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! framewor" to anal#se the efficienc# and governance of $a"at institutions

%ora$lina !bd. &ahab
Universiti Utara Malaysia, Sintok, Malaysia, and

Zakat institutions

78

!bdul 'ahim !bdul 'ahman

International Islamic University Malaysia, Kuala Lumpur, Malaysia
!bstract
(ur)ose * This )a)er aims to )resent a conce)tual model on the efficienc# and governance of zakat institutions that are res)onsible in collecting+ managing and distributing zakat in ,ala#sia. Zakat is an -slamic religious .tax/ charged on the rich and well-to-do members of the communit# for distribution to the )oor and the need# as well as other beneficiaries based on certain established criteria according to the Quran. The main aim of zakat is to )rotect the socio-economic welfare of the )oor and the need#. 0esign/methodolog#/a))roach * The )a)er reviews and s#nthesises the relevant literature on efficienc#+ governance and zakat. The )a)er then develo)ed and )ro)osed a conce)tual model to stud# the efficienc# and governance of zakat institutions.
1indings * The )a)er identifies the a))ro)riate methods to evaluate efficienc# and governance of zakat institutions. 2uch evaluations are crucial for the -slamic financial s#stem to function effectivel# in order to achieve the noble objectives of socio-economic justice through )ro)er distribution of wealth.

3riginalit#/value * This )a)er )resents a conce)tual model of efficienc# and governance of zakat institutions which would be useful for further em)irical research in this area. The findings are not onl# relevant and a))licable to ,ala#sia but also to other ,uslim countries. 4e#words (rocess efficienc#+ 5overnance+ ,ala#sia+ Taxes+ 'eligion+ -slam (a)er t#)e 6once)tual )a)er

1. -ntroduction
Zakat literall# means to grow and to increase 9:ardhawi+ ;000<. The term zakat has three different connotations= linguisticall#+ theologicall# and legall#. >inguisticall#+ zakat means cleansing or )urification of something from dirt or filth. Theologicall#+ it means s)iritual )urification resulting from giving of zakat. !ccording to ,aududi 919 <+ a )erson?s wealth is im)ure if he does not )a# the right of Allahs servant from the wealth bestowed b# him. -t also means growth or increase which has two dimensions= first+ s)iritual develo)ment b# )leasing Allah, and second+ redistribution of income 9as -slam forbids accumulation and hoarding< which will lead to greater enjo#ment and in turn+ will stimulate )roduction and growth. >egall#+ zakat means transfer of ownershi) of s)ecific )ro)ert# to s)ecific individuals under s)ecific conditions. ,uslims have the obligation to give a s)ecific amount of their wealth 9with certain conditions and re@uirements< to the s)ecified beneficiaries and in fact+ the )a#ment of zakah is one of the five )illars of -slam. The eight beneficiaries are clearl# s)ecified in the Quran 92urah !t-TaubahA B0<= namel#

the )oor+ the need#+ the administrator of zakat, those whose heart are to be inclined 9including new ,uslim converts who lac" economic su))ort<+ the slaves+

Cournal of -slamic !ccounting and

Dusiness 'esearch Eol. ; %o. 1+ ;011 )). 78-B; q Fmerald 5rou) (ublishing >imited
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debtors 9debts due to real needs<+ in the cause of Allah 9 i sa!ilillah<+ and the wa#farers 9I!nu sa!il < 9,uhammad+ 19 0<. The main objective of zakat is to achieve socio-economic justice. &ith res)ect to the economic dimensions of zakat+ it is aimed to achieve the favorable effects on several dimensions such as aggregate consum)tion+ savings and investment+ aggregate su))l# of labor and ca)ital+ )overt# eradication and economic growth. Gence+ the objective of this )a)er is to highlight the im)ortance of efficienc# and governance of zakat institutions+ es)eciall# in a modern ,uslim countr# such as ,ala#sia+ in fulfilling socio-religious obligations.
Ffficienc# is a term used to measure how well an organi$ation is using its resources to meet its s)ecific objectives 91arrell+ 1957<. 5overnance+ on the other hand+ is defined as the manner in which the )ower is exercised in the management of an organi$ation 9Hnited %ations 0evelo)ment (rogramme+ H%0(+ 1997<. -n the context of zakat institutions+ efficienc# refers to how well the institutions are using its resources 9e.g. the staff+ ex)enditure+ etc.< to meet its objectives of socio-economic justice 9e.g. reducing )overt#< while governance refers to the )rocess and structure in directing and managing the affairs of the zakat institution towards enhancing social welfare of the rightful zakat reci)ients as well as demonstrating accountabilit# to the zakat )a#ers. The ultimate objective is to see" the )leasure of Allah+ whilst ta"ing into consideration the re@uirements of the shariah. Gence+ the need for such a stud# is crucial in ensuring the achievement of socioeconomic justice. !n as)ect of novelt# of this )a)er is its attem)t to contribute towards the economic and administrative theor# of zakat as there has been limited in-de)th review on the efficienc# and governance of zakat institutions. This stud# will contribute to the dearth of em)irical studies on zakat es)eciall# on the efficienc# of the institutions in managing the zakat funds. -n addition+ the results will be useful to )olic# ma"ers in im)roving the institutions? governance s#stem and efficienc#. The remaining of the )a)er is structured as follows. The next section will discuss the economics of zakat+ followed b# )ast studies underta"en on zakat institutions. 2ection 7 of this )a)er discusses the bac"ground of zakat institutions in ,ala#sia and )rior studies underta"en on the to)ic. 2ection 5 loo"s into the efficienc# and the use of data envelo)ment anal#sis 90F!< to measure efficienc# of zakat institutions while 2ection B ex)lores the governance and zakat institutions. 2ection 7 concludes the )a)er.

;. The economics of $a"at The theoretical under)innings of -slamic economics are founded on the Shariah )rece)ts+ which are develo)ed based on the main sources of -slamic "nowledge and )ractice+ i.e. the Quran and the Sunnah 9the )ractices and sa#ings of (ro)het ,uhammad<+ and i"h 9juris)rudence<. !ccording to Shariah+ an -slamic economic s#stem should be based strictl#+ among others+ on the following )rinci)lesA (1) business and financial transactions are free from interest 9#i!a<= (2) goods traded and services )rovided are legal 9$alal < from the -slamic )oint of view= (3) transactions involving high uncertaint# 9%harar< that ma# lead to financial loss must be avoided= and (4) the )a#ment of zakat.

The underl#ing reasons behind those )rinci)les are grounded on the salient -slamic socio-economic objectives and e@uitable distribution of wealth 92amad et al&+ ;005<. -slamic economic s#stem com)rises of both )rofit and non-)rofit financial institutions. (rofit financial institutions are institutions that ma"e )rofit through its businesses li"e ban"s+ insurance firms+ )awnsho)s+ etc. while non-)rofit financial institutions are institutions that are not ma"ing )rofit such as zakat institutions+ !aitulmalI1J+ etc. The institution of zakat, a non-)rofit financial institution+ has several direct im)acts on the economic s#stem 94han+ 1995<. -t is regarded as a com)lement to the financial institutions and as )art of a com)rehensive -slamic economic s#stem. Hnfortunatel#+ most secular governments in ,uslim countries manage zakat onl# as a )eri)heral s#stem and not as one of the main )arts of the fiscal s#stemI;J. Hnli"e taxation which forms an integral )art of the fiscal s#stem+ zakat is treated onl# as a voluntar# s#stem 9Da"ar and 'ahman+ ;007<. 1urthermore+ modern -slamic economic institutions have been regarded as focusing too much on wealth creation institutions 9e.g. -slamic ban"s+ -slamic insurances+ etc.< with little em)hasis on wealth distribution institution such as the zakat institution. -slam encourages )eo)le to wor" and earn legitimate income to sustain themselves and their families but Allah has reminded ,uslims to achieve a balance between worldl# life and the hereafter. Gence+ the mechanisms of wealth creation need to be balanced with wealth distribution in order to achieve the main objective of zakat, which is socio-economic justice. (ro)er distribution of zakat ma# affect aggregate consum)tion+ savings and investment+ aggregate su))l# of labor and ca)ital+ eradication of )overt#+ enhancement of social securit# s#stem+ distributive efficienc# and economic growth. The effect of zakat on aggregate consum)tion es)eciall# among the beneficiaries can be considered in a 4e#nesian framewor" of declining marginal )ro)ensit# to consume 94ahf+ 1997<. -f the rich use their income for consum)tion+ bu#ing ca)ital goods 9saving<+ s)ending for the cause of Allah their zakat obligation as well as ma"ing charitable contributions+ and the )oor s)end their income including those received from zakat and charit#+ this will theoreticall# increase the overall consum)tion and reduce savings. 1igure 1 shows how socio-economic justice can be attained via the mechanisms of wealth creation and distribution. Zakat is ex)ected to increase savings since it ta"es awa# a )art of the )recautionar# savings 96houdhur#+ 19 8<. -f income is ex)ected to fall short of subsistence+ )eo)le will tend to save more as a )recautionar# measure. ,etwall# 919 B<+ however+ added that the im)act of zakat on savings will de)end on the nature of the consum)tion function that the societ# follows in its consum)tion behavior. -f the consum)tion behavior ta"es the relative income h#)othesisI8J+ zakat is li"el# to increase savings because it will reduce
Wealth creation mechanisms Wealth distribution mechanisms

Zakat institutions

75

Recipients

- Businesses - Savings - Employment - Others

Source: Authors own

- Payment of zakah - Sadaqah (charity)

- Others (waqf, tax)

- The 8 beneficiaries of zakat - Others

,echanisms to achieve socio-economic justice

1igure 1.

