic Relief office seeking to collect zakat should:

• Undertake efforts to remind local Muslim communities on the importance of paying zakat and those who are eligible to pay zakat.
• Provide clear and accessible guidelines and support to donors around calculating how much zakat they are obliged to pay. For example, this could be in the form of leaflets, booklets, hotlines, or the local IR website, online apps, etc. Such guidelines and support must be appropriate to the context of each office and should be prepared in consultation with local Imams or scholars where possible.
• Provide training to fundraising staff on the obligation to pay zakat and basic elements of calculating zakat. Fundraisers should be well-trained in organisational protocols in managing and reporting on zakat, so they may be able to provide clarity and understanding to stakeholders as well as inform fundraising staff which IR projects are eligible to receive zakat.

Zakat funds, SORP and Trust law

Zakat funds are given for a specific purpose and can only be used for zakat eligible purposes as defined in the eight categories of zakat. The accounting records of IR (across all entities and offices) should distinguish the income and spend between zakat funds and other funds.

Funds generally fundraised are either:

1. Restricted or unrestricted

The consideration is whether Zakat funds are restricted or unrestricted funds and if unrestricted whether they should be designated funds.

2. Restricted funds

Restricted funds are subject to conditions either specified by the funder or restrictions imposed by the donor or IR itself during its marketing campaigns. Therefore, restrictions can be created under Trust law. This means that IR fundraisers raising zakat do so by specific ask to a country or programme, and those funds can only be spent in that country or programme.

Unrestricted funds are spent or applied at the discretion of the trustees to further any of the charity’s purposes. Unrestricted funds can be used to supplement expenditure made from restricted funds (SORP 2.6).

Marketing and Fundraising

Islamic Relief will respect the wishes and conditions which its donors place on their donations. However, in the case of zakat, IR’s policy is that donors must be encouraged to give zakat to a general zakat fund.

This is due to the need to ensure that zakat is spent as swiftly as possible (as the obligation will not be fully discharged until the right holder receives the zakat). Moreover, Allah (SWT) has already placed several conditions on zakat. As such, donors should be advised against placing further conditions on zakat that may prevent it being spent in the most quick and effective manner on those who need it most.

As such, IR’s policy regarding fundraising zakat is that:

• IR should encourage donors to pay their zakat without further restrictions added.
• IR should avoid options in their fundraising or marketing materials (e.g., website or leaflets) that allow donors to give zakat to restricted funds.
• Sector and country-specific zakat funds should only be made available by fundraising offices/IR Family members if IRW have confirmed such projects can be delivered in accordance with the zakat policy.
• However, if IR feels they are unable to respect the wishes (e.g., due to a lack of projects in that country / sector, or if the donor’s conditions contravene our policy), IR must either:
  • communicate to the donor that IR may not be able to spend the zakat in the requested manner, and encourage the donor to give zakat to an alternative fund
  • refuse the donation on the grounds that we do not have the capacity to spend the zakat in the requested manner
  • apply the Charity Commission guidance and write to the Charity Commission in the United Kingdom to utilise funds for other purposes
  • where IR possesses existing unspent zakat funds which are restricted by country or sector, offices must ensure that such funds are spent in accordance with the donor’s conditions. If it is not possible then permission must be sought from the original donor to utilise the funds in another manner if this is possible.
• Any communication with donors that constitutes direct marketing of Zakat must follow any local laws and regulations governing privacy and electronic communications

Who is eligible to receive zakat?

The Qur’an clearly outlines the eight categories of people who are eligible to receive Zakat:

Alms are meant only for the poor, the needy, those who administer them, those whose hearts need winning over, to free slaves and help those in debt, for God’s cause, and for travellers in need. This is ordained by God; God is all knowing and wise (Al Qur’an, Surah Tawbah, Verse 60)

These boundaries are set by Allah (SWT), and IR believes that we –as zakat administrators, will be held accountable by Allah (SWT) for how we distribute zakat funds, and the extent to which we adhere to the conditions and parameters set by Allah (SWT).

As such, Islamic Relief must only distribute zakat to rightsholders (directly or through projects) which are relevant to the categories outlined above. When allocating zakat to projects, or applying for zakat funds to utilise in projects, IR must provide a justification as to how this project matches the criteria of zakat.

While the categories themselves are clearly set, their definition and interpretation – particularly in the contemporary context – require some clarification.

1.1 Fuqara & Masakin (Poor & Needy)

1.1.1 Poverty is being in a state where one is unable to meet their essential needs. This can be assessed through local consultations and needs assessments.

