Does Zakat Fund Enhance the Impact of Microfinance on Client's Welfare? Case studies of Three Islamic Microfinance Institutions in Indonesia

Integrating zakat and microfinance has been proposed as a new model of poverty alleviation. This model is benefited with the availability of zakat funds as alternative financing sources for providing qard Hassan loan for the extremely poor clients. This research will provide empirical evidence of the impact of zakat-based microfinance in Indonesia on several client welfare indicators. In total, 153 clients of zakat-based microfinance institutions (MFIs) and 82 non-clients participated in this study. We employed Ordinary Least Square regression to compare the welfare of the client and non-client group. The findings show that the clients of zakat-based microfinance earn significantly higher annual income per capita than those in the non-client group, but the impact on monthly expenditure is not evident. Given the short period of intervention, the real impact of the program is notoriously hard to measure due to the possibility of systematic mis-reporting on income as well as the selection