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7B

the income of the rich. -f it corres)onds to the absolute income h#)othesisI7J+ the savings effect of zakat is li"el# to be negative since zakat redistributes resources from the rich to the )oor and the average )ro)ensit# to consume b# the low-income grou) is relativel# higher than those in the high-income grou). 3n the other hand+ if the )ermanent income h#)othesisI5J is relevant+ then the saving effect will be neutral 92ade@+ ;00;<. -n theor#+ zakat should ma"e )ositive im)act on investment since )eo)le have the incentive to invest their wealth rather than "ee) the investable resources idle. 4ahf 91997< argued that zakat could affect the aggregate su))l# in three wa#sA su))l# of labor+ su))l# of ca)ital and resource allocation. The im)act of zakat on the su))l# of labor can be achieved through im)rovement of the health+ nutrition and other living conditions of the )oor. Thus+ it will increase labour )roductivit# and )ositivel# affects the su))l# of goods )roduced in the econom#. -n theor#+ zakat will not onl# increase the demand for goods and fulfill the basic needs of the )oor+ but ma# also reduce demand for luxurious goods b# the rich.
The institution of zakat can also contribute to eradication of )overt#+ which is one of the major )roblems in societ# toda#. -f zakat is effectivel# im)lemented+ it will encourage the rich to invest their wealth+ which would then increase the disbursement of zakat+ and in turn+ increase em)lo#ment and )roductivit#. Zakat also )rovides a social securit# s#stem to ,uslims. !ccording to !f$al 919 0<+ the mutual res)onsibilit# to loo" after each other in time of need is the essence of the -slamic conce)t of res)onsibilit#. Thus+ ever# ,uslim communit# is res)onsible in su))orting the less fortunate members of the societ# from the zakat )roceeds. The zakat institution is )art of the wider social securit# s#stem which should be enforced b# the state for the u)liftment of the disadvantaged grou)s in societ# 92ade@+ ;00;< rather than being treated as a voluntar# institution.

8. (rior studies on $a"at

2everal studies on zakat institutions have been theoreticall# and em)iricall# underta"en. 4ahf 919 9<+ Duang 9;000< and Da"ar and 'ahman 9;007< considered the theoretical as)ects of zakat. 4ahf 919 9< discussed on the issues of $a"atable items during the life of the (ro)het ,ohammad 2aw and the )otential )roceeds of zakat in eight ,uslim countries. The stud# suggests that zakat can eradicate )overt# in the ,uslim world within a reasonable )eriod of time+ onl# if the new forms of wealth and new sources of income+ es)eciall# in the sectors of industries+ commerce+ finance and services+ are made $a"atable. Duang 9;000< discussed on the issue of zakat management. The stud# outlined the basic )rinci)les of zakat management derived from the main sources and relevant 'ata(a 9legal )ronouncement in -slam made b# scholars< on zakat administration. Da"ar and 'ahman 9;007<+ on the other hand+ distinguished between zakat and modern taxation and further discussed the im)lementation of zakat and taxation in ,ala#sia. 'ahman 9;007< discussed the )re-re@uisites to effectivel# integrate zakat into mainstream -slamic financial s#stem in ,ala#sia. The )re-re@uisites discussed include the objective and fair measurement of business wealth for zakat )ur)oses+ standardi$ing zakat accounting )ractices and develo)ment of a))ro)riate )erformance measuresIBJ. (ast studies indicate the im)ortance of efficient collection of zakat to ensure socioeconomic objectives of zakat are attainable. 2hehata 91997<+ for instance+ examined the contem)orar# utili$ation of zakat funds in financing socio-economic infrastructure for ,uslim individuals and communities. The stud# examined the legal rules regulating the ex)enditure of zakat including the entitlement and distribution of zakat.

-t further deliberated on the )olic# of zakat distribution among the eight t#)es of beneficiaries. 2hehata 91997< develo)ed a framewor" for the contem)orar# use of zakat fund in financing -slamic socio-economic infrastructure as well as )olic# to manage zakat fund. There are man# t#)es of )rograms that could be funded b# zakat such as )roviding education for the )oor+ the establishment of schools+ vocational training and rehabilitation for zakat reci)ients to ma"e them more )roductive+ establishment of agriculture and cottage industries+ )rovision of fixed assets and e@ui)ments to small business )rojects+ )rovision of wor"ing ca)ital+ building of low-cost housing+ )roviding medical treatment and health care+ etc. -n summar#+ zakat is vital as it has several )ositive im)acts on the macroeconomic variables in the societ#. The im)ortance of zakat+ es)eciall# to ,uslim communit#+ can be considered as com)arable and com)lementar# to the social securit# s#stem that exists in man# develo)ed countries. !lthough it has so far been managed as a )eri)heral s#stem+ the )ositive effects of zakat to the overall econom# should be subjected to further em)irical studies. 7. Dac"ground of $a"at institutions in ,ala#sia -n ,ala#sia+ zakat is administered under the res)ective states jurisdiction as )art of the administration of the 2tate -slamic 'eligious 6ouncil 92-'6<I7J. The law on zakat is governed b# each state?s enactment or its own zakat law 9Da"ar+ 199 <. 2-'6s are full# res)onsible in managing zakat affairs including its collection and distribution. Fach state has its own 2-'6 but the# are all referred to as zakat institutions in the ,ala#sian context. !lthough the a))roach in managing zakat varies from one state to another+ the main aim remains the same. The federal government has established the 0e)artment of Zakat+ )a"' and $a** with the aims of mainl# coordinating and )romoting these institutions in ,ala#sia. Gence+ as stated b# 'ahman 9;007<+ the develo)ment of a )ro)er )erformance measurement s#stem is im)ortant to effectivel# integrate zakat into mainstream -slamic financial s#stem in ,ala#sia. 'ahman 9;007< urged for the ,ala#sian 6onstitution to ta"e )ro-active ste)s in develo)ing an objective and fair measurement of zakat on business wealth in ,ala#sia because current business activities are ver# com)lex and the traditional methods of measurement ma# not reflect the true and fair amount of zakat due. 1or -slamic business entities+ such as Dan" -slam ,ala#sia Derhad+ which is burdened with two charges+ i.e. cor)orate tax and zakat on business wealth+ the introduction of tax liabilit# rebate ma# hel) ensure that such cor)orations are fairl# treated. !lso+ standardi$ed zakat accounting )ractices and )ro)er )erformance management s#stem are needed to satisf# the needs of sta"eholders for zakat financial information+ including the )a#ers+ the reci)ients and the zakat administrators. The 5overnment of ,ala#sia is ex)ected to )la# an im)ortant role in )romoting good governance within such institution. The governance of zakat institutions here refers to the governance structure and mechanism to ensure financial and managerial accountabilit# of zakat collection and distribution. -n addition+ 'ahman 9;008< )ro)osed that as )art of good governance+ the ,ala#sian 5overnment should institute good financial management )ractices such as the )romulgation of accounting and auditing standards on zakat+ and underta"e reform of zakat distribution )ractices through instituting )erformance management s#stem. The ,ala#sian 5overnment can also emulate and ada)t the model of voluntar# and charit# sector governance as

