Islamic Banking, Accounting And Finance International Conference - The 9th iBAF 2020

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Islamic Banking, Accounting and Finance International Conference (iBAF) 2020

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Islamic Banking, Accounting And Finance International Conference - The 9

^th

iBAF 2020

The Roles of Zakat in the Provision of Islamic Social Finance: Qualitative Approach

Mohd Faisol Ibrahim, Aman Shah Siraj

Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia

E-mail: [email protected]

Abstract

In the 21st Century, most economic models are based on profits, which creates a social gap and injustice. Under the Islamic economic model, besides making an appropriated profit, the wealth will also be redistributed to the eight needed groups known as asnaf through Zakat. As a result, Zakat helps to protect the interest of the unfortunate and close the social and economic gap. Therefore, the zakat objectives cover Sustainable Development Goals (SDG) that can improve humans worldwide.

Besides helping asnaf, Zakat can be distributed to affected groups during crises and disasters like COVID-19. Hence, to facilitate and make progress smooth, Zakat must be managed by an institution and apply financial technology (FinTech). Thus, this paper attempt to review the related pieces of literature on SDG, redistribution of wealth and the role of Zakat during COVID-19. The methodology of this article is through library research based on the document- analysis of previous articles and literature on Zakat between 2010 until 2020. Therefore, Zakat is the best economy tool to purity and bless the wealth worldwide, especially the Muslim countries. Zakat is among the tool in reducing and eliminating poverty in Malaysia.

KeywordsZakat, Sustainable Development Goals,COVID-19, redistribution of wealth.

1. Introduction

Islamic economic system consists of three main sectors; siyasi (government or public sector), ijtimai'e sector (social sector or non-profit sector) and tijari sector (trade sector or profit-based sector) (Syahidawati et.al, 2018). Islamic social finance is a combination of two major sectors which is Islamic finance and Islamic microfinance (Shaheen et.

al, 2015). Generally, the function of Islamic social finance in the 21st Century is to alleviate poverty. In the discussion of Islamic social finance, Zakat or almsgiving is considered part of Islamic social finance.

Almsgiving or Zakat defines as an act to bless and clean the zakat properties, payers, and recipients. According to syarak, zakat payer needs to contribute based on certain conditions to the eight groups of beneficiaries known as asnaf (Siti Nabihah, Shifa, & Mariani, 2018). The payment of Zakat like zakat fitrah has advanced from giving some cereal as stated by a Muslim that Prophet Muhammad obligated of zakat fitrah in Ramadan with a sa' of dated, or a sa' of burley to pay via fiat money as allowed by Imam Hambali and now can be paid using FinTech. Under FinTech or financial technology, Zakat's collection and distribution process are digital (Ahmad, 2018). The various means of payments bring additional collection and help diversity distribution improve the quality of life under eight groups of asnaf (Mohd Faisol, 2020).

Zakat management in Malaysia has successfully covered many aspects and issues, including the collection,

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distribution, and socio-economic (Müller & Mu, 2016). A good zakat organization comprises proper management with modern infrastructure (Ahmad Dahlan, 2020). Although the end target is to improvise the living of eight groups of asnaf, Zakat's role in the 21st Century has become more vital towards the world's social economy, mainly Muslim countries. Zakat also plays its role as a fiscal mechanism by performing some of the primary functions of modern public finance like social security entitlements, social assistance grants for childcare, food subsidy, education, health care, housing and public transportation in a welfare state (Yusoff et.al 2012).

1. Methodology

This article adopts library analysis based on several kinds of literature on zakat issues for ten years between 2010 until 2020. The review focuses specifically on the articles written in the areas of Zakat. It follows that the articles would be classified into three categories, namely SDG, redistribution of wealth and role of Zakat during COVID-19.

The classifications are made based on the content of the articles. Therefore, this review would emphasize the article based on the criteria, which is the role of Zakat.

3. Resut and Discussion 3.1 Result

a. Sustainable Development Goals (SDG)

The SDGs are a worldwide pledge to reduce inequality and improve human life quality through 17 goals by the 2030s. The primary criteria of SDG, which is to alleviate poverty and close the wealth inequality, are part of Maqasid al-Shariah of Zakat. Under Maqasid al-Shariah, Zakat is vital to achieving all five goals: protecting faith, life, progeny, intellect, and wealth (Noor et al., 2017). These principles align with Salman Ahmed Shaikh and Abdul Ghafar (2017) finding that Muslim countries can achieve seven of 17 goals under SDG through zakat institutions.

The highlighted criteria are to alleviate poverty, end hunger, have good health and well-being, serve quality education, offer decent work and economic growth, eliminate gender-biased, and leverage income equality (Shaikh

& Ismail, 2017).

