The Potential for Implementing Microfinancing From the Zakat Fund in Malaysia

Issue: The constrains to obtain a capital often involving underprivileged entrepreneurs because it is difficult to get a fund from the financial institutions. From a Muslim entrepreneur's perspective, microfinance that offered is consisting element of riba and it is prohibited in Islam. As we know, the role of zakat is huge in the economy of the Muslims. So, effective zakat distribution system is able to organize and develop society. Especially for Muslim underprivileged entrepreneurs. Purpose of study: This article aims to analyze first, what is the basis for the establishment of zakat distribution law over the provision of capital through microfinance? Second, is this distribution potentially to be implemented in Malaysia? Methodology: Qualitative data were obtained from document analysis and interview with zakat expertise in Malaysia. Main findings: Based on the content analysis on primary data, the findings show that there is a strong legal basis allowing zakat distribution through micro-financing. According to scholars' views in Malaysia, the distribution of zakat through microfinance has the potential to be implemented in Malaysia. Implications: The distribution of zakat is not limited to self- sufficiency even can be distributed through productive zakat with the provision of initial capital and revolving capital from zakat funds through microfinance. The provision of working capital through microfinance from zakat funds is a long-term goal of zakat. Novelty/originality: Yet, there is no zakat distribution is done through microfinance in Malaysia. Therefore, the institutions of zakat in Malaysia adopt the Baitul Mal Aceh as a model to apply the granting of working capital in the form of micro-financing which is financed from the funds of zakat. Furthermore, scholars in Malaysia also argued that the distribution of such method has great potential to be implemented in Malaysia.