Zakat institutions

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recommended b# 0ea"in 'e)ort )ublished in the H4 in 199B. The re)ort made a number of )olic# recommendations on effectiveness+ accountabilit#+ standards+ user involvement+ governance+ e@ualit# and fairness and staff management 9'ahman+ ;008<. 1urthermore+ being a )ublic organi$ation+ zakat institutions are subjected to intense )ublic scrutin# on their efficienc# and effectiveness in managing zakat affairs. There are a limited number of em)irical studies underta"en on the efficienc# and governance of zakat institutions. (ast em)irical studies focused mainl# on the management of zakat collection and distribution. Gence+ due to the lac" of studies on the economic efficienc# and governance of )ublic service organi$ations+ these concerns need to be em)iricall# studied es)eciall# in the context of a modern ,uslim state. -n brief+ the economic efficienc# mathematicall# measures how well an organi$ation generates out)uts based on the available in)uts or resources. (ublic service governance refers to the s)ecific mechanisms and arrangements to ensure )ublic service organi$ations manage their resources well and with )ro)er accountabilit# to sta"eholders. -n the case of ,ala#sia+ -dris and !#ob 9;00;<+ -dris et al& 9;008<+ %or et al& 9;007< and &ahid et al& 9;005< studied the determinants of zakat com)liance. -dris and !#ob 9;00;< loo"ed at various com)onents of attitude towards zakat on em)lo#ment income including the level of com)liance for zakat )a#ment among ,uslim em)lo#ees+ and their im)lication on com)liance behavior. Dased on the items in each com)onent+ the results indicate that attitude towards zakat on em)lo#ment income can be divided into five categories+ namel# general attitude 9e.g. have to )a#+ ha))# to )a#+ )urif# the income+ etc.<+ )ositive attitude 9e.g. suitable to be im)lemented+ calculation is eas#+ still )a# although its unclear<+ uncertain attitude 9e.g. waiting for a good s#stem+ confusing+ as"ing for scholars o)inion first+ etc.<+ conditional attitude 9e.g. )enalt#+ standardi$ed law in ever# states+ etc.< and technical attitude 9e.g. zakat calculation same as tax+ confuse with its calculation<. Fach t#)e of attitude have different effects on com)liance behavior. Hsing logistic regression anal#sis+ the results revealed that )ositive+ uncertain and technical attitudes were )ositivel# and significantl# related to the com)liance behavior while the other two attitudes were insignificant.

&ahid et al& 9;005< studied factors influencing )a#ment of zakat among ;+500 individuals in ,ala#sia. The results showed that gender+ age of the res)ondents+ marital status+ income and ex)enses of the res)ondents were significant factors influencing zakat )a#ment. 3n the other hand+ %or et al& 9;007< examined the com)liance of )rofessionals towards zakat on income. Hsing a logit binomial model+ the results showed that the level of religious belief 9 Iman< and religious education are two of the most significant factors that influence the )a#ment of zakat on income. -dris et al& 9;008< examined the intrinsic motivational factors such as )erceived service @ualit#+ degree of "nowledge+ degree of ex)osure on )romotional cam)aign and level of religiosit#+ in influencing em)lo#ees wor"ing for the federal government to )a# zakat on em)lo#ment income. The# found three intrinsic motivational variables+ namel# )erceived service @ualit#+ level of zakat "nowledge and level of ex)osure+ to be significantl# related to )a#ment of zakat.
&ahid et al& 9;007< further examined the effect of zakat distribution on the @ualit# of life of the beneficiaries es)eciall# among the )oor and the need#. !n .effective/ zakat distribution should result in better @ualit# of life including food+ education+ health and shelter for the beneficiaries. Hsing logit model+ the stud# examined the level of satisfaction of reci)ients in three states in ,ala#sia on the different categories of @ualit#

of life+ i.e. trans)ortation+ health+ education+ shelter and involvement in social activities. 'esults indicate general dissatisfaction among res)ondents with the zakat distribution. Fducation and involvement in social activities were the onl# factors that the res)ondents were satisfied with com)ared to other @ualit# of life 9trans)ortation and communication+ health and housing<. The level of education was found to be the most significant factor in affecting the @ualit# of life of the res)ondents. Gowever+ the effect of zakat aid was insignificant. The level of income received was also found to be insignificant in affecting the @ualit# of life of the )oor. 'ecent studies also revealed that there were man# shortcomings in the distribution of zakat funds 9!hmad et al&+ ;00B= ,uhammad+ ;00 = &ahid et al&+ ;00 + ;009<. !hmad et al& 9;00B< examined factors contributing to dissatisfaction towards formal zakat institutions based on a sam)le of 758 res)ondents who )aid zakat to six )rivati$ed institutions. >ogistic regression was used to anal#$e the )robabilit# of )a#ing to such zakat institutions. 'esults indicate that satisfaction on the distribution and efficient management of zakat are main factors influencing zakat )a#ment. !bout 57 )ercent of the res)ondents were dissatisfied with the distribution of zakat funds which significantl# affects )a#ments to the zakat institutions. The results were also confirmed b# ,uhammad 9;00 < who examined the )erce)tions of academics on the efficienc# of zakat administration es)eciall# in terms of distributing and collecting funds+ having accessibilit# to the funds+ and )roviding sufficient information to the )ublic. The stud# found a )ositive significant relationshi) between )erce)tion on the distribution of zakat funds and )a#ment of zakat formall# to the zakat institutions. 3ther studies such as &ahid et al& 9;00 + ;009< revealed two main factors contributing to dissatisfaction are the ineffectiveness of zakat distribution and the lac" of trans)arenc# on information about the distribution of zakat. The lac" of confidence on the governance of zakat institutions due to the )erceived lac" of efficienc# and effectiveness ma# directl# undermine the zakat institutions in attaining their desired socio-economic objectives. Table - summari$es studies on zakat institutions in ,ala#sia Table - summari$es the a))roaches and the findings of )ast studies on the )ractices of zakat and zakat institutions. ,ost of the studies above are descri)tive and theoretical in nature. 2ome of the studies em)iricall# examined various concerns on zakat collection+ distribution and management. Gowever+ most studies are lac"ing in terms of rigorous theoretical model develo)ment+ and robust em)irical testing of more )ertinent and emerging issues such as efficienc# and governance. Table - clearl# indicates the dearth of em)irical studies es)eciall# on efficienc# and governance+ and the interactions of these two im)ortant areas of concern in the context of zakat institutions. 5. Ffficienc# and $a"at institutions Fconomic efficienc#+ based on conventional economic context+ is a term describing how well a s#stem is )erforming in terms of generating the maximum desired out)ut from given in)uts and available technolog#. -n other words+ efficienc# is im)roved when more out)ut is generated with the same or less amount of in)uts. !n economic s#stem is more efficient if it can )rovide more goods and services for societ# without using more resources. The conce)t of economic efficienc# measurement )ro)osed b# 1arrell 91957< consists of two com)onents+ namel# technical efficienc# 9TF< and allocative efficienc#. TF reflects the firm?s abilit# to obtain maximum out)ut from a given set of in)uts+ and allocative efficienc# reflects the firm?s abilit# to use the in)uts in o)timal

Zakat institutions

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!uthor9s< 1. -dris and !#ob 9;00;<

;. -dris et al& 9;008<

8. 'ahman 9;008<

7. &ahid et al& 9;007< Fxamine the im)acts of zakat distribution on the @ualit# of life >ogit model 9i.e. trans)ortation and communication+ education+ health shelter and social involvement< of the zakat beneficiaries es)eciall# among the )oor and the need#

5. %or et al& 9;007<

Table -. 2ummar# of studies on zakat institutions in ,ala#sia

1ocus/issue9s< !nal#se attitudes towards zakat on em)lo#ment income and their im)lications on com)liance behaviour ,ethod9s< of anal#sis 1actor anal#sis and logistic regression anal#sis ,ain finding9s< !nal#se the intrinsic motivational factors+ namel# )erceived service @ualit#+ degree of "nowledge+ degree of ex)osure on )romotional cam)aign and level of religiosit#+ in influencing governmental em)lo#ees to )a# zakat on em)lo#ment income ,ultivariate logistic regression anal#sis !nal#se contem)orar# issues of zakat on business wealth as )racticed in ,ala#sia 6once)tual anal#sis Fxamine the com)liance behaviour of )rofessionals towards zakat on income >ogit binomial model

