Mobilizing Zakah Funds through Microcredit Programs to Expedite Poverty Alleviation in Muslim Societies: A Special Reference to the Malaysian Structure of Zakah Funds and Microfinance Institutions

The Microcredit approach has proven to be a versatile, effective and efficient alternative for poverty alleviation. Unfortunately, the cost of running such programs is high. This paper proposes a model that highlights the use of zakat funds under asnaf fakir, miskin, and fi-sabilillah to support MFIs’ operating costs. The MFIs will enjoy the benefit and extend it to the recipients through reduction in the lending rate. The poor would, therefore, earn a wider profit margin from their micro-enterprise activities, and thus leave the poor circle sooner than expected. Exploratory research, involving fourteen Amanah Ikhtiar Malaysia (AIM) Kelantan Region senior personnel and two Muslim scholars, was carried out to verify the feasibility of the proposed model. The overall response is highly positive with general concern for reaffirming the structure governing the interactive link between zakat institutions and MFIs.