Legal Framework of Zakat-Based Microfinancing for Asnaf Entrepreneurs in Malaysia

Financial inclusion and resilient livelihoods have gained policy prominence in Malaysia due to persistent MSME credit gaps and the limits of consumptive aid. Yet a clear comparative legal mapping of zakat-based microfinancing against international guidance remains limited, creating uncertainty over enforceable beneficiary protections. This study aims to assess how Malaysian laws align with global microfinance norms and contemporary Islamic finance standards, identify regulatory gaps and propose a harmonised model. Using a critical comparative legal analysis, it reviews shariah governance standards, state zakat enactments and guidelines, national policy documents, and international frameworks on inclusive finance. Findings indicate progressive institutionalisation of productive zakat through asset grants and revolving qard al-hasan, and growing integration of entrepreneurship support such as training, mentoring, and asset provision. Nonetheless, interstate fragmentation, ambiguity over tamlik versus use rights, weak enforcement, uneven monitoring and impact evaluation, and limited stakeholder participation persist. The study contributes a consolidated map of Malaysia’s evolving regulatory landscape and a model framework that clarifies shariah governance, standardises disclosures, and strengthens beneficiary safeguards. Future recommendations include interstate harmonisation, interoperable data and impact reporting, and structured partnerships with Islamic finance providers and SME agencies, alongside empirical evaluations of program effectiveness.

Asnafpreneurs; Islamic law, Malaysia

1. Abdullah Thaidi, H. ’Azeemi, El-Alami, D., Ab Rahman, M. F., & Jailani, M. R. (2024a). Zakat-Based Microfinancing: Insights from The Melaka Islamic Religious Council (MAIM). Journal of Fatwa Management and Research, 29(3), 199–218. https://doi.org/10.33102/jfatwa.vol30no1.659. [Google Scholar] [Crossref]

2. Affif, A., & Mohamad, S. (2010). An Empirical Investigation into SMEs’ Perceptions of Credit Guarantee Corporation (CGC) Malaysia Berhad: A Case Study of the Islamic Guarantee Scheme in Malaysia. ISRA International Journal of Islamic Finance, 2(2), 101–128. https://doi.org/10.55188/ijif.v2i2.107. [Google Scholar] [Crossref]

3. Alhadi, A., Dr Tom, B., & Yacine, R. (2025). Enhancing asset management: Integrating digital twins for continuous permitting and compliance - A systematic literature review. Journal of Building Engineering, 99, 111515. https://doi.org/10.1016/j.jobe.2024.111515. [Google Scholar] [Crossref]

4. Bakar, N. M., Abdul Rahman, R., & Ibrahim, Z. (2019). Client protection and sustainable performance in microfinance institution. International Journal of Productivity and Performance Management, 69(4), 651–665. https://doi.org/10.1108/IJPPM-03-2019-0127. [Google Scholar] [Crossref]

5. Bettoni, L., Santos, M., & Filho, G. O. (2023). The impact of microcredit on small firms in Brazil: A potential to promote investment, growth and inclusion. Journal of Policy Modeling, 45(3), 592–608. https://doi.org/10.1016/j.jpolmod.2023.04.005. [Google Scholar] [Crossref]

6. Bhatti, M., Saleem, M. S., & Mansor, F. (2025). Need for reform in AAOIFI standards on murabaha financing: evidence from Islamic Banks in Pakistan. Quality & Quantity, 59(S1), 59–78. https://doi.org/10.1007/s11135-024-01974-y. [Google Scholar] [Crossref]

7. Berghe, Wouter Van den, Victoria Gitelman, and Shalom Hakkert. “Safety Performance Indicators.” In Traffic Safety Data, 237–62. United Kingdom: The Institution of Engineering and Technology, 2024. doi:10.1049/PBTR028E_ch12. [Google Scholar] [Crossref]

8. Bisht, H. S., & Singh, D. (2020). Challenges faced by micro, small and medium enterprises: a systematic review. World Review of Science, Technology and Sustainable Development, 16(3), 205. https://doi.org/10.1504/WRSTSD.2020.113046. [Google Scholar] [Crossref]