-dentified five categories of attitude+ namel# general attitude+ )ositive attitude+ uncertain attitude+ conditional attitude and technical attitude towards zakat on em)lo#ment income. (ositive attitude+ uncertain attitude and technical attitude were )ositivel# and significantl# related to com)liance behavior while the other two attitudes were insignificant Three intrinsic motivational variables+ namel# )erceived service @ualit#+ level of zakat "nowledge and level of ex)osure+ were found to be significantl# related to )a#ment of zakat. 2ur)risingl#+ the level of religiosit# was found to be negativel# related to com)liance behavior and this ma# be attributed to disagreement on the $a"atabilit# of income from em)lo#ment. 6om)liance in the stud# is strictl# limited to official )a#ment to the authorit# (ro)osed for the federal government to institute good financial management )ractices and reform zakat distribution )ractices. !lso )ro)osed the introduction of two zakat governance measures+ i.e. the )romulgation of -slamic accounting standard+ and structural and )olic# reform towards more effective zakat distribution The res)ondents were generall# not satisfied with the zakat distribution. Fducation and social involvement 9involving in social activities< were the onl# factors that the res)ondents were satisfied with relative to other @ualit# of life variables 9i.e. trans)ortation and communication+ health and housing<. The level of education was found to be the most significant factor in affecting the @ualit# of life of the res)ondents. The effect of zakat aid and level of income was found to be insignificant in affecting the @ualit# of life of the )oor >evel of religious belief 9Iman< and religious education are found to be the two most significant factors influencing the )a#ment of zakat on income. 3ther factors 9i.e. gender+ number of de)endants+ level of education and "nowledge on zakat on income< are less significant in influencing the )a#ment of zakat on income. The role and function of the zakat collection centre is found to be not significant in influencing )a#ment of zakat on income 9continued<

50
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!uthor9s<

1ocus/issue9s<

,ethod9s< of anal#sis >ogistic regression anal#sis

,ain finding9s< The main factors influencing zakat )a#ment are found to be satisfaction on the distribution and the efficient management of zakat. !bout 57 )ercent of the res)ondents were dissatisfied with the current distribution of zakat which in turn significantl# affect the )a#ment to the zakat institutions (ro)osed three )re-re@uisites to ma"e zakat a )rominent com)onent in mainstream -slamic financial s#stemA 91< develo)ing objective and fair measurement of zakat on business wealth= 9;< standardi$ing zakat accounting )ractices= and 9iii< develo)ing )ro)er )erformance measurement s#stem ! favourable )erce)tion on the distribution of zakat funds is significantl# and )ositivel# associated with )a#ment of zakat formall# to the zakat institutions while unfavorable )erce)tion on zakat distribution will increase the )robabilit# of zakat being )aid directl# to the reci)ients ,ost res)ondents were dissatisfied with zakat distribution but this did not affect zakat )a#ment significantl#. (rivatisation was found to have no effect on res)ondents zakat )a#ment. ,ost of the res)ondents 957 )ercent< were dissatisfied with zakat distribution. Hnclear method of distribution and lac" of trans)arenc# on information about the distribution are among the factors identified

B. !hmad et al& 9;00B< !nal#se factors contributing to the dissatisfaction towards zakat institutions based on a sam)le of 758 res)ondents who )aid zakat to six )rivati$ed zakat institutions 7. 'ahman 9;007<

-dentif# and examine factors that determine the success of 6once)tual anal#sis zakat institutions towards the effective integration of zakat as )art of the mainstream -slamic financial s#stem 'egression anal#sis

. ,uhammad 9;00 < !nal#se the )erce)tions of academics on zakat administration es)eciall# in terms of distributing and collecting funds+ having accessibilit# to funds and )roviding sufficient information to the )ublic

9. &ahid et al& 9;00 < !nal#se factors of dissatisfaction among zakat )a#ers towards >ogistic regression anal#sis zakat distribution+ and whether there exist differences in the degree of dissatisfaction towards )rivatised and non-)rivatised zakat institutions 10. &ahid et al& !nal#se )erce)tions of zakat )a#ers towards zakat institutions 0escri)tive anal#sis 9;009< and the distribution of zakat to the beneficiaries

Table -.

instituti onsZak at

51

C-!D' ;+1

)ro)ortions+ based on given )rices and )roduction technolog#. The two measures are then combined to )rovide a measure of total economic efficienc#. Gowever+ for measuring the efficienc# of zakat+ we )ro)osed the use of 0F!. +&, -''iciency o' $a"at and the use o' .-A

5;

Dased on certain in)ut9s< and out)ut9s<+ the efficienc# of zakat institutions can be measured using several methods such as the frontier a))roach and 0F!. 3f the available methods+ the non-)arametric 0F! is deemed a))ro)riate for small sam)le si$e of firms. 0F! is a linear )rogramming techni@ue that forms a )iecewise linear convex iso@uant over the data )oints such that no observed )oint lies to the left or below it 9-si" and Gassan+ ;00;<. Thus+ 0F! frontier re)resents the set of efficient observations for which no other )roduction unit or linear combination of units em)lo#s as little or less of ever# in)ut without changing the out)ut @uantities generated or )roduces as much or more of ever# out)ut without altering the in)ut @uantities used 9-si" and Gassan+ ;00;<. 0F! allows focusing on the TF which measures the )ro)ortional reduction in in)ut usage that can be attained if the firm o)erates on the efficient frontier. The 0F! also )ermits further decom)osition of the TF into its two com)onents+ i.e. )ure TF 9(TF< and scale efficienc# 92F<. (TF measures the relative abilit# of o)erators to convert in)uts into out)uts while 2F measures the extent the o)erators can ta"e advantage of returns to scale b# altering its si$e towards o)timal scale. 3bviousl#+ the decom)osition lets one to better trace the sources of inefficienc# in the )roduction units 9-si" and Gassan+ ;00;<. -n the case of zakat institutions+ there are several variables that could be fit into the model. The variables could be the number of staff and its total ex)enditure as the in)uts with the total amount of zakat collected+ total amount of zakat distributed+ total number of zakat )a#ers and total number of zakat reci)ients as the out)uts. 2ince the 0F! allows a few number of institutions in the anal#sis+ the stud# of zakat institutions in 17 states in ,ala#sia will be useful as an indicator for a better governed institution. 2everal studies have been conducted on the efficienc# of the )ublic sector as well as the )rivate ones. !mong studies on the efficienc# of the )ublic sector include 'uggiero and Eitaliano 91999<+ Gusain et al& 9;000<+ 2ar"er and 0e 9;007< and -brahim and 2alleh 9;00B<. Gusain et al& 9;000< measured )ublic sector?s )roductivit#+ namel# 'oad Trans)ort 0e)artment in ,ala#sia+ b# examining how well resources were combined and utili$ed in order to accom)lish o)timi$ed set of results. Hsing the 0F! with multi)le in)uts and multi)le out)uts+ the result showed that out of 7B service units+ onl# 11 service units score above 50 )ercent on the efficienc# scores. Gence+ the 0F! method is able to objectivel# identif# efficient and inefficient service units. The stud# also contributed in develo)ing )olic# measures to im)rove the efficienc# of service units such as reduction in the number of labour and labour cost. Hsing a similar method+ 2ar"er and 0e 9;007< examined the efficienc# of resource usage of different t#)es of tenure and farm si$e. Hsing 0F!+ the in)ut chosen for the anal#sis include human labour costs with the out)uts being various cro)s+ credit+ mar"eting of )roducts and agricultural extension. The results showed that most of the farms are ideall# efficient and valid for both technologicall# advanced villages+ villages that used higher incidence of irrigation and high-#ield varieties 9GKE< technolog#+ and technologicall# bac"ward villages+ villages that have no irrigational facilities exce)t rainwater and non-GKE technolog# in agriculture. The result showed that small farms are more efficient than larger si$e farms. 3verall+ the stud# showed that the diffusion

on new agricultural technolog# is not an im)ortant factor in im)roving level of efficienc# of farms. Thus+ the ado)tion of technolog# ma# not lead to better efficienc#= instead+ the management of technolog# and the governance of the organi$ations could be critical factors that ma# influence efficienc#. Hsing stochastic frontier model+ a )arametric economic a))roach+ -brahim and 2alleh 9;00B< examined the )erformance of local governments in )roviding local )ublic goods and services and develo)ed the indices of cost efficienc#. The local governments were categori$ed into three com)onentsA cit# councils for cit# centres+ munici)alit# for large towns and district council for small urban centres. The major function of the local governments is to )rovide )ublic goods and services that are s)ecific for the localities. The stud# used labour as the in)ut while number of )ublic toilets+ number of )ar"ing lots+ number of stall s)aces+ amount of waste dis)osed+ number of trees )lanted+ total )o)ulation and the length of road were used as )roxies for out)ut indicators. ! surve# instrument was disseminated to 99 local governments in ;000 in order to obtain information on the local )ublic goods and services )rovided b# the local governments and 7B res)onses were anal#$ed. The result showed that most of the local governments in ,ala#sia were cost inefficient. The observed cost of the local governments was 59 )ercent more inefficient than the best )ractice cost. 1urthermore+ the result also showed that munici)alit# councils were more inefficient than the district councils. &ith regard to zakat institutions+ there is no )ublished em)irical studies that examine the efficienc# of the institutions. Gence+ a stud# loo"ing at relevant and robust economic measurements of efficient zakat collection and distribution is im)ortant. The evaluation of the institutions? efficienc# is crucial in im)roving the overall o)erations and in turn+ in contributing towards achieving -slamic socio-economic objectives. B. 5overnance and $a"at institutions
5ood governance ma# contribute to an efficient organi$ation. The Hnited %ations Fconomic and 2ocial 6ommission for !sia and the (acific 9;00 < defines governance as the )rocess of decision ma"ing and the )rocess b# which decisions are im)lemented. !ccording to the H%0( 9199 < and Guther and 2hah 9199 <+ governance refers to the exercise of economic+ )olitical and administrative )ower in the management of the resource endowment of a state. -ts )ractice re@uires mechanisms+ )rocesses and institutions through which citi$ens and grou)s articulate their interests+ exercise their legal rights+ meet their obligations and mediate their differences.

