Zakat and Waqf institutions have played a significant role in the socio-economic development of Muslims throughout Islamic civilization. This role had declined during the colonial period but is now being revived by several contemporary Muslim countries. This research was conducted to study the current practice and propose means to harness the potential of these two institutions and direct them to enhance the socio-economic development of the Ummah via assisting in developing SMEs

Haneef, Mohamed Aslam

Mohammed, Mustafa Omar

Mohd Ariffin, Noraini

English

The International Islamic University Malaysia Repository

 THE ROLE OF ZAKAT AND WAQF INSTITUTIONS  IN ENHANCING SMALL AND MEDIUM ENTERPRISES TOWARDS THE SOCIO-ECONOMIC DEVELOPMENT  OF MUSLIM COUNTRIES:  LEVERAGING ON MALAYSIA’S POTENTIALS      MyRA INCENTIVE RESEACH GRANT SCHEME (MIRGS) INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA        Professor Dr. Mohamed Aslam Mohamed Haneef Associate Prof. Dr. Noraini Mohd Ariffin Associate Prof. Dr. Mustafa Omar Mohammed       Department of Economics Department of Accounting Centre for Islamic Economics  2   Abstract:  Zakat and Waqf institutions have played a significant role in the socio-economic development of Muslims throughout Islamic civilization. This role had declined during the colonial period but is now being revived by several contemporary Muslim countries. This research was conducted to study the current practice and propose means to harness the potential of these two institutions and direct them to enhance the socio-economic development of the Ummah via assisting in developing SMEs.   Key words: Zakah, Waqf, SME, Development, Malaysia   Introduction:  Zakat and Waqf institutions have played a significant role in the socio-economic development of Muslims throughout Islamic civilization. This role had declined during the colonial period but is now being revived by several contemporary Muslim countries. This research was conducted to harness the potential of these two institutions and direct them to enhance the socio-economic development of the Ummah. The research has integrated Zakat and Waqf and SMEs into a model to address the two constraints of SMEs: human capital and shortage of funds for specific purposes.   Apart from the model construction, the proposed research also has taken a critical look at the state of SMEs in Malaysia. Specifically, the research has analyzed the actual practice and potential of Zakat and Waqf to contribute to the enhancement of SMEs. This study will enable policy makers to plan and focus on more effective measures to enhance the potential of Zakat, Waqf and SMEs institutions in their development plans/strategies among the Muslim countries in general and Malaysia in particular. 3   Background:  Zakat and Waqf institutions have played a significant role in the socio-economic development of Muslims throughout Islamic civilization. This role had declined during the colonial period but is now being revived by several contemporary Muslim countries. This research intends to harness the potential of these two institutions and direct them to enhance the socio-economic development of the Ummah. To achieve the desired result effectively, there is a need for utilizing the potential of vehicles such as Small and Medium Enterprises (SMEs) given their representation of over 90% and considerable role in almost all modern economies globally. The two major fundamental challenges of SMEs have been sustainable financing and human capital development. These could be overcome if there are sustainable and steady flow of funds from institutions such as Zakat and Waqf.   Presently, however, these two institutions, Zakat and Waqf, have not been presented with such opportunities whereby channelling their funds for (i) financing investments and (ii) sustainable human capital development programs through SMEs could greatly enhance the Maslahah of the Ummah. Hence, the present study has tried to develop a viable integrated Zakat-Waqf-SMEs model to demonstrate that it is possible to effectively integrate modern institutions such as SMEs with traditional Islamic institutions of Zakat and Waqf. The motivation for developing the model also emanates from best practices of some advanced countries particularly, Taiwan, Korea and Singapore where SMEs have great contribution in their economic growth.   This study is expected to further enhance the role Malaysia is playing in maximizing the potential of zakat towards financing the development of SMEs, to complement the huge public funds being allocated for SMEs.      4   Objectives:  This project integrates the role of Zakat and Waqf institutions with SMEs for financing and developing human capital in SMEs. This integration is expected to have far reaching implications and impacts on the socio-economic development of Muslim countries.   Accordingly, the proposed research has the following specific objectives:    I. To survey the literature on SMEs particularly in Malaysia, identifying their challenges - focusing on finance and human resource, and their impact upon operational efficiency. The survey will also try to draw lessons from the best practices of SMEs in selected countries.  