A Socio-Economic Model of Productive Zakat for Poverty Eradication in Pakistan: Evidence through SME Creation and Ownership Transfer

Abstract

Structural poverty in Pakistan has not been eliminated by the extensive state-run zakat system. Through the creation of SMEs and full ownership transfer, this qualitative study develops a Zakat Based Productive Economic Model (ZPEM) that reallocates zakat from short-term consumer aid to long-term socio-economic development. The idea addresses the shortcomings of Pakistan's relief-oriented framework by drawing on traditional Islamic law from the four Sunni schools. According to data from Khyber Pakhtunkhwa, the disbursement of cash zakat grew from PKR 2.48 billion (2023–2024) to PKR 3.26 billion (2025–2026), mostly going for marriage prizes, Eid help, and stipends. An annual zakat allocation of PKR 1 billion targeted at 2,000–3,000 SMEs may generate 6,000–8,000 sustainable jobs annually, according to the proposed district-level model (Lower Dir). Through planned five-year cohort cycles, beneficiaries go from being dependent on zakat to being self-sufficient. Beneficiaries who are productive obtain full ownership of assets that generate revenue, while non-working beneficiaries receive continuous support via Baitul Mal. Effective zakat governance may reduce structural poverty, as shown by historical instances. According to the study, a centrally controlled zakat system that integrates SMEs is a workable strategy for long-term poverty reduction and ensuing welfare improvement.