Efficiency of Zakat Institutions and Its Determinants

Zakat is one of the five basic pillars in Islam It is an obligation of Muslims to give a specific amount of their wealth (with certain conditions and requirements) to beneficiaries called al-mustahiqqin with the main objective of the achievement of socioeconomic justice. Zakat institutions are trusted bodies that manage zakat in Muslim countries. In Malaysia, such zakat institutions are State Islamic Religious Councils (SIRCs). The institutions are expected to play a key role in promoting the socio-economic objectives of zakat in Malaysia. Thus, it is of prime importance that these institutions are being managed effectively and efficiently. The purpose of this paper is to analyze the efficiency of zakat institutions in Malaysia. This study uses Data Envelopment Analysis (DEA) method to estimate zakat efficiency and Tobit model to determine the efficiency of zakat institutions in Malaysia. We use three different types of DEA model which are technical efficiency (TE), pure technical effi