There is a charitable foundation that collects money (charity and zakaah) and does charitable work, but it holds religious competitions, such as competitions in memorising Qur’aan and Sunnah, in which the winner is given a cash prize so as to encourage him. This prize comes from zakaah wealth; is that permissible or not?.
It is not permissible to spend zakaah wealth on anything except those who are mentioned in the Holy Qur’aan (interpretation of the meaning):
“As-Sadaqaat (here it means Zakaah) are only for the Fuqaraa’ (poor), and Al‑Masaakeen (the poor) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allaah’s Cause (i.e. for Mujaahidoon — those fighting in a holy battle), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allaah. And Allaah is All-Knower, All-Wise”
These eight are the categories to whom zakaah may be given, and no one else.
With regard to giving some of the zakaah wealth in the form of prizes, if the winner is one of those who are entitled to zakaah, it is permissible to give the prize from zakaah wealth, but if he is not one of those who are entitled to it, then it is not permissible.
Shaykh Ibn Jibreen (may Allah preserve him) was asked: Is it permissible to give zakaah in the form of prizes during lectures to Muslims and non-Muslims?
Zakaah may be given to poor Muslims even if it is given as prizes. With regard to non-Muslims, it should not be given to them if it is known that they are stubbornly rejecting the truth; prizes may be given to them from other sources.
End quote from the Shaykh’s website:
Shaykh Saalih al-Fawzaan (may Allah preserve him) said: It is not permissible to give zakaah to anyone other than the eight categories whether it is for bridges, public works, schools, mosques or any other charitable projects, because these projects may be financed through donations and waqfs set up for that purpose.
End quote from al-Muntaqa min Fataawa al-Fawzaan
And Allah knows best.