61 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 Overcoming Income Disparity amongst Bumiputera by Improving Zakāt and Waqf System: A Special Focus on Improving Assets Management and Accounting Transparency Abidullah* Institute Islam Hadhari, Universiti Kebangsaan Malaysia Email: abidullah@siswa.ukm.edu.my Hand phone No. +6011-35620579 Muhammad Hakimi Mohd Shafiai Senior Lecturer, School of Economics, Faculty of Economics and Management, Universiti Kebangsaan Malaysia & Institute Islam Hadhari University Kebangsaan Malaysia Email: hakimi@ukm.edu.my Hand phone No. +6013-5297984 Abstract This paper aims to highlight the issues in Zakāt and Waqf in Malaysia and to provide a solution so that the income disparities amongst the Malay ethnic group can be minimized. Through library reach methods, we explored the literature in order to come up with the concrete conceptual model. It is found from the thorough study of literature that in the current SIRC, the issues of assets management and accounting transparency exist that make the Zakāt and Waqf system more vulnerable. Hence, it is suggested that Shari’ah Council might outsource some of its responsibilities to Islamic Microfinance Institutions so that the issues of assets management and accounting transparency can be overcome. The conceptual model that is presented in the study would provide more structured and transparent Zakāt and Waqf collection and distribution process for the Shari’ah Council so that maximum benefits can be derived in the interest of the Muslim Malays. Keywords: Income disparity, Islamic Wealth Redistribution, Shari’ah Islamic Religious Council, Zakāt, Waqf, Accounting Transparency, Cash Management, Islamic Microfinance 62 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 1. Introduction Today the world is seeing poverty in most of the regions. It is estimated that about 14.5 percent of the world’s population is living in poverty with the majority residing in Asia (Vorbeek, 2015). The recent research has shown that one of the main reasons of this poverty is an unequal distribution of wealth and income among the communities (Keister & Moller, 2000; Landes, 1998; Zimmer, 2008). Socrates has warned about this inequality around 2000 years ago followed by his student Aristotle and more recently by the father of capitalism Adam Smith. The concentration of wealth in few hands to control those who don’t possess it causes severe social inequality among the class. It is shown in the recent studies that inequality affects the developing nations more as compared to developed (Alesina & Rodrik, 1994; Birdsall, 2005, 2012; Bourguignon, 2004). As most of the nations of the world fall under this category, thus it has alarmed a situation which might affect the world’s great economies. An empirical evidence has been shown by Ortiz & Cummins (2011) who collected the data for 131 countries of the world. Based on Gini Index from 1900 till 2008, they came to the conclusion that the countries with high level of inequalities experienced low per capita GDP growth during that time. They further expressed that extreme inequalities in wealth distribution globally and concentration of wealth in few hands results in low economic growth. In Malaysia, there are three major ethnic groups that reside in Malaysia such as Bumiputera; the real natives of the country, the Chinese and the Indians who have migrated in the past and take an active part in the economy of Malaysia. Malaysia being a multi-racial country do experience the same problem where the wealth and income is concentrated amongst the specific classes. To overcome income inequality problems, there should be redistribution tools that can redistribute the wealth and income from the top to the bottom of the pyramid. In a capitalist economy, the prominent tool that is used of channelling the income from top to bottom is tax. However, this system has failed as it can be seen that it favours the rich more than the poor. Contrary to it, Islam has given us a system, by means of which, income and wealth can be efficiently tapped from the rich to the poor. The failure of the tax system has given rise to the concept of Zakāt and Waqf which were once used for the income and wealth redistribution but today, the effect of Zakāt and Waqf on the overall economy cannot be seen. In 63 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 Malaysia, however, both Zakāt and Waqf systems exist but the problems on the management do not permit its effect to minimize economic inequality. Hence in this study, we have focused on tapping the income from the top income bracket Bumiputera to the bottom 40 percent income bracket through Islamic Wealth Redistribution tools such as Zakāt and Waqf. Moreover, through library research method, Zakāt and Waqf would be discussed with the specific focus on collection, distribution, management and accounting transparency issues in Malaysia. In the end, a model would be presented that would provide a solution to the mentioned issues as well as its role in minimizing income disparities among the Malays. 