1.1.2 IR recognises that in mentioning both fuqara (poor) and masakin (needy or extremely poor) Allah (SWT) is ensuring that we address the needs of both the poor and the ultra-poor. As such, it is critical that the needs of the ultra-poor are considered and prioritised where possible when identifying which projects to fund through zakat.

1.1.3 IR will use zakat to provide adequate assistance to meet the essential needs of rightsholders.

1.1.4 IR believes that zakat can and should be used for emergency relief activities, such as the provision of food, shelter, clothing, medication and healthcare, water and sanitation, and other items or essential activities which can help alleviate the poverty or suffering of affected individuals.

1.1.5 Zakat funds cannot be used in cases where additional conditions are added for its receipt (e.g., cash for work projects).

1.1.6 Where possible, Zakat should also be utilised in a way that provides long-term solutions to the deprivations or needs of disadvantaged people. This could be achieved through developing sustainable livelihoods projects, through education or health provision, or supporting other sustainable development activities for the poor and needy.

1.1.7 IR will focus its zakat implementation in areas where there is a clear Muslim majority among the population. However, as a humanitarian organisation, IR will do this in a way that does not discriminate between people on the grounds of race, religion, sect, gender or ability and is bound by the internationally recognised humanitarian principles of impartiality, neutrality, independence and humanity. To ensure non-Muslims in such situations receive the same level of assistance, additional funding should firstly be sought from other sources of funds.  If other funds are not available, then zakat may be used.

1.2 Amileena alaiha (administrators of zakat)

Islamic Relief is a legitimate administrator of zakat. IR in effect is a duty-bearer, with a responsibility to respect, protect and fulfil the rights of rightsholders on whose behalf zakat funds have been collected.

1.2.1 As such, IR is eligible to take a reasonable portion of 12.5% of zakat funds to cover the costs of delivery zakat eligible projects. Costs are incurred firstly in raising awareness and collection activities for zakat funds, and then administering those funds to ensure they reach the rightsholders entitled to these funds.

1.2.2 Costs incurred by IR are defined as direct, direct support costs or indirect costs. IR must map and understand what costs are related to Zakat projects and those that eligible to be charged against the allowed administration charge from Zakat funds.

• Direct costs are frontline delivery costs that include programme costs and country office costs.
• Direct Support costs link directly to the project but are shared between different projects/ services. Therefore, a need to arrive at the true cost of delivery, these costs should be charged to Zakat when needed.
• Indirect Costs include IT, HR, or finance costs that cannot directly be linked to the project.
• Costs associated with fundraising, marketing, event sponsorship, influencers, generic training and governance costs are not eligible to be charged to 12.5% administration category

1.2.3 Any funds taken by IR offices from Zakat to cover administrative (direct support or indirect costs) must not exceed the agreed allocation of 12.5% in

1.2.4 To ensure transparency and accountability the programme and finance functions of IR should report on the usage of Zakat funds. IR must demonstrate consistency, accountability and transparency in its internal environment and reporting for Zakat purposes.

1.3 Mu’allafati quloobuhum (to reconcile hearts)

Whilst IR is inspired by its values, and proactively seeks to educate our supporters regarding Islamic values and teachings on poverty alleviation, as a humanitarian agency we do not engage in any proselytisation activity. As such, IR does not undertake any Zakat activities under the category of mu’allafati quloobuhum.

1.4 Riqaab (emancipation of slaves)

Where IR finds people suffering from a modern form of slavery – such as bonded labour, forced labour, or human trafficking – Zakat funds may be utilised to emancipate people from such forms of slavery (provided that the funds do not profit “slave-owners” who have violated national or international law).

1.5 Gharimeen (those in debt)

1.5.1 Zakat may be used to assist those in debt under the following conditions:

• The debtor must need financial aid (those with enough wealth to cover their debt cannot be assisted). However, they do not necessarily need to be destitute, but simply not have enough income or wealth to repay their debt.
• The debt should be due immediately. Those whose debts can be deferred may still be eligible to receive zakat but could be considered as less of a priority than those who need immediate assistance.

1.5.2 Zakat funds may be used to pay unsustainable/unrecoverable debts. For example, in microfinance programmes, IRW is permitted to create an accounting write off against the individual’s loan records using the zakat funds if the individual has incurred such a debt.

