SOCIAL WELFARE: IMPROVEMENT OF ZAKAT DISTRIBUTION SYSTEM IN MALAYSIA

GROUP MEMEBERS: Boubakary Wadjiri Abdoulaye 0919809 Hamse abdillahi abdi 0830515 Osamah hamoud abdo 0917733

SECTION 1 PREPARED FOR : Abdul Rahman Ahmad Dahlan

Abstract Zakat helps closes the gap between the rich and the poor in society. It caters the Muslims welfare especially the poor and needy as to minimize economic inequalities. When the poor and needy receive the financial aids from zakat institution, they have better opportunities to uplift themselves to higher socio-economic levels. On the other hand, the non recipients are left out from these opportunities. This study will focus on the non recipients of zakat fund (NRZF). The poor and needy that were left out were classified into three groups, namely: i) rejected applicants of zakat fund based on administrative criteria rather than economic or had kifayah criteria; ii) ignorance on the availability of zakat fund and iii) refuse to request or accept zakat fund for personal reasons. The study aim is to get clear picture of the NRZF phenomenon and the determinants that contribute to the issue. Further analysis on economic inequalities in term of social, economy and financial disparity on NRZF is also the interest of this study. The determinants of the NRZF act as guidelines for the policy makers and zakat agencies in planning poverty eradication programs especially for Muslim. Key words: Zakat, poor and needy, determinants, non recipients of zakat fund(NRZF) ----------------------------------------------------------------------------------------------------------------------------------

1. Introduction Zakat is an obligatory tax levied by Allah to the Muslim community as one of the tools to help the poor. Zakat takes surplus wealth from those who have it and distribute it to the poor and needy. The contribution is only 2.5 per cent of the wealth to be share with the poor and needy (Abd Halim, Shawal, Ahmad & Kamil,2010). Zakat helps bridge the gap between the rich and the poor in society.

Zakat is the third pillars in Islam fundamental ibadah, serves not only religious objectives but includes socioeconomic objectives such to promote economic growth and productivity, to meet the consumption demand, to finance projects and for equitable distribution wealth.

Zakat is for the poor, and the needy and those who are employed to administer and collect it, and the new converts, and for those who are bondage, and in debt and service of the cause of Allah, and for the wayfarers, a duty ordained by Allah, and Allah is the All-Knowing, the Wise". Qur'an (9:60)
There are eight category of zakat recipients (asnaf) as mentioned in the holy Quran(At Tawbah:60); 1)The destitute or indigent (Fakir): Those who don't have material possessions nor means of livelihood, 2) The Poor(Miskin): Those with insufficient means of livelihood to meet basic needs, 3) The Indebted(Al Gharimin): Those who are in debt and have difficulty repaying it, 4) Stranded Traveller (Ibnu sabil): The traveller who does not have enough money to complete their journey,5) To Free Slaves(Al Riqab): Zakat money is to be used to purchase slaves and free them, 6) New Muslims or Convert (Muallaf) : Those who are new to Islam and require help to integrate themselves into the Muslims community, 7) In the Path of Allah(Fisabillah): Zakat money can also be spent in the path of Allah. This can include many things, basically any project that helps Muslims or Islam and 8) Zakat Workers(Amil): Those whose job it is to collect and redistribute zakat money get their salary from the zakat money. In principle, the destitute and the poor should have the priority to receive the zakat aid. Therefore, the zakat institution has responsibility to ensure the zakat recipients especially the destitute and the poor could attain a minimum quality of life from zakat received. Zakat distribution should be proper and transparent to attain equitable distribution of wealth among Muslim society (Mahyuddin & Abdullah,2011). Zakat distribution divided in two forms: 1) direct financial for those who are not productive because they are not capable of working and 2) support to help the recipients sustain themselves in the form of capital,tools and equipment to enable them to run activities that can support their living and can be pulled out of poverty (Mahyuddin & Abdullah,2011). Although the contribution of zakat is only less than 1% compared to nations Gross Domestic Production (Mozef,1999), but zakat play an important role in providing necessities and social survival to the poor people.The main objective of zakat is to eliminate poverty and is parallel with the governments fourth NKRA in Governemnt Transformation programs(GTP), to improve the standard of living low income. Financial aids from zakat institution provide opportunities to uplift themselves to higher socioeconomic levels. Some of empirical study done by Patmawati (2006) in Selangor and Zakariah et.al (2010) in Kelantan, Malaysia; Nasim Shah Shirazi & Md.Fouad in OIC-member countries, M.Kabir & Juanyed (2007) and Ahmed(2004) in Bangladesh and Irfan (2009) in Indonesia agreed that zakat distribution reduces poverty incidence, reduces the extent of poverty and lessens the severity of poverty. The aim of zakat is to lessen the burden of the asnaf especially regarding their basic needs and additionally, to discourage dependency of asnaf on zakat aid in long term. The zakat funds can be utilized and used as long term investment for socioeconomic development in the country with consideration on the well being of asnaf. The Muslim society is interested to see how many poor families and individuals are elevated from poor to being able to live a decent life or even to a situation where they are able to pay zakat to other poor individuals. The effectiveness also involved how the development programs for asnaf successfully transform the mustahiq (zakat recipients) to muzzaki (zakat payees).

