Empowering asnaf entrepreneurs: a sustainable zakat framework through microcredit financing – qard hasan in Malaysia

Purpose This study aims to introduce a collaborative framework between selected Zakat Management Institutions (ZMI) in Malaysia and TEKUN (Economic Fund for Small Business Group) to implement microcredit financing through zakat funds (MCZF). Design/methodology/approach This qualitative study collects data through literature review and fieldwork. The literature review includes books, articles, statutes and relevant circulars. Practically, fieldwork involved unstructured interviews with two Islamic economics and microfinance academics, two mufti department officials, four zakat institution officers from various zakat institutions, two TEKUN entrepreneurs and two TEKUN officers. Several themes were derived from the interview data and subsequently analysed through content analysis. Findings The findings indicate that the collaboration model between ZMI and TEKUN can enhance the effectiveness of zakat distribution by transforming aid recipients into self-reliant entrepreneurs. However, the primary challenges of this model’s implementation are staff shortages and infrastructure limitations within ZMI for ongoing monitoring, as well as the risk of zakat fund misuse, which necessitates strict adherence to Shariah principles. The model’s implementation method involves zakat institutions providing the funds, while TEKUN manages entrepreneur selection, monitoring and training to ensure the sustainability of microfinancing. This model has the potential to empower asnaf entrepreneurs, enabling them to become self-sufficient and eventually transition to zakat payers in the future. Research limitations/implications This study focuses on the collaboration between selected ZMI in Malaysia and TEKUN. Further research could explore ZMI in other states. In addition, future studies could examine partnerships with other microfinance institutions, such as banks. Practical implications This model requires strategic collaboration with economic development agencies like TEKUN, experienced in entrepreneurship training and financial monitoring, to ensure that zakat recipients receive comprehensive guidance for business success. Asnaf entrepreneurs are empowered to achieve self-sufficiency and have the potential to become zakat payers in the future, reducing their reliance on long-term aid. Social implications Implementing MCZF through collaboration with TEKUN helps reduce poverty rates and asnaf dependence by enabling them to become zakat payers. This transformation has a positive impact on the community, aligning with the Shariah objective to uplift asnaf from the cycle of poverty. Originality/value This study contributes to the literature on zakat-based microfinance by providing a collaborative framework between zakat institutions and microfinance entities to optimise zakat fund utilisation and promote sustainable economic development for the asnaf community.