Q: Is it permissible for an Islamic charity to spend Zakat funds on assets owned by poor and needy communities, and which aim to benefit and assist poor and needy individuals? This may include building or financially supporting schools, hospitals, orphanages or wells.
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: The principle recipients of zakat funds are the poor who must be given possession and ownership of the zakat funds. It is not sufficient to simply spend on the needs of the poor from the zakat funds. This is the position of the four Sunni schools of jurisprudence.
Please refer to the following link for a full discussion on spending directly on welfare projects: http://alqalam.org.uk/research-papers/utilising-zakat-for-welfare-projects/
Thus, it is not permissible for an Islamic charity to simply spend zakat funds on assets owned by poor and needy communities such as building or financially supporting schools, hospitals, orphanages or wells with the aim to benefit and assist poor and needy individuals without granting them possession and ownership. Transfer of ownership of such projects to local community organisations or cooperatives does not satisfy the requirements of zakat laws. There are stringent conditions that must be met in order to ensure the proper discharge of the obligation of zakat. Under an Islamic system, the avenues of expenditure identified in the question would be met through other income streams such as kharaj (land tax).