9. Fakhruddin, F., Hasan, S., Firdaus, D. H., & Hidayat, H. (2024). From Fiqh al-Ibadat to Muamalat: Repositioning Zakat Management in Indonesia in the Perspective of Maqāṣid Al-Sharī’ah. Samarah: Jurnal Hukum Keluarga Dan Hukum Islam, 8(1), 495. https://doi.org/10.22373/sjhk.v8i1.19637 [Google Scholar] [Crossref]

10. Farooq, S. H., Din, A. U., Soomro, I. A., & Riviezzo, A. (2024). Unveiling the path to sustainable poverty alleviation in Pakistan: Investigating the role of microfinance interventions in empowering women entrepreneurs. Scandinavian Journal of Management, 40(2), 101331. https://doi.org/10.1016/j.scaman.2024.101331. [Google Scholar] [Crossref]

11. Goel, A. (2023). Trends and reforms of financial inclusion in India. International Review of Applied Economics, 37(2), 275–285. https://doi.org/10.1080/02692171.2023.2167952. [Google Scholar] [Crossref]

12. Hadi, R., Shafrani, Y. S., Hilyatin, D. L., Riyadi, S., & Basrowi, B. (2024). Digital zakat management, transparency in zakat reporting, and the zakat payroll system toward zakat management accountability and its implications on zakat growth acceleration. International Journal of Data and Network Science, 8(1), 597–608. https://doi.org/10.5267/j.ijdns.2023.8.025. [Google Scholar] [Crossref]

13. Handriani, I., Priambodo, B., Hazidar, A. H., Masril, M., Pratama Putra, Z., Kudr Nseaf, A., & Naf’an, E. (2019). Standard operational procedure fund distribution system of zakat infaq and shodaqoh for zakat foundations. Journal of Physics: Conference Series, 1339(1), 012106. https://doi.org/10.1088/1742-6596/1339/1/012106. [Google Scholar] [Crossref]

14. Haryanti, D. A., Andriani, F., Nugraha, N., Lestari, D. P., & Susanti, B. (2022). Decision Support System for Selection of Zakat Mustahik Using Analytical Network Process Method. 2022 IEEE 7th International Conference on Information Technology and Digital Applications (ICITDA), 1–8. https://doi.org/10.1109/ICITDA55840.2022.9971265. [Google Scholar] [Crossref]

15. Hussan, S. B. M., Abdul Karim, F. M., & Manap, A. N. (2013). Instituting Sharīʻah Audit in Malaysian Islamic Financial Institutions. ISRA International Journal of Islamic Finance, 5(2), 127–137. https://doi.org/10.12816/0002772. [Google Scholar] [Crossref]

16. Ivan Rahmat Santoso, Syahrir Mallongi, Siradjuddin, & Muhammad Basir Paly. (2024). MEDIATING EFFECTS OF ISLAMIC BUSINESS SUCCESS ON PRODUCTIVE ZAKAT AND MUSTAHIQ WELFARE. International Journal of Business and Society, 25(1), 111–127. https://doi.org/10.33736/ijbs.6903.2024. [Google Scholar] [Crossref]

17. Jauhari, F. F., Yusoff, S. S. M., & Kassim, S. (2023). Enhancing Access to Finance Amongst Asnaf Micro Entrepreneurs: How Can Islamic Fintech in Zakat Institutions Play a Role? (pp. 345–357). https://doi.org/10.1007/978-3-031-27860-0_31. [Google Scholar] [Crossref]

18. Jumailah, & Ahmad Fauzan. (2022). The Effectiveness of the Implementation of the Norms for the Distribution of Zakat Funds in BAZNAS of Pekalongan City (Articles 25 and 26 of Law No. 23 of 2011). Jurnal Hukum Islam, 20(2), 305–328. https://doi.org/10.28918/jhi.v20i2.2274. [Google Scholar] [Crossref]

