Zakat is due each year on money owed to you if the borrower can and will repay it, according to the International Islamic Fiqh Academy. If the borrower is insolvent or refusing to pay, zakat is due only after you collect the money. Pending insurance payouts and wages not yet received are generally not counted until they are paid.
Reviewed by Hafiz Maqsood Ahmed.
Loans to relatives, unpaid invoices and money stuck in disputes can be a large part of a person’s or a small business’s wealth. The positions below are those of named bodies; they differ on timing, and The Halal Times does not issue rulings. The general rules are in our guide to zakat.
The Fiqh Academy’s ruling
The International Islamic Fiqh Academy of the Organization of Islamic Cooperation ruled in 1985 that “Zakāh of debt is due on the owner of the debt, for each year, if the debtor is solvent and giver,” in Resolution No. 1 (1/2). If the debtor is insolvent or delaying payment, the resolution says, zakat is due after one year from the day the money is received.
Strong and doubtful debts
Britain’s National Zakat Foundation (NZF) uses a similar test. “Zakat is payable on strong debts, i.e. money that is owed to you that you are confident will be paid,” it says in its guidance on debts, approved by its scholar Mufti Amjad. For doubtful debts, NZF says a lender can wait until the money is received and then pay for the past years. NZF excludes outstanding wages, dowry, inheritance and assets held in trust from the strong debts that count each year.
| Type of debt | When zakat is paid | Source |
|---|---|---|
| Loan to a solvent borrower who acknowledges it | Every year, on the amount owed | Fiqh Academy; NZF; AMJA |
| Loan to a borrower who is insolvent or denies it | Once collected; for one year only | AMJA; Fiqh Academy (after a year from receipt) |
| Doubtful debt later repaid | On receipt, with past years optionally included | NZF |
| Wages not yet paid | Not counted until received | NZF; Islamic Relief Worldwide |
The Assembly of Muslim Jurists of America (AMJA) said in a 2009 fatwa that zakat on a debt “is paid yearly if the debtor is well-off and admitting,” but if he is insolvent or denies the debt, it is due “only when you collect it,” and for one year only, however long the money was outstanding. SeekersGuidance, which follows the Hanafi school, says zakat on a debt likely to be repaid is owed every year but can be paid after collection, covering the years that passed.
You cannot cancel a loan and call it zakat
A common question is whether a lender can forgive a poor borrower’s debt and count it as zakat. “A debt cannot be waived off as Zakat,” NZF says. Zakat must be paid to an eligible recipient; a lender who wants to help a struggling borrower can forgive the loan as voluntary charity and pay zakat separately.
Business receivables
Applying NZF’s test to a business, money owed by customers who are expected to pay is treated like strong debt and added to zakatable business assets, while debts unlikely to be collected can be left out until received.
Pending insurance payouts and legal settlements
Money that has been promised but not received, such as an insurance claim being processed or a court settlement, is not yet in the owner’s possession. Islamic Relief Worldwide says money owed for work is not zakatable until you receive the payment. A fatwa published by Islamweb, and hosted by Qatar Charity, says zakat on insurance compensation is obligatory after the money is obtained and a full lunar year passes. Once received, the money counts with the rest of your savings.
Inheritance and debts owed to an estate
An heir’s share of an estate is not zakatable until it reaches him, as explained in our guide to zakat on inherited property.
Treating all outstanding loans as zero, or counting doubtful debts as certain, are both common zakat calculation mistakes.
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