Zakat considerations for Islamic bank depositors and shareholders

In-Depth Analysis

An Islamic bank does not deduct Zakat from the customers' term deposits or savings accounts. However, an Islamic bank is required to pay the Zakat on the shareholders' annual net profit which is comprised of their share from the common pool profit (as the Mudarib) as well as the non-funded income (fee earnings from various services). It is important to note that the shareholders do not need to pay Zakat on the dividend amount received by them since it is already ascertained and deducted by the Islamic bank. However, they do need to pay Zakat on the market value of the shares they hold. This creates two separate Zakat obligations for those involved with Islamic banks: (1) The bank itself pays Zakat on its net profit attributable to shareholders, and (2) Individual shareholders pay Zakat on the market value of their shares. Depositors, on the other hand, pay Zakat individually on their total assets including deposits held with the bank. The distinction between Zakat on deposits vs. Zakat on shares is important: depositors calculate Zakat on the face value of their deposits plus any accrued profit, while shareholders calculate Zakat on the market value of their shares, which may be higher or lower than the face value depending on the bank's performance and market conditions.