1211 Munim (1997) cited in (Mahyuddin & Abdullah,2011:239) sustain that zakat is an obligatory medium to aid Muslims in four aspect: to resolve poverty issue, to establish social justice, to develop a society based on love, mutual solidarity, brotherhood and to purge the poor feelings of hatred and animosity that they might have for the rich. In Malaysia, zakat collection is managed by zakat institutions under the jurisdication of the State Council (Majlis Agama Islam Negeri-MAIN)and each state managed the zakat funds different ways such as Selangor, Pulau Pinang and Sarawak have privatised zakat collection and distribution. The other states such as Wilayah Persekutuan, Negeri Sembilan, Melaka and Pahang only privatised zakat collection. The other states managed by Majlis Agama or Jabatan Agama Islam Negeri (Zakat Centre Report) This paper is organized as follow. The immediate section outlines the definition and measures economic inequalities and next, the discussion on economic inequalities relates to Malaysias situation. Subsequently, the discussion of the issue of Non Recipients of Zakat Fund (NRZF). The final section analyzed the determinants of NRZF. The paper ended with conclusion of the issue.

2. Malaysian situation now :

Since independence in 1957, Malaysia Government set to achieve faster economic growth, lower rate of economic instability, lower unemployment, lower rate of poverty and more equitable distribution income and wealth (ISIS,2011). Malaysia continues to seek for the solution for economic and social inequality especially among different ethnic groups. Different micro(households) and macro(nation) level policies and strategies had been adopted in the past to reduce income inequality and poverty. The most important policies that had big impact in reducing poverty in Malaysia was the New Economic Policy (NEP) 1971-1990; the National Development Policy (NDP) 1991-2000 ,the National Vison Policy(NVP) contained in the Third Outline Perspective Plan for 2001-2010 and Economic Transformation Programme(ETP) in 10th Malaysia Plan. Malaysias government is aiming for Malaysia to become a high-income nation that is both inclusive and sustainable by 2020. Malaysia's Gross National Income (GNI) will lift to US$523 billion by 2020, and raise per capita income from US$6,700 to at least US$15,000, meeting the World Bank's threshold for high income nation. It also projected that Malaysia will be able to achieve the targets set if GNI grows by 6% per annum (PEMANDU, 2010). Malaysias transformation from low-income countries to high-income countries such as in the plan is very exciting, but the poor will still need to provide assistance either in terms of basic needs or to improve the standard of living if not, these people will left behind from the development. Nevertheless, the nations wealth has little impact on the poor families and they may have not benefited in the share of economic cake. The Ninth Malaysia Plan (9MP) sets out the aim Malaysias effort to improve income distribution focusing income disparity between Bumiputera and non Bumiputera ethnic groups and between rural and urban areas (UNDP,2008;p81). Income inequality can be measured by the differences between the highest and lowest income, the mean, the coefficient variation, the Kuznets income ratio and the most widely used is the Gini coefficient. Gini coefficients values lies between zero(perfectly equality) and one (perfectly inequality), therefore the nearer the Gini coefficient to the value of 1, the more income inequality likely occurred (UNDP,2008;p87).

3. Issue of Non Recipients of Zakat Fun(NRZF) Even though, the increases in collection of zakat, half or fourteen of zakat institutions averaged less than 80% of zakat fund being distributed for the period of 2003-2010. Zakat fund were constantly not fully distributed. For

the period of 2003-2010, zakat institutions on average distributed 77% of their zakat fund i.e. 23% of zakat fund were not distributed within the same year. Details of zakat distribution in various states revealed erratic pattern in disbursing zakat fund. A zakat organization may register a high percentage of disbursement the previous year, but similar pattern couldnt be observed the following year. Difference in percentage disbursement can be as large as 40% compare to the previous year (PPZ-MAIWP, 2010) as shown in the below diagram:

