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Zakah as an Islamic Micro-Financing Mechanism to Productive Zakah Recipients

Author

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  • Patmawati Ibrahim
  • Ruziah Ghazali

Abstract

There are various forms of zakah distribution practiced by the zakah institutions. One of them is the distribution of zakah in a form of business capital given to productive zakah recipients. This form of zakah distribution is recognized as micro-financing mechanism. Thus, this paper attempts to analyse the potential of zakah fund as a source of Islamic micro financing to productive zakah recipients. The analysis is divided into several parts. Firstly, this paper discusses on the rationale of zakah fund as a source of micro financing to small Muslim entrepreneurs. It is then followed by the feasibility study of zakah as a micro financing mechanism. Thirdly, this paper shares the practicality analysis of the mechanism by sharing the experience of Selangor Zakah Board (Lembaga Zakat Selangor - LZS). In addition, it also highlights the problems and challenges of LZS in performing the role of ‘micro-finance institution’. Lastly, suggestion on the proper mechanism of zakah micro financing to ensure its effectiveness is given in the final part of the paper. This is to ensure that the objectives of zakah in alleviating poverty and reducing income inequality are met.

Suggested Citation

  • Patmawati Ibrahim & Ruziah Ghazali, 2014. "Zakah as an Islamic Micro-Financing Mechanism to Productive Zakah Recipients," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(1), pages 117-125.
    • Handle: RePEc:asi:aeafrj:v:4:y:2014:i:1:p:117-125:id:1147
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    Citations

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    Cited by:

    1. Maya Hammad, 2022. "Overview of Zakat practices around the world," Research Report 69, International Policy Centre for Inclusive Growth.
    2. Waqas Ahmad, 2022. "The Role of Islamic Microfinance in Poverty Alleviation: Evidence from Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 39-49.
    3. M Ashraf Al Haq & Norazlina Abd Wahab & Md. Mahmudul Alam, 2021. "Understanding The Impact Of Institutional Factors On Asnaf Sustainability: A Pls-Sem Approach," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 7(4), pages 759-790, November.
    4. Mohammad Haider Syed & Shahnawaz Khan & Mustafa Raza Rabbani & Yannis E. Thalassinos, 2020. "An Artificial Intelligence and NLP based Islamic FinTech Model Combining Zakat and Qardh-Al-Hasan for Countering the Adverse Impact of COVID 19 on SMEs and Individuals," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 351-364.
    5. Anna Carolina Machado & Charlotte Bilo & Imane Helmy, 2018. "The role of zakat in the provision of social protection: a comparison between Jordan, Palestine and Sudan," Working Papers 168, International Policy Centre for Inclusive Growth.

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