However, Suhaimi Mhd Sarif (2020) study is quite critical when discovered that zakat institutions in Malaysia may face difficulties in achieving the SDG because of stickiness. The stickiness is because of the bureaucracy addressing the administrative needs and public perception (Sarif, 2020).

b. Redistribution of Wealth

The pandemic of COVID-19 has changed our lifestyle, adapting technologies in our daily communication because of social distancing (Aman, Mohd Faisol, & Nuradli Ridzwan, 2020). As a result, several well-known world technopreneurs had accumulated billions of revenue in the first few months of this outbreak. On the other hand, approximately 40 million in America lost their job during the same period (Ramay, 2020).

Besides the leapfrog of the technologies, this outbreak created inequality in the economy. Based on the Department of Statistic Malaysia's official portal, the unemployment rate in August 2020 is 4.7% compared to 3.3%

in December 2019. This vast disparity may not happen in the Islamic economic model.

Muslims are encouraged to work and gain wealth. However, Muslims must help and feed others who are unfortunate (Goraya, 2020). Through Zakat, fortunate Muslims will give a small contribution to the asnaf. This situation will redistribution wealth from the rich to the needed and create equality of economy for all (Ramay, 2020). The contributor's justice is also secured by only paying 2.5% of the wealth and fulfilling the Nisab.

Compared to the sadaqah or donation, the zakat institution will give continuous support and distribute Zakat to the asnaf until they can be independent. In contrast, the taxation system will only focus on government coffers for public infrastructures and services (AlMatar, 2015).

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356 c. Role During COVID-19

The government of Malaysia has provided much financial help during the Malaysia Control Order (MCO). Zakat institutions were also providing financial aid to the asnaf. RM153.24 million was paid to the asnaf nationwide during the MCO to cater to their basic needs like food and healthcare while staying at home. Also, Zakat is distributed as a financial relief to petty traders and low-income families, which may not become asnaf. Besides, Zakat was also used as a research fund to find the vaccine for COVID-19 (Hambari, et.al, 2020). In Indonesia, BAZNAS Mustahik Economic Empowerment Institute (LPEM) introduced Cash For Work (CFW) program. Zakat was channelled to those who lost income during the outbreak of COVID-19 as an allowance for being volunteers.

They may be involved in spraying disinfectant operations or becoming helpers on other social programs (Fitriani, 2020).

3.2 Discussion

Nowadays, Zakat's role becomes more comprehensive and is not only confined to give support to the asnaf.

Having good management will bring Zakat as the catalyst to the development of socio-economy for the unfortunate groups. Many scholars like Salman Ahmed and Abdul Ghafar (2017), Aprilya Fitriani (2020) and Suhaimi (2020) agree that Zakat needs to be managed by the excellent governance institution and act as an enabler to the needed.

Countries like Malaysia and Indonesia with a systematic zakat institution prove that Zakat is a vital socio-economy tool in the 21st Century.

World Bank discovered that Islamic finance involves big data of wealth that need to be addressed through financial technology (FinTech). However, indifferences of shariah compliance had hindered most of the Islamic countries to adopt FinTech in Islamic finance like Zakat (World Bank, 2020). These weaknesses need to be overcome, or otherwise, zakat institutions may expose to mismanagement or delay in implementation. It is proven that FinTech, like internet banking and mobile banking, is essential in financial inclusion to expedite the process of distribution to the asnaf (Ahmad, 2018).

Zakat institution can improve the effectiveness and efficiency by applying FinTech, which is discussed by Khaliq Ahmad (2018), Siti Nabihah, Shifa and Mariani (2018), Aman et.al (2020) and Mohd Faisol (2020). FinTech helps to collect Zakat everywhere and distribute the Zakat efficiently to the recipients. According to Hamizul (2020), FinTech is a technology in the finance sector, and if the technology is Shariah-compliant, then the zakat institution should implement it.

As explained and discussed earlier, Zakat's role has evolved to become an important tool to develop world inclusiveness in society and the economy, especially in Muslim countries. However, if Zakat is not appropriately managed, it will be exposed to mismanagement and corruption. An issue like stickiness discovered by Suhaimi (2020) needs to be overcome before it becomes cancer to the zakat institution. Recommendation of professional zakat management by Ahmad Dahlan (2020) need to be considered to avoid this threat.

4. Conclusion

Past studies prove that Zakat is important in the 21st Century to develop Muslims' socio-economy by redistributing the wealth from the fortunate to the needed. The role becomes crucial during crisis and disaster by helping the asnaf and others who are affected. Since it involves much money and properties, Zakat is potent to be corrupted and needs to be managed wisely through good institutions and FinTech. More research and case studies in Zakat will help benchmark the best practice for Ummah's betterment.

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