History of Bayt Al-Mal (House of Wealth)
In Islam, the administration of finances is a very serious matter.
In fact, in an Islamic caliphate, the government is expected to make the most judicious use of public treasury. It is in line with this ruling of Islam that Caliph Umar decided to establish the Bayt Al-Mal (meaning House of Wealth) in 634. Bayt Al-Mal was the financial institution that caliphs and other Islamic leaders used for the management of finances. Moreover for the administration of taxes, and tracking of expenditure.
One of the most important functions of the Bayt Al-Mal was also the coordination and distribution of zakat. Zakat is mainly for the benefit of the poor, needy, and vulnerable in society. Caliph Umar was so efficient with the Bayt Al-Mal that the Islamic economists of today are advocating for reconstruction and application of the same system in modern-day Muslim nations.
During the time of the Holy Prophet Muhammad (SAW), there was informal Bayt Al-Mal but it was not permanent.
All the donations and contributions that were received during the time of the Prophet (SAW) were given out immediately. When Caliph Abu Bakr came, he did pretty much the same. It is Caliph Umar who restructured the Bayt Al-Mal.
Many factors were responsible for the rearrangement of the financial system by Caliph Umar.
One of the most important of these is that under his caliphate. There were vast conquests of newer areas and regions. With more conquests came more funds and the Caliph also had to organize salaries for the soldiers. As the funds kept pouring in, Caliph Umar constituted a Majlis ash-Shura (Consultative Assembly) with the Companions of the Prophet on how to go about handling and proper distribution of the money.
While Uthman ibn Affan (who later became the third caliph) advised that the money be saved for future generations, others like Walid ibn Hisham thought that a unit of the treasury should be established. After extensive consultations, Caliph Umar approved the establishment of a treasury headquartered in Madina. He also saw the appointment of the treasury officers. Detailed records were made of all expenditure and there was an order in place that all surplus be sent to the central treasury.
One of the most remarkable things about this project is that the caliph ordered the physical construction of royal treasuries named Bayt Al-Mal in several Muslim cities. They were adequately protected with some having as much as 400 guards. New coins were also minted and the Bayt Al-Mal helped the caliphate greatly.
Some of those who benefited the most were the most vulnerable in society. These include the aged, poor, disabled, widows, orphans, and destitute. The administration was so efficient that it has led many scholars to refer to the caliphate of that time as the first welfare state in the world. May Allah (SWT) bless the efforts of Muslims of this generation aiming to do similar projects, aameen.