Zakat institutions

58

The 1997 H%0( on good governance covers five )rinci)lesA 91< legitimac# and voice= 9;< direction= 98< )erformance= 97< accountabilit#= and (5) fairness 95raham et al&+ ;008<.
>egitimac# and voice calls for all men and women be given democratic voice in decision ma"ing. 5ood governance also mediates differing interests to reach a broad consensus on what is in the best interest of the grou) and where )ossible on )olicies and )rocedures. The second )rinci)le+ direction+ addresses the strategic vision where leaders and the )ublic have a broad and long-term )ers)ective on good governance along with a sense

C-!D' ;+1

57

of what is needed for develo)ment. The third )rinci)le+ )erformance+ is related to )roducing results that meet the needs of the sta"eholders while ma"ing the best use of resources. This encom)ases issues such as cost-effectiveness+ ca)acit#+ res)onsiveness+ dissemination of information regarding )erformance to the )ublic and monitoring and evaluating management )erformance. The fourth )rinci)le+ accountabilit#+ re@uires organi$ations to be accountable to the )ublic as well as to institutional sta"eholders+ and also to be full# trans)arent. (rocesses+ institutions and information should be accessible to those concerned with them and enough information should be )rovided to sta"eholders for monitoring )ur)oses. The fifth )rinci)le+ fairness+ deals with e@uit# and rule of law and call for all men and women be given e@ual o))ortunities and for the legal framewor"s to be enforced im)artiall#. -n the context of zakat institutions+ legal framewor"s must also encom)ass the shariah re@uirements on zakat. This is crucial to ensure that the framewor"s are relevant to the -slamic institution of zakat.

The H%0( 91997< has also enunciated a set of good governance )rinci)les s)ecificall# for sustainable human develo)ment 92G0<. 2G0 is defined b# H%0( as the )rocess b# which the range of o))ortunities and choices for )eo)le can increase and be ex)anded+ while )rotecting those same o))ortunities and choices for future generations as well as the natural s#stems u)on which all life de)end 9,anagement 0evelo)ment and 5overnance 0ivision+ ;00B+ ). 9<. This definition was derived from a number of sources+ including international declarations emanating from conferences such as the 199; Farth 2ummit and from significant wor" underta"en b# others+ such as the 19 7 Drundtland 6ommissionI J. 2G0 according to H%0(?s definition is all about the well being of individual human beings. The new )aradigm of 2G0 )laces )eo)le at the center as the )rinci)al actor and the ultimate goal of develo)ment. D# enhancing human ca)abilities to ex)and choices and o))ortunities for all+ 2G0 creates an environment in which human securit# is guaranteed and individual human beings can develo) their full )otential and lead a life of dignit# and freedom. Guman develo)ment indicator was develo)ed b# H%0( in 1990 as an indicator of the degree of human develo)ment enjo#ed in res)ective countries com)rising of longevit# 9life ex)ectanc# at birth<+ "nowledge 9adult literac# rate+ gross enrolment ratio< and decent standard of living 950( )erca)ita<. The H%0( focuses on four critical elements of 2G0A 91< eliminating )overt#= 9;< creating jobs and sustaining livelihoods= 98< )rotecting and regenerating the environment= and 97< )romoting the advancement of women.
,eanwhile+ the human )overt# index was introduced in the 1997 Guman 0evelo)ment 'e)ort in order to measure the extent of human )overt# in a communit#. -t measures the extent of de)rivations in develo)ing countries along three dimensionsA a long and health# life+ "nowledge and a decent standard of living. -n the context of zakat, the s#stem is a balanced human develo)ment )rogramme with the main )ur)ose of ensuring and )rotecting the social and economic welfare of the )oor and the need#. -slam considers man"ind as vicegerents 9khali'ah< of Allah+ and the# must ensure that other fellow human beings are well )rotected sociall# and economicall#. The socio-economic coo)eration is well ingrained in the -slamic s#stem of zakat whereb# the rich

and the well-to-do members of the communit# ta"e care of the needs and the social welfare of the )oor and the need# through an institutionali$ed s#stem of zakat. ! crucial as)ect of 2G0 is governance+ which encom)asses conce)ts such as accountabilit#+ trans)arenc#+ corru)tion+ election+ )artici)ation+ democrac#+ free media+ access to information+ human rights and rule of law 9Gasegawa+ ;001<. -m)rovement in the governance s#stem will hel) im)rove 2G0. &ith regard to zakat+ the main objective is the achievement of socio-economic justice 94ahf+ 19 9<. Thus+ zakat can )rovide an alternative to the shortcomings of the secular economic s#stem as the main focus of zakat is to alleviate )overt# through transfer of wealth from the rich to the )oor. The -slamic s#stem of zakat )laces human welfare and well being of individuals as an im)ortant objective in achieving socio-economic justice. The )ro)er distribution of zakat funds will ensure that the )oor in a communit# ma# enjo# a decent standard of living or at least be able to overcome or reduce )overt#.
The stud# b# 2hi)le# and 4ovacs 9;007< is among studies that used H%0(?s )rinci)les of good governance. Hsing the H%0(?s 91997< )rinci)les of good governance as a reference along with the Hnited %ations Fconomic+ 2ocial and 6ultural 3rgani$ation 9H%F263<+ -nternational 6ouncil on ,onuments and 2ites charters and conventions and other governance re)orts+ 2hi)le# and 4ovacs 9;007< measured the oversight and o)eration of cultural heritage institutions with regard to their relevance to good governance. The stud# found that there exists a good model in the five )rinci)les of good governance 9-35+ ;008< that are well conceived and clearl# articulated based on the H%0(?s characteristics of good governance. These )rinci)les+ after com)arisons with and evaluation against H%F263 and %ational Trust documents+ emerge as robust+ useful and transferable with onl# a small number of additions.

Zakat institutions

55

5raham et al& 9;008< used the )rinci)les of good governance based on H%0(?s list of good governance in the context of )rotected areas 9(!<. -n a))l#ing those )rinci)les+ three ste)s were underta"en. 1irst the understanding of the means and ends of the (! governance where the variet# of objectives can be summari$ed under four headingsA nature conservation+ science+ visitor o))ortunities 9recreational+ educational+ cultural+ s)iritual+ etc.< and local and indigenous needs. This was followed b# develo)ing s)ecific criteria for each of the five )rinci)les and finall# a))l#ing the )rinci)les and criteria b# anal#$ing s)ecific governance challenges in a (! context in order to )in)oint ga)s or wea" )oints in a governance regime. The# found that the five )rinci)les a))eared to be relevant to the full range of models of (! governance. Gowever+ the stud# is rather a conce)tual stud# that discusses the )ossibilit# of a))l#ing the )rinci)les in order to create a meaningful anal#tical tool. -n the context of zakat institutions+ the model of governance develo)ed b# H%0( can be ada)ted and modified for the )ur)ose of develo)ing zakat governance b# ta"ing into considerations relevant shariah re@uirements+ and the -slamic conce)ts of accountabilit# and fairness. ! good governance institution is an institution that is accountable+ trans)arent and fair. These )rinci)les are im)ortant to ensure the achievement of goals and objectives of the institution. 1or man# authors+ good governance is the "e# variable in the firm valuation besides the mitigation of agenc# conflicts. Gence+ stud# of governance is im)ortant towards the achievement of the res)ective goals and objectives.
-n the ,ala#sian case+ 2iddi@uee and ,ohamed 9;007< evidenced that the ,ala#sian 5overnment has introduced a variet# of changes in its )ublic management s#stem that are