The undistributed zakat fund relates to the Non Recipients of Zakat Fund(NRZF) issue. It will reflect the integrity of zakat centre in terms of zakat distribution to eligible asnaf and also effects future zakat collection. Though many studies have been undertaken on the impacts of zakat on asnaf, there is little research done on NRZF as potential asnaf but do not have access to zakat fund. Inaccessibility is due to administrative ineligibility, ignorance and voluntary exclusion of the indigents and the poor. This phenomenon and the inability to disburse zakat fund timely contributed to the ineffectiveness of zakat fund distribution. The issue of undistributed zakat funds lead to serious concern of zakat payees regarding how their zakat been distributed to eligible asnaf. (Abd Halim et.al,2010). The study also identified evidence of ineffectiveness in the distribution of zakat funds. The ineffectiveness obtains due to some the rights of the asnaf being turn down and collected zakat funds were not fully allocated. The issue such as bureaucracy, weakness in identifying the poor, effective zakat distribution system and zakat institute transparency rise the incidence where the indigents and poor tend to seek and accept the other religious bodies to get financial aid. Being helpless, the indigents and poor willing to convert to the other religion just to fulfil their basic needs. The zakat institute again being pointed for not identifying the poor and needy. Furthermore, the zakat distribution also being questioned as zakat payees are concerned on how the zakat had been distributed. Study by Maliah Sulaiman (2003) in Nor Azzah & Nor Aini (2010) stated that importance of zakat institution to imply integrity in publicizing information pertaining collection and distribution of zakat to the public. This will ensure there is no leakage or dropouts during zakat distribution to the deserved asnaf. The trust from the society is important to lessen the tendency to pay zakat directly to asnaf or paying through imam and this impact on the performance of zakat institution. Figure 3 illustrates the average percentage of zakat fund distributed between 2003-2010 among 14 states in Malaysia. An average of 77% of the zakat fund were distributed and the remain 23% were not distributed. Negeri Sembilan showed the highest zakat fund distributed but Sarawak and Pahang on the other hand showed the lowest zakat fund distributed, lower than 50%. Even though Sarawak and Pahang are the first and second largest states in Malaysia but the zakat distribution is still low in both states. Geographical problem is one of the factor contribute to this low percentage of zakat distribution. Study by Abd Halim, Rawi & M Sulaiman(2010) expressed that the continual gap between zakat collection and distribution connect to the weakness of distribution process and mechanism of zakat fund.

One of the main purposes of zakat fund is to help the poor and needy. When they receive the financial aids from zakat institution, they have better opportunities to uplift themselves to higher socioeconomic levels. On the other hand, the non recipients are left out from these opportunities; the questions are they really not qualified to receive the fund? or ineffectiveness in zakat management occur especially in the process selecting the recipients? or others determinants of the non recipients of zakat funds. This paper focuses on the determinants of those who were left out, voluntarily and involuntarily, from zakat fund. The poor and needy that were left out were classified into three groups, namely: i) rejected applicants of zakat fund based on administrative criteria rather than economic or had kifayah criteria, such as place of origin; ii) ignorance on the availability of zakat fund and iii) refuse to request or accept zakat fund for personal reasons. Exclusion of these groups from zakat fund compromised the objective of zakat institutions and jeopardized poverty eradication measures.

