Analysing the AAOIFI Shari'ah standard on zakat

Author First name, Last name, Institution

Khurram Parvez Raja, Zayed University

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Journal of Money Laundering Control

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Purpose - The Shari'ah Standard No. (35) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) aims to identify the zakat base for institutions (including Islamic insurance companies) as well as the subsidiary and the mother company of the institution (the company). By zakat base, the standard means the items of financial statements that should or should not be included in the calculation of the zakat base, and the liabilities or allocations that should or should not be deducted from zakatable assets. The standard also covers payable zakat rates, disbursement of zakat funds on the eight categories of zakat recipients and the rulings pertaining to disbursement. The focus then is on companies or corporations. There is no indication in the aims as to who owns the wealth of the corporation, that is, whether it is the company itself or it is the shareholders and whether it is treated as a joint wealth of the shareholders or of a single individual in the form of the company. The author will rely on this issue as one factor on the basis of which the standard is to be judged. Design/methodology/approach - Quran and hadith. Works of earlier jurists. Findings - In this study, the author has summarized the provisions of zakat according to the traditional law, but only those that are relevant for the financial institutions and the standard issued by the AAOIFI. After that, the author mentioned the major points that have been addressed by the standard. In the last section, the author has shown that the rulings of the Islamic Fiqh Academy and the AAOIFI on zakat are totally confusing and merely a reproduction of the rulings of traditional law. The main reason for this confusion is that the nature and entity of a corporation have not been addressed and have been treated like a partnership, thus, jumbling up the entire issue of zakat through banks. Originality/value - The main purpose in undertaking this original work is to examine the AAOIFI Shari'ah Standards from the perspective of traditional Islamic law, that is, the law of the senior schools as laid down in their authentic manuals. If there is an extensive deviation from this law, then this must be pointed out in the hope that it will be corrected by the concerned institution and the banks that adopt these standards. Neglecting such a corrective action for long will result in damage not only to these institutions in the long run but also to the law of Islam that has been so carefully crafted over centuries. The purpose is to show how far this standard deviates from traditional Islamic law and claims to be called the authentic view on a particular subject. Nevertheless, it is not the purpose of this work to explain and elaborate on the meaning and utility of these standards.




Emerald Group Publishing Ltd





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Islamic Studies | Law


Zakat, Corporation, Sharah standard, Traditional Islamic law, Zakat base calculation

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