C-!D' ;+1

5B

geared towards enhancing efficienc# and institutional ca)acit# of the governmental machiner#+ as well as transforming it into a d#namic+ accountable and customer-oriented administration. The earl# reform attem)ts and those that followed in the 1970s were geared towards institution building and strengthening the administrative ca)acit# to )romote state-led socio-economic develo)ment while the ado)tion of the mar"et ideolog# in the mid-19 0s and subse@uent )olic# decisions under the %ational 0evelo)ment (olic# and Eision ;0;0 9the 80-#ear )ers)ective )lan that see"s to transform ,ala#sia into a develo)ed countr# b# ;0;0< mar"ed the new beginning of reforms. The reforms involved )roviding customer-oriented services+ im)roving s#stems and wor" )rocesses+ strengthening )ublic-)rivate coo)eration+ enhancing accountabilit# and integrit# and inculcating values of excellence in the )ublic service and )romoting the values of good governance and res)onsible administrative behavior. The reforms in general+ have )roduced )ositive im)acts in ensuring @uic"+ hassle-free and timel# services to customers+ and contributed to streamlining the structure and si$e of )ublic bureaucrac#. Gowever+ the reforms have fallen short of what was re@uired to )romote good governance. 1or instance+ concentration of extensive )olic# and managerial authorit# for )lanning and im)lementation activities underta"en from the federal to the state and local and district levels limit ca)acit# and resources. The )roblem of )ublic )artici)ation and ade@uate scrutin# of )olic# decisions has been com)ounded b# absence of trans)arenc# and o)enness in government o)erations.

(ellegrina 9;007< investigated the different effect of efficienc# and governance of Furo)ean and -slamic ban"s during the )eriod of 199B-;00;. Hsing )roductivit# 9staff ex)enses/number of em)lo#ees< as )rox# of governance+ the results show that insufficient role of staff members in -slamic ban"s gave a clear signal of inefficienc#. 2imilarl#+ the estimated )arameter is also )ositive 9although largel# undersi$ed< in the simulation )erformed on the Furo)ean sam)le ban"s. -n the case of zakat institutions in a ,uslim countr# li"e ,ala#sia+ good governance is im)ortant since it ma# contribute towards efficienc# and effectiveness in zakat funds. 6loser examination of the various governance mechanisms is im)ortant because zakat institutions control significant financial resources. Dased on the theor# and )ast studies discussed earlier+ we )ro)osed a framewor" for measuring the efficienc# and governance of zakat institutions in ,ala#sia. The theoretical model is shown in 1igure ;.
Dased on 1igure ;+ it is assumed that the governance factors 9examined b# its governance characteristics such as board si$e+ )ro)ortion of )rofessionals on board+ active board of directors+ audit committee and organi$ational structure< and other administrative/structural factors 9including )rivatisation+ number of branches and technolog#< ma# lead to better efficienc# of the zakat organi$ation. The above factors are determined based on the functions and characteristics of zakat institutions in ,ala#sia. The stud# )ostulates that the above governance factors such as the com)osition of the board of directors is a )rinci)al mechanism that can enhance and create the coalitions with the sta"eholders controlling resources re@uired b# an institution. !lshimmiri 9;007< argues that larger boards include directors with diverse s"ills and ex)ertise which would hel) im)rove the efficienc# of transmitting the information of the organi$ation.

(rofessionals are )eo)le who have great s"ills and ex)ertise in )articular areas. Desides educational bac"ground+ )rofessionals gain their )rofessionalism and ex)ertise through ex)erience and job training. Fducational bac"ground for instance+

Governance factors (1) Board size (2) Proportion of professionals on board (3) Active board of directors (4) Audit committee (5) Organizational structure Administrative/ structural factors (1) Privatisation (2) Number of branches (3) Technology Pure technical efficiency (PTE)

Zakat institutions

Technical efficiency (TE)

57

Efficiency

Scale efficiency (SE)

the efficienc# of zakat institutions in ,ala#sia.

can be an im)ortant determinant of efficienc# of an organi$ation with better educated directors being more li"el# to ado)t innovative activities. -n the context of zakat institutions+ ex)erts and )rofessionals from various fields such as syariah, conventional law+ information and communication technolog# 9-6T<+ etc. are im)ortant in im)roving the efficienc# of the institutions. 1urthermore+ active board of directors measured b# number of meetings )ostulates that more discussion activities 9e.g. through meetings fre@uenc#< would enhance governance @ualit# 94hanchel+ ;007< and also increase the efficienc# level 9>in et al&+ ;009<. The existence of an audit committee is ex)ected to im)rove the accountabilit# of an institution and im)rove the @ualit# of governance of an institution since its existence ma# im)rove internal control and also act as effective monitoring device for im)roving the efficienc# of the institution. 3rganisational structure refers to the chairman of the religious councils in ,ala#sia who is res)onsible in determining the objectives and the missions of the council. The authorit# of an institution should have )eo)le who are able to res)ond to local demand as well as having ade@uate mechanisms for accountabilit#. -n the case of zakat institutions in ,ala#sia+ decentralisations in the 19 0s indicate a transfer of the chairmanshi) role of some councils from the 2ultan 9the "ing of a state< to the state government 96hief ,inister< and the 6hief ,inister while other councils still have the 2ultan as the chairman. The new )ublic management s#stem ado)ted is assumed to significantl# contribute to the efficienc# of zakat institutions in ,ala#sia as it is seen to be more effective and contributed to the decline in the traditional ethos of the )ublic sector 9Drereton and Tem)le+ 1999<. Gence+ decentralisation measured b# t#)e of authorities 92ultan+ 6hief ,inister or others< ma# lead to better )erformance of the institution and conse@uentl# to

1igure ;.
Theoretical model

C-!D' ;+1

D# )rivati$ation+ an institution will follow the management )hiloso)h# of cor)orate institution such as mar"eting+ research and develo)ment as well as utili$ing management information s#stem. Through )rivatisation+ zakat institutions will ado)t the management conce)t of cor)orate institution in collecting and distributing the funds and this ma# contribute to better )erformance of the instituions in managing the funds and conse@uentl# leading to the efficienc# of the institutions. !))l#ing the branching conce)t to zakat institutions is ex)ected to increase the efficienc# of the instituions. There are different numbers of zakat branches in ever# state in ,ala#sia. ,ore branches is ex)ected to hel) in identif#ing )otential zakat reci)ients as well as monitoring the effectiveness of the disbursement in certain area. Gence+ it is ex)ected that the higher the number of branches+ the more efficient the instituions. The use of -6T through interconnected com)uter networ"s allows individual and institutions to communicate with each other effectivel# and inex)ensivel#. The wides)read availabilit# of -6T 9com)uters+ digital telecommunication+ etc.< has led to the creation of an un)recedented ca)acit# for dissemination of "nowledge and information to the societ#. -n the context of zakat institutions+ the use of the -6T is ex)ected to im)rove the efficienc# of the institutions as it hel)s them to im)rove )roductivit# as well as ma"ing it eas# for the zakat )a#ers to fulfill their obligation and res)onsibilit# easil#. Thus+ measurement based on the number of com)uters+ internet access+ web site availabilit# and availabilit# of online )a#ment of zakat+ the use of -6T is ex)ected to im)rove efficienc# of the institutions. 5ood governance is associated with accountabilit# of the leaders. Fffective leadershi) will enhance the )erformance of the organi$ation while other factors 9)rivatisation+ number of branches and technolog#< ma# ease the institution in im)roving its administrative affairs and efficienc#. Gence+ the governance and other administrative factors mentioned above are assumed to )ositivel# influence the efficienc# of zakat institutions in ,ala#sia. 7. 6onclusion
The economic im)acts of zakat+ in theor#+ can )ositivel# affect major economic variables such as consum)tion+ saving+ )overt# eradication and economic growth. This )a)er )resents a review of the literature on the im)ortance of ensuring the efficienc# of zakat institutions in managing zakat funds through good governance )ractices. 2ome recent studies in the context of a modern ,uslim countr# such as ,ala#sia revealed man# shortcomings of the zakat institutions+ es)eciall# in terms of distributing the funds and also a lac" of )ro)er governance mechanisms. 3wing to the dearth of em)irical studies on the efficienc# and governance of zakat institutions+ the )a)er )ro)oses a com)rehensive framewor" for stud#ing efficienc# of zakat institutions in ,ala#siausing0F!. -naddition+ the underta"ing of an em)irical stud# on governance will contribute towards a )ro)er understanding of the governance mechanisms and issues on the com)lex economics and management of zakat. The develo)ed conce)tual model in this )a)er and future em)irical findings using this model will ho)efull# contribute towards sustainabilit# of zakat institutions and the enhancement of the noble socio-economic objectives of zakat.
%otes 1. /aitulmal is the institution that acts as a trustee for the ,uslims that loo"s after assets from which members of the ,uslim )ublic could benefit.