2. Income Inequality Many studies have been conducted in Malaysia about the economic inequality amongst the Chinese, Indians and Bumiputera (Anand 1983; Khalid 2011a; Khalid 2011b; Ragayah 2008b). These studies have mostly focused on the inter-group inequality but according to Shireen (1998), it is intra-group inequality that is hurting Bumiputera more as compared to intergroup inequality. To elaborate wealth and income disparity in Malaysia is caused less by the ethnic group differences and more within the group. By compiling the data for the year 2004 in Malaysia, the total inequality as measured by Gini coefficient was 0.418, and of this, about 93.71 percent was caused by inequalities within the group differences and only 6.29 percent was caused by ethnic differences (Ragayah, 2008a). In Malaysia, it has been estimated that among the Bumiputera, 48 percent of the income is accumulated at the top 20 percent of the income group, 37 percent amongst the middle 40 percent and only 15 percent amongst the bottom 40 percent (DOS, 2011). In addition, the wealth inequality is recorded as 0.88 on the Gini Index which is higher than the other two groups (Khalid, 2014). In order to channel down the income from top income level group to lower income group, the tax system is implemented under the capitalist economic system. However, from this system, the only benefit is taken by the rich in the form of tax benefits rather than poor. The failure of this system led the people to find an alternative that can help in lowering inequality. Contrary to conventional income distribution system, Islam has provided us with Zakāt and Waqf system which can provide a better alternative for minimizing income inequality. 64 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 3. The Concept of Wealth Redistribution in Islam In reality, the capitalist economy teaches an individual that his money and assets will always remain his own. The only thing he has to do is to pay tax on it, which will be then allocated by the government to different channels. The individual responsibility ends here. But Islam put more emphasis on responsibility towards community and redistribution at the very start of the Islamic wealth management chain. In a capitalist system, the responsibility of the poor falls on the government, but in Islam it is the responsibility of every individual to help them in one way or other. In this capitalist economy where everyone is trying to increase their wealth, no one would give their money to anyone else in order for them to prosper economically. But in Islam, the concept of Qard-e-Hasan allows the rich to provide loans to the needy without any interest charged on it. On the other hand, with the help of Zakāt, wealth and income are channelled from the rich to the poor by means of which the poor can fulfil their needs. Zakāt is obligatory on every wealthy Muslim to pay it once a year so that the income circulates in the economy from top to bottom. Moreover, the concept of endowing (Waqf) cash and assets for the benefit of the society is a common practice where Muslims perform this act for seeking blessing on the Day of Judgment. Hence, it is a good way that helps in tapping the wealth from wealthier to benefit those who do not possess it. The major tools that are used under Islamic wealth management are Zakāt, Sadaqah, Qard-e-Hasan and Waqf (Wouters, 2013). The focus of this study would be on Zakāt and Waqf system of Malaysia. For this purpose, first we will discuss Zakāt and Waqf so that an idea can be drawn about its purpose. Secondly, the issues in Zakāt and Waqf would be investigated in the context of Malaysia in order to understand the conceptual model. 