4. The Determinants of NRZF Based on previous research and literature review regarding issues on zakat distributions and poverty, there are six determinants should be taken into consideration in this issue of non recipients of zakat fund (NRZF), namely A) Inaccurate data base on asnaf Muhammad Syukri (2006)found that there was evidence of inaccurate data base on asnaf. The data base was not update and those asnaf that have successful elevated from poverty is still in the list. Mohamed Saladin,Arifin & Mohd Fauzi (2010) assured that muslim society is keen to know the number of poor families that are able to live decent life and moreover, they have better income now and can contribute to pay zakat. Nonetheless the study on these aspects is missing and one of the reasons is the weakness in identifying the poor. B) Bureaucracy problems Issue of bureaucracy in most state in Malaysia arise the problem to asnaf that would like to apply for zakat funds. The asnaf has to fill the form as the procedures before the zakat institution consider their application. C) Problems in identification of potential asnaf A study by Abd Halim et.al (2010) identified proof of zakat distribution ineffectiveness. The ineffectiveness arises due to some asnaf being denied their right to zakat. The staffs of zakat institution are advised to go around looking for eligible asnaf. The zakat institution also must be transparent in identifying the asnaf and also based on merit. Feedback from respondent in Terengganu even argued that some eligible asnaf was denied of the rights to get the zakat (IKaZ, 2010). Redefinition of asnaf should be considered although the eight category of asnaf is still maintained. As Selangor Zakat Board (Lembaga Zakat Selangor) redefines asnaf faqir as Muslims that have no wealth at all gained from permissible job to fulfill their needs and the family including shelter, food, clothing, medicine and transport (Lembaga Zakat Selangor, 2010) In order to design a poverty reduction intervention, an implementing agency such as zakat institution needs to be clear about the definition of poverty and the way in which poverty is to be measured. Without a clear understanding of what poverty is, and how it is measured, any new interventions will lack of focus on helping those in the most need. D) Ignorance by asnaf From the survey done by Abd Halim et.al(2010) identified that the understanding of zakat among the asnaf varied and asnaf fakir are stated the lowest understanding on zakat. The ignorance by asnaf might be they are not aware on how to apply for zakat, either the promotion from zakat centre are not good enough to provide them with adequate information or even the asnaf have varies personal reasons for not apply for zakat. The personal reasons to this ignorance somehow relates to the difference hierarchy of human needs, if the asnaf valued the other determinants such as five basic needs in individuals life known as Maqasid al-Syariah: the purity of religion(al-din), the protection of life(al-nafs), the importance of mind (al-aql), the protection of dignity(al-nasb) and the security of own property (al-mal).(Sanep & Rosbi,2010) and (Rosbi & Sanep,2010) are more important may be their view on being poor would be different. E) Attitude of amil Mohamed Dahan (1998) stated that some negative cases, such as breach of trust, unfair distribution, abuse of zakat funds, inefficient management and distribution methods lead to dissatisfaction among society. Sanep et.al (2006) proved that 10.5% of the zakat payees tend to pay directly to asnaf even though the zakat collection has been privatized. This study also showed that 57.1% of the zakat payees were unsatisfied with the zakat distribution by the zakat centre.

F) Geographical problems The difficulties to reached (geographical problems) and identified by the amil caused the potential zakat recipients left out from receiving zakat. This is due to the asnaf houses spread in the village, district or state ( Muhammad Syukri ,2006). Bradshaw(2006)relates poverty caused by geographical disparities to economic agglomeration theory that explained competitive areas attract business clusters but drawing away from impoverished communities. The lack of infrastructures for human resource development also limits economic activities. This will explain the difference of rural-urban inequality.

5. Conceptual Model The issue of undistributed zakat funds will lead to misperception towards the integrity of zakat centre in distributing the funds to the eligible asnaf as zakat funds priority are for the indigent and poor families (asnaf fakir and miskin). If people have negative perception on zakat distribution, it will also effect to the zakat collection as they tend to pay zakat directly to the asnaf,thus the function of zakat centre will be questioned. It will affect the whole zakat performance. The IKaZ Model proposed by Abd Halim, Shawal, Ahmad & Kamil (2007) stated four dimensions: output, input, process and quality as performance indicator to assist in providing accurate information on the performance of an organization. This model had been implemented to measure performance in zakat institutions in Malaysia since 2000 and had won gold medal in Invention, Innovation and Design (IID) 2007 at national level and bronze medal at international level in International Exhibition (ITEX) 2007. In the model, Output refers to end product in zakat distribution. It involves an objective measurement such as list of those asnaf that successfully out of the poverty line, decrease poverty rate, poverty gap and income

gap. Input refers to the management of zakat fund from the perspective of asnaf, staf and institution. Process includes the process of identifying the asnaf. Quality is the measurement of zakat performance. There are six determinants on zakat distribution effectiveness identified by Abd Halim et.al (2007) as illustrate in the figure below. Unfortunately, the issue that have been highlighted, NRZF will be intervened the smoothness of zakat performance. The NRZF acts as a moderating variable that will impact the zakat performance.

6. Conclusion Exclusion of these groups from zakat fund compromised the objective of zakat institutions and jeopardized poverty eradication measures. Identification of the determinants contributes to further enhancement of institutional zakat management in both zakat distribution as well as zakat collection. Issue of undistributed zakat would reflect the effectiveness of zakat collections and performance. Additionally, the zakat payees are concern whether their zakat received by the eligible asnaf and the percentage of undistributed zakat funds will reflect how effective the zakat distribution in terms to reach the potential recipients of zakat funds. The study of Non Recipients of Zakat Funds (NRZF) seeks to identify determinants that contribute to the issue. Furthermore, it is important to recognize the determinants of NRZF, as guidelines for the policy makers and zakat agencies in planning poverty alleviation programs especially for Muslims in malaysia.

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