2. 3ne of the wa#s b# which zakat has been marginalised is b# attaching it to the religious de)artment rather than the ,inistr# of 1inance as in the case of ,ala#sia. !nother method of marginalising zakat is b# onl# im)osing it on some business activities and exem)t others on )urel# )olitical grounds rather than -slamic socioeconomic justice as )roscribed in the $oly Quran 99A87= 7A171= ;A1 <. 8. 'elative income h#)othesis develo)ed b# Cames 2temble 0uesenberr# 91979<+ states that an individual?s attitude to consum)tion and saving is dictated more b# his income than b# abstract standard of living in relation to others. 2o+ an individual is less concerned with absolute level of consum)tion than b# relative levels. The )ercentage of income consumed b# an individual de)ends on his )ercentile )osition within the income distribution.
7. !bsolute income h#)othesis )ro)osed b# Cohn ,a#nard 4e#nes 91 8-197B< examines the relationshi) between income and consum)tion+ and asserts that the consum)tion level of a household de)ends not on its relative income but on its absolute level of income. !s income rises+ the theor# asserts+ consum)tion will also rise but not necessaril# at the same rate.

Zakat institutions

59

5. (ermanent income h#)othesis develo)ed b# ,ilton 1riedman states that the choices made b# consumers regarding their consum)tion )atterns are determined not b# current income but b# longer term income ex)ectations that the individual will consume a constant )ro)ortion of his/her )ermanent income. The "e# determinant of consum)tion is an individual?s real wealth+ not his current real dis)osable income. B. (erformance measurement in )ublic sector should be measured based on 8Fs+ i.e. econom#+ efficienc# and effectiveness. Fconom# re)resents the relationshi) between resources ex)ended or budgeted for an activit# and what is received from them. Fffectiveness focuses mainl# on the out)uts+ i.e. the goods and services )roduced as a direct result of management activities. Ffficienc# deals with both in)uts and out)uts and measures how )roductive in)uts are turned into out)uts. The additional measure of )erformance is outcomes which refer to the conse@uences of the out)ut )roduced. 7. There are 17 states in ,ala#sia and the administration of zakat affairs are governed b# the states due to the legac# of the Dritish before inde)endence of ,ala#a+ over the administration of 91< matters related to -slam and ,ala# 6ustoms= and 9;< other as)ects of state and national administration+ where the former was administered b# the establishment in each state of a central organi$ation eventuall# "nown as the 6ouncil of 'eligion and ,ala# 6ustoms. . H%0( and governanceA ex)eriences and lessons htt)A//mirror.und).org/ magnet/docs/gov/>essons1.htmL;.5 'eferences !f$al+ 3. 919 0<+ .The social securit# of -slam/+ in Maman+ ,.'. 9Fd.<+ Some Aspects o' the -conomics o' Zakah+ !merican Trust (ublications+ -ndiana)olis+ -%+ )). 178- . !hmad+ 2.+ &ahid+ G. and ,ohamad+ !. 9;00B<+ .(enswastaan -nstitusi Ma"at dan 4esann#a Terhada) (emba#aran 2ecara 1ormal di ,ala#sia/ 9.(rivatisation of zakat institutions in ,ala#sia and its effect on formal )a#ment/<+ International 0ournal o' Mana1ement Studies+ Eol. 18 %o. ;+ )). 175-9B.
!lshimmiri+ T. 9;007<+ .Doard com)osition+ executive remuneration and cor)orate )erformanceA the case of 'F-T2/+ 2orporate 3(nership and 2ontrol+ Eol. ; %o. 1+ )). 107-1 .

learned+

available

atA

Da"ar+ ,.0. 9199 <+ .The ,ala#sian zakat s#stemA law and )olic# reform/+ 0urnal Undan14 undan1 IKIM+ Eol. ; %o. ;+ )). 1-8B.
Da"ar+ %.D.!. and 'ahman+ !.'.!. 9;007<+ .! com)arative stud# of zakah and modern taxation/+

0&KAU5 Islamic -conomics+ Eol. ;0 %o. 1+ )). ;5-70.

C-!D' ;+1

Drereton+ ,. and Tem)le+ ,. 91999<+ .The new )ublic service ethosA an ethical environment for governance/+ 6u!lic Administration+ Eol. 77 %o. 8+ )). 755-77. Duang+ !.G. 9;000<+ .(engurusan Ma"atA 2atu !nalisis dari (ers)e"tif al-:uran dan al-2unnah/ 9.,anagement of zakatA an anal#sis from the )ers)ective of Al4Quran and As4 Sunnah/<+ 0urnal Syariah+ Eol. %o. ;+ )). 9-10;. 6houdhur#+ %. 919 8<+ .!ggregate demand and al4Zakah/+ 7hou1hts on -conomics+ Eol. 7 %o. 9+ )). 1- . 1arrell+ ,.C. 91957<+ .The measurement of )roductive efficienc#/+ 0ournal o' the #oyal Statistical Society A+ Eol. 1;0+ )). ;58- 1. 5raham+ C.+ !mos+ D. and (lum)tre+ T. 9;008<+ .(rinci)les for good governance in the ;1st centur#/+ wor"ing )a)er+ -nstitute on 5overnance+ 3ttawa+ !ugust. Gasegawa+ 2. 9;001<+ .0evelo)ment coo)eration/+ )a)er )resented at the H%H 5lobal 2eminar-5lobal -ssues and the Hnited %ations+ ;0 %ovember+ available atA www.unu.edu/ h@/Ca)anese/gs-j/gs;001j/"ana$awa1/>ec5-text-e.)df Gusain+ %.+ !bdullah+ ,. and 4uman+ 2. 9;000<+ .Fvaluating )ublic sector efficienc# with data envelo)ment anal#sis 90F!<A a case stud# in 'oad Trans)ort 0e)artment+ 2elangor+ ,ala#sia/+ 7otal Quality Mana1ement+ Eol. 11 %os 7-B. Guther+ C. and 2hah+ !. 9199 <+ .!))l#ing a sim)le measure of good governance to the debate on fiscal decentrali$ation/+ &orld Dan" wor"ing )a)er+ &orld Dan"+ &ashington+ 06. -brahim+ 1. and 2alleh+ ,.1.,. 9;00B<+ .2tochastic frontier estimationA an a))lication to local government in ,ala#sia/+ Malaysian 0ournal o' -conomic Studies+ Eol. 78 %os 1/;+ )). 5-95. -dris+ 4.,. and !#ob+ !.,. 9;00;<+ .(eranan 2i"a) dalam 5elagat 4e)atuhan Ma"at (enda)atan 5aji/ 9.The role of behaviour on com)liance behaviour of zakat on em)lo#ment income/<+ A8ALISIS+ Eol. 9 %os 1/;+ )). 171-91. -dris+ 4.,.+ !li+ F.-.F. and !li+ C. 9;008<+ .The role of intrinsic motivational factors on com)liance behaviour of zakat on em)lo#ment income/+ 0urnal 6em!an1unan Sosial+ Eol. B/7+ )). 95-1;;. -35 9;008<+ .5overnance )rinci)les for )rotected areas in the ;1st centur#/+ -nstitute of 5overnance+ available atA htt)A//un)an1.un.org/intradoc/grou)s/)ublic/documents/../ H%(!%011 7;.)d 9accessed Cul# 18+ ;010<. -si"+ -. and Gassan+ ,.4. 9;00;<+ .Technical+ scale and allocative efficiencies of Tur"ish ban"ing industr#/+ 0ournal o' /ankin1 9 inance+ Eol. ;B+ )). 719-BB. 4ahf+ ,. 919 9<+ .ZakatA unresolved issues in the contem)orar# 'i"h/+ 0ournal o' Islamic -conomics+ Eol. ; %o. 1+ )). 1-;;. 4ahf+ ,. 91997<+ .-ntroduction to the stud# of the economics of Zakah/+ in 4ahf+ ,. 9Fd.<+ -conomics o' zakah5 A /ook o' #eadin1+ -0D/-'T-+ Ceddah. 4han+ ,.1. 91995<+ .!n overview of the financial s#stem of -slam/+ -ssays in Islamic -conomics+ The -slamic 1oundation+ >eicester+ )). 77- 7. 4hanchel+ -. 9;007<+ .6or)orate governanceA measurement and determinant anal#sis/+ Mana1erial Auditin1 0ournal+ Eol. ;; %o. + )). 770-B0. >in+ 6.+ ,a+ K. and 2u+ 0. 9;009<+ .6or)orate governance and firm efficienc#A evidence from 6hina?s )ublicl# listed firms/+ Mana1erial and .ecision -conomics+ Eol. 80 %o. 8+ )). 198-;09. ,anagement 0evelo)ment and 5overnance 0ivision 9;00B<+ .H%0( and governance ex)eriences and lessons learned/+ >essons->earned 2eries %o. 1+ available atA htt)A//mirror.und).org/ magnet/docs/gov/>essons1.htmL;.5 9accesed 1 Cul# ;009<.