3.1. Zakāt Zakāt is the third of the five pillars of Islam. The importance of Zakāt can be judged by its preference among the five pillars of Islam. It is compulsory for every Muslim to pay Zakāt who are capable of it. It is compulsory for all Muslims not to hoard wealth but to distribute it. It has been mentioned in the Qur’an that: 65 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 “O you who have believed, indeed many of the scholars and the monks devour the wealth of people unjustly and avert [them] from the way of Allah. And those who hoard gold and silver and spend it not in the way of Allah give them tidings of a painful punishment The Day when it will be heated in the fire of Hell and seared therewith will be their foreheads, their flanks, and their backs, [it will be said], "This is what you hoarded for yourselves, so taste what you used to hoard””. (Tawbah 9:34-35) According to the narration of Abu Said al-Khudri, the Messenger of Allah stated that Zakāt is not required for silver less than 5 uqiyya’s (200 dirhams = 595 grams). During the Caliphate of Umar Farooq R.A., Anas Bin Malik, the collector of Zakāt asserted that he was instructed to take half of a dinar from every twenty dinars. This practice was later followed by Caliph Ali R.A. during his time. From the Hadith and the practices followed by his Companions, the scholars came to conclude the Nisāb for Zakāt should be 85 grams of gold or 585 gram of silver (Senturk, 2007). Those who possess the stated amount of Gold or silver or equivalent wealth should pay Zakāt with the overall proportion of 2.5 percent (Raimi, Bello, & Mobolaji, 2010). The recipients of Zakāt are derived from the following verse of Qur’an, “Alms are only for the poor and the needy, and those who collect them and for those whose hearts are to be reconciled, and for the ransom of captives and debtors and for the way of God and for wayfarers” (Tawbah 9:60). Hence the beneficiaries of Zakāt include the poor who are deprived of basic necessities such as food clothing, shelter, the destitute who do earn but that their earning is not enough to fulfil their basic needs, the Zakāt collectors who devoted themselves to collect and distribute Zakāt and have no other way of earnings, the Muallifa Al-Qulub (those whose hearts are to be reconciled with Islam), freeing the slave, the debtors who are under heavy debt, Fi Sabilillah (giving in the way of Allah) and wayfarers who become needy during travel in order to serve Allah’s Way, even though they are rich back home (Senturk, 2007). From the discussion and the above-mentioned verse from the Qur’an, it can be clearly observed that with the help of Zakāt, the wealth would be redistributed from the wealthy to those who do not possess it. In Zakāt system, those who possess less wealth will pay less and those with more wealth will pay more according to the mentioned proportion. In Malaysia, the Zakāt system does exist but it is unable to minimize the gap between the rich and the poor. Hence it would be worth knowing about the 66 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 issues in Zakāt and Waqf system so that income disparity can be minimized by providing a solution for it. 3.2. Issues in Zakāt Collection and Distribution in Malaysia In Malaysia, Zakāt in pre-colonial time was collected through formal framework where the religious leader was elected by the people. The people deliver the goods or Zakāt amount to him and then it was the responsibility of the leader to distribute it among the needy based on Shari’ah principles. During the British rule, the traditional custom was changed and all Islamic and Malay customs related matters were handled by a special body that was known as Majlis Agama Islam Negeri (MAIN) or State Islamic Religious Council (SIRC). On the other hand, Kelantan was the first state at that time which developed a body that became a model for the other states. According to that model, the Imam (spiritual leader) was elected to handle all the issues regarding Zakāt and a portion of the Zakāt amount collected would be given to the state government for handling the Islamic affairs (Ab Rahman, Alias, & Syed Omar, 2012). A formal system of Zakāt in Malaysia was first initialized in the 1990s when the system of Zakāt was corporatized (Owolabi Yusuf & Mat Derus, 2013). Today, Zakāt comes under the state jurisdiction of the patronage of His Royal Highness for Federal Territories and Sultan or Raja for other states in Malaysia. The responsibility of Zakāt is taken by State Islamic Religious Council for every state except Kedah where a special institution for Zakāt namely Jabatan Zakāt Kedah works under Sultan and is independent of SIRC. In the states other than Kedah, SIRC is assisted by another department known as Department of Islamic Affairs or Jabatan Agama Islam Negeri (JAIN) in performing its activities (Ab Rahman et al., 2012). The era of privatization has brought another dimension to the philosophy of Zakāt collection and distribution. Many states in Malaysia have privatized their Zakāt system via a body that acts under SIRC to perform all the duties of Zakāt. Such as Federal Territory privatized its Zakāt system in 1991, Selangor in 1994, Pahang in 1995, Negeri Sembilan in 1998 and Melaka in 2001 (Ab Rahman et al., 2012; Lubis, Yaacob, Omar, & Dahlan, 2011; Othman & Mohd Noor, 2012). Although in these states, the privatization has been done but is only limited to the collection of Zakāt. There are several issues that have been mentioned in the literature regarding the assets management of Zakāt. 