Paper Title: Zakat as an Instrument of Poverty Reduction in Indonesia

Author:        Sri Herianingrum, Indri Supriani, Raditya Sukmana, Effendie Effendie, Tika Widiastuti, Qudsi Fauzi, Atina Shofawati

Publisher:    Journal of Islamic Accounting and Business Research, 15(4), 643-660.

This study aims to analyze the concept of Zakat as a driver of the state’s economy and an instrument of poverty alleviation in Indonesia. Zakat is one of the instruments of fiscal policy in Islam that can be used as an instrument of state revenue to encourage people’s welfare.

Zakat serves the needy and the poor. It helps the people in debt, travellers and those striving in the way of Allah with their physical, educational and intellectual pursuits. In this way, Zakat is also an instrument to achieve the Maqasid-e-Sharia.

Authors argue that theoretically, Zakat can promote the higher objectives of a country’s economy. The imposition of Zakat on the assets and business of Muzakki provided the conditions of the haul and nisab have been met encourages the productivity of Muzakki. It urges them to be productive and prudent in their investments. It triggers an increase in labour supply and investments. Zakat transfer leads to higher consumption and spending which is good for the businesses and economy.

If the Mustahik can meet the consumptive needs, especially basic needs, then it will increase welfare which makes Mustahik come out of the poverty line. In general, this will impact expanding the country’s aggregate demand, boosting national economic growth, and reducing people who live under the poverty line.

Authors inform that the management of Zakat in Indonesia is regulated by the Law Number 23 of 2011. The collaborative role of the government, nongovernment, and the community significantly encourages the collection and effectiveness of the distribution of the Zakat funds.

Mustahik empowerment programs by the Zakat institutions such as ZCD, Mustahik Economic Empowerment Institute (LPEM), livestock alms, and independence institutes have also been undertaken based on a priority scale and Mustahik potential.

In addition, Zakat institutions consider the level of productivity and the long- term impact of the distribution of Zakat funds. The long-term impact is to increase the economic potential of Mustahik and make them empowered.

COVID-19 pandemic led to a global economic downturn. The empowerment of Mustahik using Zakat verily had an impact on the resilience of the Mustahik’s economy even during the times of crisis.

Thus, the management of Zakat can contribute to reducing the percentage of poverty rate in Indonesia. A continuous effort should be undertaken by various parties to increase the optimization of Zakat’s potential in Indonesia.

One of the way forward is to improve the governance of Amil Zakat to maintain public trust in distributing Zakat funds. It will increase the amount of Zakat collection, bring more transparency and assist in adequate and effective Zakat funds distribution in Indonesia.

Nonetheless, the authors could have delved more on what reforms Indonesia has introduced which enables it to have the most dynamic, systematic and robust Zakat management system.

It has devised mechanism of effective monitoring, reporting, ranking and licensing the Amil Zakat institutions. In utilization of Zakat, it has brought schemes to promote productive Zakat. Where Indonesia and other countries lack is the issue of low importance given to Zakat in public and fiscal policy by the governments.

There is also an issue of lack of awareness among public and flexibility provided by government to people to pay Zakat on their own. When there are no tax incentives and trust deficit, people prefer to pay Zakat privately. But, they do not have the big picture in sight as to how the Zakat funds can be better utilized in which schemes, which regions, which kinds of welfare activities and so on.

Effective planning, screening and monitoring is only possible at the institutional level. Therefore, even if the private Amil Zakat institutions are allowed to operate, there shall be centralized reporting, monitoring, and licensing done to ensure proper Zakat management.

Indonesia along with Malaysia have already put in place a sound governance framework which other countries may also emulate and improve further.