II. To study the potential of Zakat and Waqf for sustaining and enhancing SMEs development.  III. To develop an integrated Zakat-Waqf-SMEs (IZWS) model that will address SMEs’ challenges of finance and human resource. IV. To study the perception of relevant stakeholders on the model developed.  V. To provide policy recommendations to relevant authorities and stakeholders to successfully implement IZWS model.     Methodology:  The proposed research is both qualitative and quantitative in nature. The study made use of the existing literature documented in the form of reports, books, and journal articles, etc. for critical evaluations of SMEs, Zakat and Waqf in Muslim countries. Policy manuals on existing policies and, programs by government and non-governmental bodies were also analyzed and incorporated in the construction of the integrated Zakat-Waqf-SMEs Model.     Interviews conducted with selected personnel from Zakat and Waqf agencies in Malaysia. 5   Findings:  Among the salient findings of this project:  1. SMEs, particularly the micro-enterprise component are still in need of financing and human resource development despite the continuous huge support from the Malaysian government.  2. The role of the Zakat institution in Malaysia has improved significantly over the last 3 decades, with many SIRCs having active programmes to assist the poor and needy.   3. The waqf institution is still an underdeveloped and underutilized institution in the Malaysian context. Most waqf properties are in the form of land and very little effort has been made to shift attention to developing SMEs.  4. There is great potential to channel zakat and especially waqf (cash waqf included) to specific programmes that enhance the level of knowledge and skills of SMEs. Zakat and Waqf can play a complimentary, but important role to change the mind-set of the mostly Muslim SMEs in Malaysia.  5. New forms of Waqf such as corporate waqf can also be developed and channeled to improve SME development.  6. It is also important to have progressive reforms made in zakat and waqf institutions in Malaysia to allow them to play a bigger role in the socio-economic development of the Muslims and poor in general.      6   Conclusion:  Zakat and Waqf have a specific role in SME development in Malaysia. With the already huge public funding available for SME development, zakat and waqf funds should be targeted initially at developing human capital- focusing on attitude and skills/knowledge transformation, especially among potential Muslim entrepreneurs.   Very important to bring together all stakeholders to work collectively to develop and implement the proposed models developed in this study.    Output:  1. 1 book  2. 3 potential journal articles.   Future Plan of the research:  1. Micro research/Case studies on successful SMEs 2. Micro research/case studies on failed SMEs   References:  Ahmed, Habib 2004, “Role Of Zakah And Awqaf In Poverty Alleviation”, Jeddah, IRTI/IDP, 114 pp.   Ahmed, Habib 2007, “Waqf Based Microfinance: Realizing The Social Role Of Islamic Finance”. Paper Presented At International Seminar On Integrating Awqaf In The Islamic Financial Sector, Singapore, 2007  7    Ahmed, Habib 2002, “Financing Microenterprises: An Analytical Study Of Islamic Microfinance Institutions”, Islamic Economic Studies, Vol. 9 No (2), March 2002   Ahmed, Habib 2004, “Frontiers Of Islamic Banking: A Synthesis Of Social Role And Micro Finance”, The European Journal Of Management And Public Policy   Abdullah M.A & Manan S.K.A (2010).Adequacy of Financial Facilities for Small-Medium Businesses: Empirical Findings from Malaysia. International Review of Business Research Papers Volume 6. Number 4. September 2010. Pp. 535 – 548  Ayyagari M. Et.Al 2005, “SMEs Across The Global”. The World Bank   Anwar M. 1995, “Financing Socio Economic Development With Zakat Funds”, Journal Of Islamic Economics, Vol. 4. No 1&2, 15-32   Baskan, B. 2002, “Waqf System As A Redistribution Mechanism In Ottoman Empire”, Www.Awqafsa.Org.Za   Beck T. & De La Torre 2007, “The Basic Analytics Of Access To Financial Services”, Journal Of Financial Markets, Institutions And Instruments, Vol. 16 (2), 79-117   Chee Peng Lim (1986). Small Industry in Malaysia, Berita Publishing Sdn Bhd: Kuala Lumpur.  Hassan, Hashim (1992). The Competiveness of Malaysia’s Small Business. Public Enterprise, Vol.12, Nos. 1-2, pp. 49-62.  