67 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 On the collection end of Zakāt management, the focus of Zakāt organizations is on the current Zakāt payers neglecting the prospective Zakāt payers. For example in 2010, the number of Muslims in Selangor were about 2 million, whereas the number of Zakāt payers were limited to only 160,000 (Ab Rahman et al., 2012). It means either the respective authorities have either failed to calculate the right amount of Zakāt payers or there is Zakāt leakage. The second issue is regarding Zakāt distribution, where it has been reported that some of the asnaf have been neglected during Zakāt distribution (Ab Rahman et al., 2012; Lubis et al., 2011; Othman & Mohd Noor, 2012). Such problem would give rise to the issue where the Muslims will turn to take help from other un-Islamic religious institutes (Othman & Mohd Noor, 2012). The beneficiaries of Zakāt have to fill a form and then wait in a long queue and wait for their turn to get the Zakāt amount which makes most of the beneficiaries to avoid taking Zakāt. It shows that there is need of a body that can regulate the system not only on distribution end but also on collection end so that the beneficiaries can be identified and the amount reaches to the right beneficiaries. The third issue is mentioned by Ab Rahman et al. (2012) in their study. They put the focus on the capacity building of the asnaf. According to them, providing financial assistance will make them dependent and they would not be able to improve their living standard and will always remain in the same situation. Hence, the authority should change their way of giving financial assistance in the form of providing education to their children or sending them to the training centers, and assisting the capable and skilful poor in starting their own business. It means that providing cash would only give them a short term economic benefit, but in long run, they would still remain the poor and the income disparities would get wider. It can be drawn from the issues that have been discussed above that the problems which exist on collection and distribution end are mostly because of the management that failed to deal with the Zakāt process. Thus, there is need of proper steps to be taken in order to take maximum benefit from Zakāt. 3.3. Waqf Waqf is an inalienable trust in which the founder of the Waqf (waqif) makes the guidelines or principles for the property’s revenue and allocates the profit, usufruct or yields of the property to specific person or institutions. Such property is then given in the possession of fiduciary (wali or mutawalli) who 68 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 oversees the trust for the benefit of a third party (Hennigan, 2004). The literal meaning of Waqf is ‘to stop or to prevent’. It can be defined as the confinement of the assets or property by the founder and the dedication of its usufruct in perpetuity to the family or public (Ihsan & Hameed Hj. Mohamed Ibrahim, 2011; Layish, 1997). The condition for the asset to be Waqf should be an immovable asset but later such requirement was relaxed to legitimize immovable assets which were then known as Cash Waqf (Kuran, 2001). Although there is no strong evidence from the Qur’an and hadith regarding establishing Waqf but it is called as piety activity because when people Waqf their assets in the name of Allah SWT, it is their faith that it will be the support for them on the Day of Resurrection. The role of Waqf cannot be neglected during Othman Caliphate when 20,000 Awqaf produced almost one-third of the total revenue of Othman’s State. This revenue was then spent in providing food for the needy as it is estimated that about 30,000 in the population of 700,000 people in Istanbul were fed by charity complexes with the revenue generated from the Waqf system (Cizakca, 2004; Saduman & Aysun, 2009). Another category of Awqaf helped hospitals, orphanages and shelter (Kuran, 2001). Although, Waqf system in past has provided a lot of benefits for the society as a whole, today the same benefits from Waqf system in Malaysia cannot be observed. Thus, it needs to be investigated that what are the underlying factors that sabotage the benefits of Waqf for Malay society. 