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Abidullah 2017

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
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
Universiti Kebangsaan Malaysia
Institute Islam Hadhari
University Kebangsaan Malaysia
Email: hakimi@ukm.edu.my
Hand phone No. +6013-5297984
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
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
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
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
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,
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.
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.
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:
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
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.
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.
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
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
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.
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
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.
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.
Provision of land
for agriculture
commercial Waqf
Figure 1: The Given Responsibilities of the Waqf and Zakāt Institutions under SIRC
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
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
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
Provision of
land for
Waqf land
Provision of
Loan to
of Cash to the
Figure 3: A Proposed Model for Overcoming the Issues in Managing Zakāt and Waqf
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
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
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,
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