Çizakça, Murat 1998, “Awqaf In History And Its Implications For Modern Islamic Economies”, Islamic Economic Studies Vol. 6, No. 1  8    Çizakça, Murat 1998, “Awqaf In History And Its Implications For Modern Islamic Economies”, Islamic Economic Studies Vol. 6, No. 1   Diah, Mohamed (1985). The Development of Small Scale Industry in Malaysia. Text of Address to Malaysian Institute of Management, Kuala Lumpur  Gonzalez, G. Karoly, L. A., Constant, L., Salem, H. Goldman, C. 2008, “Facing Human Capital Challenges in the 21st Century: Education and Labour Market Initiatives in Lebanon, Oman, Qatar And The United Arab Emirates, Rand, Qatar”   Hassan, M. K And Khan, J. M 2007, “Zakat, External Debt and Poverty Reduction Strategy In Bangladesh”, Journal Of Economic Cooperation, 28, 4, 1-38   Hall C. & Harvie C. 2005, “A Comparison of Performance of SMEs in Korea and Taiwan: Policy Implication For Turbulent Times”, Working Paper 03-05, University Of Wollongong, Economics Working Paper Series   Hertog, S. 2010, “Benchmarking SMEs Policies in the GCC: A Survey of Challenges and Opportunities”, Research Report For EU-GCC Chamber Forum Project  Hassan K.M 2010, “An Integrated Poverty Alleviation Model Combining Zakat, Awqaf And Microfinance”, Paper Presented At 7th International Conference - The Tawhidi Epistemology: Zakat And Waqf Economy, Bangi, Selangor 2010   Hussaini S.M. & Garba B.M. 2011, “Empirical Analysis of the Behavior Of SMEs Towards Profit Loss Sharing Financing in Kano (Northern Nigeria) Metropolis”, Paper Presented At 2nd International Conference On Inclusive Islamic Financial Sector Development, Khartoum, Sudan 2011    9   Hung M. And Chin P. 2011, “An AHP Study of Survival Factors For Small-Medium Sized Multinational Firms in Taiwan”, African Journal Of Business Management Vol.5 (6), Pp. 2093-2104   Islamic Development Bank 2009, “Key Socio-Economic Statistics on IDB Member Countries”, Statistical Monograph No.29   Kahf, Monzer, 2007, “The Role of Waqf In Improving The Ummah Welfare”, Paper Presented At The Singapore International Waqf Conference 2007   Kahf, Monzer, (nd), “Waqf and Its Socio-political Aspects”  Khan, M. F. 2007, “Integrating Faith-Based Institutions (Zakah and Awqaf) in Poverty Reductions Strategies (Prs)”   Kushnir Et. Al 2010, “Micro, Small and Medium Enterprises around the World: How Many Are There and What Affects the Count? (Www.Ifc.Org/Msmecountryindicators)  Mabena et.al (2002). Lessons from Taiwan: Skills Development, Trade and SMEs. The South African Institute Of International Affairs  Natarajan G. And Wyrick D. 2011, “Framework for Implementing Sustainable Practices in SMEs in the United States”, Proceedings Of The World Congress On Engineering 2011 Vol I Wce 2011, July 6 - 8, 2011, London, U.K.   Norhaliza Binti Mohd And Mohammed, Mustafa Omar 2009, “Categorization of Waqf Lands and their Management Using Islamic Investment Models: The Case Of The State Of Selangor, Malaysia”,   Sabit, M. T., Abdul Hamid And Ismail Omar, 2005, “An Ideal Financing Mechanism for the Development of the Waqf Properties in Malaysia”, University Teknologi Malaysia.  10   Saduman, Sazak And Aysun, Eyuboglu Ersen 2009, “The Socio-Economic Role of Waqf System in the Muslim-Ottoman Cities` Formation And Evolution,” Trakia Journal Of Science, Vol. 7, Suppl. 2, Pp 272-275   Salahat, Sami 2003, “General Facts About The Endowment Funds System in Malaysia”, Paper Presented At The International Seminar On Awqaf Experiences In Brunei, Indonesia, Kuwait, Malaysia And Pakistan, Islamabad-Pakistan, December 15-18.  Saleem, Muhammad Yusuf 2009, “Towards Institutional Mutawallis for the Management of Waqf Properties”, International Conference on Waqf Laws And Management: Reality And Prospects, Management Centre, International Islamic University, Malaysia   Sami, Hasan 2006, “Muslim Philanthropy and Social Security: Prospects, Practices, and Pitfalls”, University Of Technology, Sydney A Paper Presented At The 6th Istr Biennial Conference Held In Bangkok, 9-12 July 2006   Sinha A. 2003, “Experience of SMEs in South and South East Asia”, Research Paper South Asia Enterprises Development Facility (SEDF)   Song J.Byong 2010, “Experiences of Korean SMEs Policies”, Korea Institute For Industrial Economics And Trade   Sevialla, R and Soonthornthada, K. (2000) SME policy in Thailand: Vision and challenges, Institute for population and social research.  Song B.J (2010). Experiences of Korean SME Policies. Korean Institute for Industrial Economics & Trade (KIIET).  Toraman, Cengiz And Tuncsiper (nd) “Cash Awqaf in The Ottomans as Philanthropic Foundations And Their Accounting Practices”  11   Tohirin A. 2010, “The Cash Waqf for Empowering the Small Businesses”, Paper Presented At 7th International Conference- The Tawhidi Epistemology: Zakat And Waqf Economy, Bangi, Selangor 2010   Tsai M. 2011,” A Study of Service Innovation in Small and Medium Enterprises (SMEs): Evidence from E-Commerce Systems”, Journal of International Studies.   Teng H.S.S (2011). Government Policy and Critical Success Factors of Small Businesses in Singapore. Cambridge Scholars Publishing, UK  Wahid H. And Kader R. A. 2010, “Localization of Malaysian Zakat Distribution: Perceptions Of Amil And Zakat Recipients”.   World Bank 1978, “Employment and Development of Small Enterprises”, Sector Policy Paper, Washington Dc: World Bank.  

The role of zakat and waqf institutions in enhancing small and medium enterprises towards the socio-economic development of Muslim countries: leveraging on Malaysia’s potentials

http://irep.iium.edu.my/57157/1/MiRGS%20Research%20Report.pdf

The role of zakat and waqf institutions in enhancing small and medium enterprises towards the socio-economic development of Muslim countries: leveraging on Malaysia’s potentials

Abstract

Similar works

Full text

Available Versions

The International Islamic University Malaysia Repository