3.4. Waqf in Malaysia The Waqf property is also under the jurisdiction of State Islamic Religious Council of each state. In post-colonial times, Waqf was administered by community leaders, same as what we discussed earlier regarding Zakāt. These community leaders were either Imams, or Kadis (Qazi or Judge). During the post-colonial era, under the law, special trustees were appointed, either by the British administration or the local religious councils to administer and govern Waqf (Owolabi Yusuf & Mat Derus, 2013; Syed Abdul Kader & Md. Dahlan, 2006). Today, Waqf is also administered under SIRC similarly as Zakāt. There is thousands of hectors of land that is Waqf by the people for the benefit of the society but unfortunately the Waqf management failed to take advantage of it. It has been reported that the Waqf land is estimated to be over 32,000 acres (Md Saad, Kassim, & Hamid, 2013) whereas, the unused land is estimated to be around 24,555 acres (Isa, Ali, & Harun, 2011). Hence, there is a need for 69 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 an efficient and systematic approach to take benefit of such unused land in order to benefit the Muslims Malay. The problem of unused land was explored by Mohammad (2008) and pointed that Malaysian law follows three principles in Waqf land that includes irrevocability, perpetuity, and inalienability. Due to these factors, Waqf land is not valid collateral for the Malaysian banks. As a result, no loan can be taken in order to develop Waqf land. He suggested that cash Waqf is an optimal option in order to take advantage of Waqf. Cash Waqf money can be used for several development purposes as compared to the Waqf assets. Practically, a scheme such as corporate Waqf scheme that is started by Johor Corporation Berhad is first in its nature that has been implemented by Waqf Annur Corporation Berhad (WANCorp). Jcorp, entrusted WANCorp to manage all Jcorp group’s assets that are donated as a Waqf (Binti Ibrahim & Haslindar, 2013). The dividend that is obtained from the shares is then divided on 70:25:5 ratio. Where 70 percent of the benefits go to Jcorp for the purpose of human capital development and reinvestment, 25 percent goes to WANCorp as Fisabillilah and 5 percent is distributed to Islamic Religious Council of Johor. WANCorp then invests that 25% to overcome operational costs, investing in their Waqf clinic chain for dialyses and as micro credit to small businesses as Qard-e-Hasan. (Md Saad et al., 2013). However, there are discrepancies that exist in the current Waqf system which almost invalidate its overall efficiency. Recent studies have pointed out severe issues in accounting and administration practices and level of disclosure amongst State Islamic Religious Councils (SIRCs) in Malaysia (Masruki & Shafii 2013; Hisham, Y. 2006; Zain, 2005; Abdul-Rahman & Goddard 1998). On the other hand, there was no comprehensive information about Waqf assets. Moreover, the studies found that there were disorganized management and lack of proper accounting system for Waqf assets with now written procedure for recording Waqf transaction. On the other hand, Zain (2005) reported that majority of SIRCs had outdated financial reports with the low-level of disclosure. In addition, the council did not separate the Waqf accounts. Thus, no information regarding general assets and specific assets could be found. The author suggested having a proper procedure manual for maintaining Waqf account. Moreover, the author recommended the employment of experienced accounts, who can help SIRC in managing the Waqf accounts and reporting. 70 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 According to Chowdhury et al. 2011, people that are involved in managing Waqf assets such as mutawalli are found unqualified to be appointed for such duty. He further pointed out that in some cases, the mutawalli are nonMuslims who are not competent enough to handle religious issues. Hence, it can be drawn from the previous studies that the problems exist in the transparency and managing of the Waqf assets which makes its overall effect almost insignificant on the society. Thus, a proper mechanism should be derived in order to get maximum advantage of Waqf. 4. Proposed Model for the Zakāt and Waqf Management of SIRC and its Role in Minimizing Income Disparity It is well-known from the discussion that the problem in Zakāt collection and distribution is because of incompetent management. One of the options might be the hiring of professionals that can manage the system efficiently but it