Zakat-Based Microfinancing: Insights from The Melaka Islamic Religious Council (MAIM)

Islamic microfinance serves as a crucial tool for empowering marginalized and underserved populations by providing financial access for entrepreneurial activities, thereby contributing to poverty alleviation. Despite its recognized potential, the accessibility of Islamic microfinance remains limited due to funding constraints, prompting innovative approaches such as the use of zakat funds. Among the earliest institutions in Malaysia to implement zakat-based microfinance, the Melaka Islamic Religious Council (MAIM) adopted the qard al-hasan (interest-free loan) model to support small-scale entrepreneurs from the asnaf community. While this initiative showcased significant potential for enhancing financial inclusion and socio-economic development, its sustainability faced considerable challenges. This study utilizes qualitative methods, including semi-structured interviews and content analysis to examine MAIM's experience in implementing zakat-based microfinance. The findings identify critical barriers, such as community misconceptions, managerial shortcomings, and resource limitations, which contributed to the zakat-based microfinance program's discontinuation. By addressing these challenges, the study offers practical recommendations to strengthen the sustainability and impact of zakat-based microfinance initiatives. This research provides valuable insights into the integration of Islamic social finance principles within microfinance frameworks to achieve sustainable poverty alleviation and socio-economic development.