1.5.3 IRW will develop and use processes and criteria to verify that only those in genuine debt are supported.

1.6 Fi sabeelillah (in the cause of Allah)

1.6.1 IR takes the opinion that it is permissible to fund communal welfare assets and programmes – such as clean water sources, health clinics, critical medical equipment, temporary food producing outlets (e.g., bakeries), water containers, schools, training centres, seed banks, communal farmlands, water damns, – to reduce poverty and hardship in disadvantaged communities.

Projects involving communal welfare will promote the principle of community empowerment through ownership. IR will endeavour to adhere to the following conditions when funding communal welfare assets with zakat:

• The clear majority of the rightsholders can be classified as being eligible to receive zakat (i.e., poor, needy, traveller, etc.).
• An assessment of the rightsholder community has been conducted, demonstrating the need for the asset in question in alleviating poverty and suffering.
• Consent should be sought from the target community to develop or implement the proposed asset.
• The project should ensure that rightsholders can act as effective and responsible managers of the asset.
• Once completed, ownership and management of the asset is transferred to the local community (e.g., to a local community cooperative compromising of an inclusive group of people), with an agreement to protect the asset’s intended usage for communities and individuals in need. It should explicitly state no person in need will be refused.
• The communal asset should always remain a not-for-profit property and for general welfare.
• The asset shall not be owned by any one person or a single group of people.

1.6.2 IR will use zakat to fund essential service providers – such as teachers, doctors, health workers, disaster recovery personnel, trainers, agriculture specialists who provide vital services directly to rightsholders, specifically addressing their needs or deprivations with the following conditions:

• The service provider is not an employee who provides general operational support and management, but someone who works on direct project delivery.
• An assessment and consultation of the rightsholder community has been conducted, demonstrating the need for the service in question (for protecting lives and alleviating poverty and deprivation).
• IR only pays essential service providers for a limited time (no later than the project-end).

1.6.3 Zakat funds can be used for education and training purposes to directly teach people about issues and skills that will allow them to come out of poverty. For example, learning how to start a home-based enterprise, farming methods, tailoring, animal rearing, health issues, hygiene and sanitation awareness and other livelihood options.

1.6.4 Any costs which are specific and limited to the distribution or implementation of zakat goods/projects (e.g., petrol for delivery of goods, short-term hiring of transportation/ storage space, etc.) and are not part of Islamic Relief’s long-term assets or costs may be covered by zakat.

1.6.5 Zakat funds can be utilised in conflict transformation projects that seek practical solutions that bring peace to communities, leading to a significant reduction in levels of hardship faced by people living in those areas.

1.6.6 However, under this category IR will not fund communications or advocacy work due to the difficulties in establishing and measuring the direct benefit of these initiatives to those in actual need.

1.7 Ibn as-sabeel (travellers)

1.7.1 IR defines travellers as people who are at least 48 miles away from their home and unable to reach their destination (including refugees and internally displaced people) and who have been cut off from their wealth, assets, or source of income.

1.7.2 This would apply to refugees who have not re-settled and are not in the category of fuqara and maskin (poor and needy).

1.7.3 IR may use zakat funds to provide sufficient food, clothing, shelter, transportation, education, healthcare and any other needs.

Matters relating to the allocation & distribution of zakat

1.7.4 Each IR office that collects zakat should conduct research to identify the level of poverty in their respective country. Where poverty or need is identified locally, the office must develop a strategy to utilise a significant portion of zakat funds domestically. This amount will need to be determined by each office based on their environment.

1.7.5 IR will not allocate funds to each of the categories of zakat in an equal measure, as some categories do not directly apply to its mission.

1.7.6 IR may allocate as much zakat to each category as is relative to the need of rightsholders and our capacity in each geographical location.

1.7.7 IR will aim to allocate zakat funding within one year of receiving it and use it as quickly as possible.

1.7.8 IR will not use zakat funds to use for any type of endowment or similar investment projects.

1.7.9 IR takes the view that zakat cannot be given for loans or any other business enterprise.

1.7.10 Zakat funds can be used on projects that are both short term (e.g., immediate humanitarian response) and long-term (such as multi-year livelihood programmes).

1.8 Free reserves

The term “reserves” is used to describe that part of a charity’s funds that is freely available for its operating purpose not subject to commitments, planned expenditure and spending limits. Reserves do not include endowment funds, restricted funds and designated funds.

Zakat funds held have a direct impact on calculating free reserves.

The zakat funds (less than 12.5% of total zakat funds) should be excluded in calculating IR’s free reserve position.