would be costly for the SIRC. The other option can be outsourcing its liquid assets management to another body that has sufficient experience in managing cash and other liquid assets, for instance Islamic Microfinance Institution. This would decrease the responsibilities on SIRC as they will focus on fewer duties. In Figure 1, it is mentioned that these SIRCs would maintain the duties of training the skilful beneficiaries. Giving cash to the beneficiaries is not a right solution to minimize income disparity while focusing on short-term economic benefits. The disbursement of Zakāt and Waqf amount to the beneficiaries can only benefit them in the short run, but in the long run, they will again need monetary assistance. Moreover, it will make them financially dependent on Zakāt and Waqf institutions while avoiding earning by themselves. In order to overcome this issue, SIRC should provide skill building training to the poor so that they become capable of earning rather than depending on the Zakāt and Waqf. SIRC Training Provision of land for agriculture purposes Managing commercial Waqf land Figure 1: The Given Responsibilities of the Waqf and Zakāt Institutions under SIRC 71 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 On the other hand, the SIRC would also manage the agriculture land that is Waqf by the founder for the benefit of the society. This land would be provided to those beneficiaries who got skills in farming but are not wealthy enough to rent the land for agriculture purposes. The benefits that are derived from the agriculture activity would be then divided according to pre-specified ratio. Furthermore, the Waqf Institute would keep a track record of the land that is un-utilized and, commercial land that is Waqf and perpetual monetary benefits are derived from it. From the current literature as discussed in the context of Malaysia, it is shown that there are problems in managing Zakāt and Waqf and also lack of transparency in disclosure of the assets (Ab Rahman et al., 2012; Chowdhury, Ghazali, & Ibrahim, 2011; Zain, 2005). In order to overcome these issues, the role of the third-party becomes vital so that they can maintain and manage the financial transactions for SIRC as well as to provide them with procedures in dealing their day-to-day activities. For this purpose, a specialized Islamic Microfinance Institution would be a feasible option to manage the liquid assets of SIRC. In Figure 2, we have suggested that the liquid assets derived from the Waqf activities in the form of profits from the Waqf land, cash Waqf and Zakāt fund would be managed under Islamic Microfinance Institution. As Islamic MFI is a specialized financial institution, hence it is obvious it would have a transparent accounting system. Secondly, by outsourcing the financial activities to Islamic MFI would assist SIRC in identifying the right beneficiaries of Zakāt and Waqf incomes. Waqf Account Cash Waqf Profit from Waqf Assets Zakāt Income Islamic Microfinance Institution Figure 2: Inflow and Outflow of Waqf and Zakāt Funds under Islamic MFI. The collection process would become easier because of the computerized systems, with the help of which it is easy to transfer Zakāt and Waqf amount 72 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 to Islamic MFI in just a single click. On the distribution side, the institution can maintain a databank of the beneficiaries which would make it easy for the beneficiaries to take the Zakāt and Waqf amount without filling the forms and waiting in a long queue every time. It would also help the Islamic MFI to differentiate between the current and potential beneficiaries in order to avoid any redundancy in payment. In Figure 3, we proposed that Zakāt and Waqf funds should only be provided in the form of loans to the beneficiaries that are trained by SIRC so that they can start their own business and pay back the loaned amount in instalments. The long term economic benefits can only be achieved in this way because businesses mostly produce perpetual profits over the long period of time which makes not only the businessman, but also the economy to flourish. It will also decrease the economic disparities amongst the top and bottom income groups. The loans will also be provided to those farmers who needs financing for cultivating either their own land or the Waqf land provided by SIRC. The loans can be provided using different Islamic contracts, such as Mudharaba, Musharaka, Murabaha, Ijarah, and Qard-e-Hasan (Riwajanti, 2013). Profit generated from the loan using Islamic contracts would support the Islamic MFI in achieving financial stability. On