My last blog ended on a note that digitizing zakat payments to beneficiaries would be more efficient, as compared to payments involving hard cash or in-kind payments, by avoiding costs related to leakages, fraud and ensuring greater accountability. This comes with a few qualifiers, however. We assume that the technology and infrastructure is there. And the beneficiaries are not intimidated by the process. Another dimension of digital zakat distribution that needs to be underlined is human dignity. Where the traditional methods of distribution require queuing up by participants, physical appearance and waiting at the place of distribution and similar conditions, receipt of zakat may involve compromising on one’s self-respect and dignity. For a self-respecting poor, a digital receipt or online credit will be a far more welcome proposition. Indeed, this is in conformity with the objective of protecting the dignity of the individual (nafs), one of the five objectives (Maqasid) of the Shariah.
In principle, when zakat is distributed among beneficiaries, it should be preceded by a process of inquiry to ascertain if the beneficiaries belong to one of the eight asnaf or categories (e.g. poor, needy, indebted, in-bondage) who are considered eligible by the Shariah. Additionally, where the zakat program aims at poverty alleviation or economic transformation of an individual from mustahiq to muzakki (zakat recipient to zakat payer) within a finite time-frame, and aim not to encourage a dependency culture among the beneficiaries, then they need to be monitored. With digital payment of zakat such monitoring of individual beneficiaries should be more efficiently and effectively implemented. Of course, this may not be very relevant in the context of humanitarian crises when zakat is distributed in a region devastated by natural calamities. The beneficiaries in this context should qualify as eligible from Shariah point of view.
That the beneficiary has a distinct identity is essential for digital payment of zakat. At a very basic level, such identity is what the zakat beneficiary must provide to the digital payment provider in order to claim his/her digital zakat. Digital zakat payment then essentially is about assigning a monetary value to a digital identity. While digitizing the notion of a hundred dollars into zeros and ones is easy; giving zakat beneficiaries the means to unfailingly prove their ownership over that money (i.e. their digital identity) can be far more challenging with diverse mechanisms in place. It may be as simple as a random number/token assigned to in individual where the identity need not be linked to anything intrinsic about the individual. It is not a tokenized form of his/her “real” identity.
A different form of identity that is linked to “real” identity is about the Know Your Customer (KYC) requirements that are imposed by regulators on the various service providers. The KYC requirements comprise a set of verified personal information that service providers are required to ask for and hold about their clients. The information may vary widely and include combinations of: name, address, date of birth, profession, education level, marital status, etc. Since zakat payments involve financial flows, the authorities insist on such information to control money laundering, engaging in illicit transactions, and tax evasion. At a higher level, digital identity may require addition of biometric information relating to an individual.
Identity and the SDGs
It is interesting to note here that the role of legal identity and identification is part of the Sustainable Development Goals (SDG) agenda, considering its importance for development outcomes. As one of the proposed SDG targets (#16.9), it is also seen as a key enabler of the efficacy of many other SDG targets. The SDGs underline the need to ensure that all individuals have free or low-cost access to widely accepted, robust identity credentials. While legal identity is frequently associated with a specific national credential, such as a National Identity Card, but the appropriate concept in the context of the SDGs is broader than this. Not all countries issue National Identity Cards, and national status is not an essential component of identity as relevant for all SDGs. Indeed, there is a view that such legal identity can be provided far more quickly and widely by not requiring prior determination of nationality, which can at times be a complex process. It may be noted that robust identification is instrumental to achieving many of the SDGs. It directly relates to at least ten clusters: social protection floors, including for the most vulnerable; assistance in dealing with shocks and disasters; equal rights to economic resources including property and finance; the specific empowerment of women in this area; improvements in maternal and child health; coverage by vaccines and similar treatments; improving energy efficiency and eliminating harmful energy subsidies; child protection including the ending of harmful child labor; reducing the costs of making remittances; reducing corruption, fighting crime and terrorism and strengthening and improving the equity of fiscal policy. Most of these goals and targets may be directly mapped to the goals (Maqasid) of the Shariah for which zakat funds may be utilized.
While identity may not be the most important requirement for pushing forward a zakat-funded development agenda, the SDG-related targets are made far more difficult if there are no robust identification means. At the same time, sound zakat management requires a delicate balance between requiring identity credentials as a condition to receive zakat, versus creating an additional exclusionary barrier. Overzealous or inflexible ID requirements may sometimes block individuals from accessing the benefits.
Digital Identity for IDPs
Legal identity as a precondition for receiving zakat assistance can be very restrictive in the context of the poorest of the poor and elderly, more so in the context of people affected by natural calamities (e.g. flood inundation) and internally displaced due to conflicts and war situations. Most of the target beneficiaries may not simply have any legal document with them to establish their identities. It is therefore, important that digital identities in such cases, are assigned to individuals without linking the same to anything intrinsic about them. There have been some recent experiments in this space using blockchain technology. A pilot program implemented with a blockchain application developed by AidTech along with the global innovation team of the International Federation of Red Cross and Red Crescent Societies provided digital identity to Syrian refugees in the form of smart cards with unique QR codes to achieve last mile provision. Each card entitled an individual to buy goods from partner merchant vendors worth a certain value. The AidTech platform also made it possible to replace smart cards with mobile devices. The technology enabled monitoring in real time and complete transparency about all the transactions online. In short, it ensured the delivery of digital entitlements via digital identity with complete transparency and accountability over the distribution of resources.
It goes without saying that the above pilot study may be replicated by zakat organizations in similar complex humanitarian settings. The use of unique digital identity may allow the zakat organizations to document information such as eligibility, entitlement packages and implement systems such as automated periodic payments. It may enable them to transparently track resources distributed throughout the process with a high degree of accountability.
Featured Image by Mohammed Obaidullah: The bridge in the war-ravaged city of Mostar that connects the Christian and Muslim sides of Bosnia Herzgovina