B0

,aududi+ !.!. 919

<+ Maashiaati Islam+ -slamic (ublication+ >ahore.

,etwall#+ ,.,. 919 B<+ .The effect of the religious tax of zakah on investment in an -slamic econom#/+ $umanomics+ Eol. ; %o. ;+ )). 78-55. ,uhammad+ !. 919 0<+ .! note on the conce)t of zakah and taxation/+ in Maman+ ,.'. 9Fd.<+ Some Aspects o' the -conomics o' Zakah+ !merican Trust (ublications+ -ndiana)olis+ -%+ )). B9-79. ,uhammad+ !. 9;00 <+ .(erce)tion of academicians towards zakat administration )articularl# zakat distributionA the case of 2elangor and 4elantan/+ un)ublished ,aster thesis+ -nternational -slamic Hniversit# ,ala#sia+ 4uala >um)ur. %or+ ,.!.,.+ &ahid+ G. and %or+ %.5.,. 9;007<+ .4esedaran ,emba#ar Ma"at (enda)atan di 4alangan 4a"itangan (rofesional Hniversiti 4ebangsaan ,ala#sia/ 9.The awareness of )a#ing zakat on income among )rofessional staff of %ational Hniversit# of ,ala#sia/<+ Islamiyyat+ Eol. ;B %o. ;+ )). 59-B7. (ellegrina+ >.0. 9;007<+ .6a)ital ade@uac# ratios+ efficienc# and governanceA a com)arison between -slamic and &estern ban"s/+ wor"ing )a)er+ Hniversita Diccocca and 6entro (aolo Daffi+ Hniversita Docconi+ ,ilan+ 10 !)ril. :ardhawi+ K. 9;000<+ i"h Al Zakah A 2omparative Study o' Zakah, #e1ulations and 6hilosophy in the Li1ht o' Quran and Sunnah + Eol. 1+ 2cientific (ublishing 6entre+ 4ing !bdul !$i$ Hniversit#+ Ceddah 9translated b# ,. 4ahf<. 'ahman+ !.'.!. 9;008<+ .Zakat on business wealth in ,ala#siaA cor)orate tax rebate+ accountabilit#+ and governance/+ 0urnal IKIM+ Eol. 11 %o. 1+ )). 87-50.
'ahman+ !.'.!. 9;007<+ .(re-re@uisites for effective integration of zakah into mainstream -slamic financial s#stem in ,ala#sia/+ Islamic -conomic Studies+ Eol. 17 %os 1/;+ )). 91-107.

Zakat institutions

B1

'uggiero+ C. and Eitaliano+ 0.1. 91999<+ .!ssessing the efficienc# of )ublic schools using data envelo)ment anal#sis and frontier regression/+ 2ontemporary -conomic 6olicy+ Eol. 17 %o. 8+ )). 8;1-81. 2ade@+ !.!.-G. 9;00;<+ A Survey o' the Institution o' Zakah5 Issues, 7heories and Administration+ -0D/-'T-+ Ceddah. 2amad+ !.+ 5ardner+ %.0. and 6oo"+ D.C. 9;005<+ .-slamic ban"ing and finance in theor# and )racticeA the ex)erience of ,ala#sia and Dahrain/+ 7he American 0ournal o' Islamic Social Sciences+ Eol. ;; %o. ;+ )). B9- B. 2ar"er+ 0. and 0e+ 2. 9;007<+ .%on-)arametric a))roach to the stud# of farm efficienc# in agriculture/+ 0ournal o' 2ontemporary Asia+ Eol. 87 %o. ;+ )). ;07-;0. 2hehata+ 2.-. 91997<+ .>imitations on the use of zakah funds in financing socio-economic infrastructure/+ Islamic -conomic Studies+ Eol. 1 %o. ;+ )). B8-7 .
2hi)le#+ '. and 4ovacs+ C.1. 9;007<+ .5ood governance )rinci)les for the cultural heritage sectorA lessons from international ex)erience/+ 2orporate %overnance+ Eol. %o. ;+ )). ;17-; .

2iddi@uee+ %.!. and ,ohamed+ ,.M. 9;007<+ .(aradox of )ublic sector reforms in ,ala#siaA a good governance )ers)ective/+ 6u!lic Administration Quarterly+ 1all+ )). ; 7-81;.
9The< Hnited %ations Fconomic and 2ocial 6ommission for !sia and the (acific 9;00 <+ .&hat is good governanceN/+ H%F26!(+ available atA www.unesca).org/)dd/)rs/(roject!ctivities/ 3ngoing/gg/governance.)df 9accessed 2e)tember ;0<.

H%0( 91997<+ %overnance 'or Sustaina!le $uman .evelopment, A 6olicy .ocument + Hnited %ations 0evelo)ment (rogramme+ %ew Kor"+ %K+ available atA htt)A//magnet.und).org/ )olic#/default.htm 9accessed ;0 Canuar# ;009<.

C-!D' ;+1

H%0( 9199 <+ .H%0( and governance ex)eriences and lessons learned/+ >essons->earned 2eries %o. 1+ ,anagement 0evelo)ment and 5overnance 0ivision+ %ew Kor"+ %K+ available atA htt)A//magnet.und).org/docs/gov/>essons1.htm 9accesed 8 1ebruar# ;009<. &ahid+ G.+ !hmad+ 2. and 4ader+ !.'. 9;00 <+ .(engagihan Ma"at oleh -nstitusi Ma"at di ,ala#siaA ,enga)a ,as#ara"at -slam Tida" Der)uashati/ 9.0istribution of zakat in ,ala#siaA wh# are the ,uslims still dissatisfied/<+ 6roceedin1s o' Seminar Ke!an1saan -konomi Malaysia :;;<, Universiti Ke!an1saan Malaysia, /an1i. &ahid+ G.+ !hmad+ 2. and 4ader+ !.'. 9;009<+ .(engagihan Ma"at oleh -nstitusi Ma"at "e)ada >a)an !snafA 4ajian di ,ala#sia/ 9.0istribution of zakat to the eight asna'A ,ala#sian case/<+ 6roceedin1s o' Seminar Ke!an1saan -konomi Islam :;;<=;>, Akademi 6en1a*ian Islam, Universiti Malaya, Kuala Lumpur. &ahid+ G.+ !hmad+ 2. and %or+ ,.!.,. 9;007<+ .4esan Dantuan Ma"at Terhada) 4ualiti Gidu)A 4ajian 4es !snaf 1a"ir dan ,is"in/ 9.The effect of zakat aid on the @ualit# of lifeA the case of the )oor and need# reci)ients/<+ 7he 0ournal o' Muamalat 9 Islamic inance #esearch+ Eol. 1 %o. 1+ )). 151-BB. &ahid+ G.+ %or+ ,.!.,. and !hmad+ 2. 9;005<+ .4esedaran ,emba#ar Ma"atA !)a"ah 1a"tor (enentun#aN/ 9.!wareness to )a# zakatA what are the contributing factorsN/<+ International 0ournal o' Mana1ement Studies+ Eol. 1; %o. ;+ )). 171- 9. 1urther reading !wan+ ,.,. 919 0<+ .Fconomic )olic# for develo)ment * a treatise on Zakah/+ in Maman+ ,.'. 9Fd.<+ Some Aspects o' the -conomics o' Zakah+ !merican Trust (ublications+ -ndiana)olis+ -%+ )). 179- 8. -hsan+ -. and Gassan+ ,.4. 9;00;<+ .Technical+ scale and allocative efficiencies of Tur"ish ban"ing industr#/+ 0ournal o' /ankin1 9 inance+ Eol. ;B %o. 7+ )). 719-BB. Ta#lor+ 0.&. 9;000<+ .1acts+ m#ths and monstersA understanding the )rinci)les of good governance/+ 7he International 0ournal o' 6u!lic Sector Mana1ement + Eol. 18 %o. ;+ )). 10 -;1. 6orres)onding author %ora$lina !bd. &ahab can be contacted atA nora$lina.awOuum.edu.m#

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