Exploring The Potential Of Using Zakat Funds Of Islamic Banks For Microfinancing

Abstract

Zakat-based microfinancing is presented as an innovative approach towards productive Zakat distribution, despite the different viewpoints among classical Muslim jurists towards its permissibility. Distributing Zakat through microfinancing can enable and promote Asnaf (Zakat recipients) self-sustainability in generating additional income and improve their financial standing. This study has two objectives, which are to examine the opinion of contemporary Shariah scholars towards using Islamic bank’s Zakat funds for microfinancing and to investigate the justification behind the acceptance and rejection of implementing Zakat-based microfinancing among the Islamic banks in Malaysia. This study adopted a qualitative research methodology where in-depth interview sessions were conducted with Shariah scholars and bankers who were directly involved with Zakat-based microfinancing. Findings reveal divergence among Shariah scholars regarding the utilisation of Zakat funds for microfinancing, with some endorsing the practice and vice versa. Additionally, the majority of Islamic banks refrain from adopting Zakat-based microfinancing for various reasons, including differing opinions among Muslim jurists on its permissibility, the availability of alternative assistance sources for the Asnaf, and the absence of a fatwa addressing this matter. However, this study identified one Islamic bank in Malaysia actively committed to implementing Zakat-based microfinancing. They believe that this approach serves as a Zakat distribution method that enables the growth of Zakat funds and uplifts Asnaf entrepreneurs. To conclude, Zakat-based microfinancing offers a targeted and impactful strategy to support the financial needs of Asnaf, thus enhancing their socio-economic well-being. Regulatory support and guidance from Bank Negara Malaysia could further encourage the facilitation of this innovation's implementation.