the other hand, cash amount would only be provided to incapable beneficiaries (handicap, elderly people, orphans etc.) Waqf Account Cash Waqf Profit from Waqf Assets Zakāt Income Approvals SIRC Training Provision of land for agriculture Accounting Procedures Managing commercial Waqf land Islamic Microfinance Institution Provision of Loan to Beneficiaries Disbursement of Cash to the needy Figure 3: A Proposed Model for Overcoming the Issues in Managing Zakāt and Waqf 73 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 Moreover, the problem of accounting transparency can be solved as most of the transactions would be managed by the Islamic MFI and would be reported to SIRC. It would also provide ease to the SIRC in managing the assets because of outsourcing some of its responsibilities to Islamic MFI and hence focus on the fewer responsibilities. Although the influence of SIRC in the case of Shari’ah matters would still be on the Islamic MFI in a situation when cash amount is disbursed to the beneficiaries or loan is given to the borrower, its approval should be taken from SIRC. The annual report would be produced with the collaboration of SIRC and Islamic MFI which will give a more vivid picture of the financial activities happened during the year. Redistribution of income in this way would help in minimizing income inequality as it would help the poor to start their own business rather than being dependent on the government throughout their lives. It is well known that business produces perpetual profits hence it would help the poor to expand their businesses later on. Profits generated from agriculture sector would enable the farmers to generate their income and it would also help them to be less dependent on the government for providing them with loans for the agriculture activities. In a broader sense, the loans provided by Islamic Microfinance Institutions would help them to raise the living standard and eventually decreasing the income gap between top 20 percent and bottom 40 percent. 5. Conclusion Malaysia as a multiracial country is facing a situation where the Malays; the native of the country are experiencing wealth and income disparity more than Chinese and Indian nationals of the country. The concentration of income at the top income level is three times more than the concentration at the bottom of the pyramid. A tax system that is considered as the transparent system for tapping the income from top to bottom of the pyramid is not answering the issue. The redistribution in the form of Zakāt is obligatory on every wealthy Muslim so that the income concentration at the top can be minimized. On the other hand, Waqf is another Islamic concept through which the wealth can be tapped for the benefit of the society. In this paper, through library research methods, we examined the problems that exist in the current system of Zakāt and Waqf in Malaysia that makes its role almost insignificant in flourishing the Malay economy. Furthermore, with the help of the conceptual model, we examined that how the problems in Zakāt and Waqf system can be overcome so that the low-income Malay can benefit economically. It is found that the management of Zakāt and Waqf is unable to manage the financial assets and also not able to provide transparent accounting system and hence affecting 74 Journal of Philanthropy, Vol 1, Issue 1, July – December 2017 the whole collection and distribution process. It is suggested in the model that State Islamic Religious Council, who deals with Zakāt and Waqf issues may outsource its management of liquid assets to Islamic Microfinance Institution so that it can be managed more efficiently. Moreover, SIRC should keep the duties of training the beneficiaries, and the control of Waqf assets with itself. In this way, the problem of collection, distribution and accounting transparency can be solved. It is also argued that in order to flourish Malay economy, instead of providing cash to the beneficiaries, disbursing loans for the purpose of starting small businesses would be more feasible. As a result, Zakāt and Waqf system would not only provide short-term economic benefits but also long-term benefits and hence, would help in minimizing the wealth and income disparities between the top and bottom income and wealth groups. References Ab Rahman, A., Alias, M.H., & Syed Omar, S.M.N. (2012). Zakāt Institution in Malaysia : Problems and Issues. Global Journal Al-Thaqafah, 2(1), 35–42. Abdul-Rahman, A.R., & Goddard, A. (1998). An Interpretive Inquiry of Accounting Practices in Religious Organisations. 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