19. Kassim, S. (2016). Islamic finance and economic growth: The Malaysian experience. Global Finance Journal, 30, 66–76. https://doi.org/10.1016/j.gfj.2015.11.007. [Google Scholar] [Crossref]

20. Kim, H.-J., & Hudayana, B. (2022). What Makes Islamic Microfinance Islamic? A Case of Indonesia’s Bayt al-Māl wa al-Tamwīl. Studia Islamika, 29(1), 31–54. https://doi.org/10.36712/sdi.v29i1.17862. [Google Scholar] [Crossref]

21. Koenig-Archibugi, M., & Macdonald, K. (2017). The Role of Beneficiaries in Transnational Regulatory Processes. The ANNALS of the American Academy of Political and Social Science, 670(1), 36–57. https://doi.org/10.1177/0002716216688862. [Google Scholar] [Crossref]

22. Kusriyah, S. (2020). GOVERNMENT POLICY IN ACHIEVING COMMUNITY WELFARE THROUGH THE EFFECTIVENESS OF MANAGEMENT OF ZAKAT IN INDONESIA. Journal of Critical Reviews, 7(05). https://doi.org/10.31838/jcr.07.05.26. [Google Scholar] [Crossref]

23. Kutty, F. (2020). Islamic Finance, Consumer Protection and Public Policy. In Faith, Finance, and Economy (pp. 129–172). Springer International Publishing. https://doi.org/10.1007/978-3-030-38784-6_7. [Google Scholar] [Crossref]

24. Liu, Q.-Q., Yu, M., & Wang, X.-L. (2015). Poverty reduction within the framework of SDGs and Post-2015 Development Agenda. Advances in Climate Change Research, 6(1), 67–73. https://doi.org/10.1016/j.accre.2015.09.004. [Google Scholar] [Crossref]

25. Mazroatus Saadah, & Uswatun Hasanah. (2021). The Common Goals of BAZNAS’ Zakat and Sustainable Development Goals (SDGs) according to Maqasid Al-Sharia Perspective. AL-IHKAM: Jurnal Hukum & Pranata Sosial, 16(2), 302–326. https://doi.org/10.19105/al-lhkam.v16i2.4990. [Google Scholar] [Crossref]

26. Melak, D., Derbe, T., & Derso, B. (2023). Stakeholders’ Integration to Social Responsibility: Its Implication on Youth Self Employment. Ethiopian Renaissance Journal of Social Sciences and Humanities, 10(1), 41–60. https://doi.org/10.4314/erjssh.v10i1.3. [Google Scholar] [Crossref]

27. Mohammad, Khan, S., Mustafa, & Yannis. (2020). An Artificial Intelligence and NLP based Islamic FinTech Model Combining Zakat and Qardh-Al-Hasan for Countering the Adverse Impact of COVID 19 on SMEs and Individuals. International Journal of Economics and Business Administration, VIII(Issue 2), 351–364. https://doi.org/10.35808/ijeba/466. [Google Scholar] [Crossref]

28. Muhd Adnan, N. I., Mohd Kashim, M. I. A., Hamat, Z., Adnan, H. M., Adnan, I. M., & Md. Sham, F. (2019). THE POTENTIAL FOR IMPLEMENTING MICROFINANCING FROM THE ZAKAT FUND IN MALAYSIA. Humanities & Social Sciences Reviews, 7(4), 542–548. https://doi.org/10.18510/hssr.2019.7473. [Google Scholar] [Crossref]

29. Mukhlishin, M., Wahab, A., Setiaji, B., & Tazhdinov, M. (2024a). Zakat Maal Management and Regulation Practices: Evidence from Malaysia, Turki and Indonesia. Journal of Human Rights, Culture and Legal System, 4(2), 569–592. https://doi.org/10.53955/jhcls.v4i2.204. [Google Scholar] [Crossref]

30. Othman, Y. H., Sheh Yusuff, M. S., & Khaled Moawad, A. M. (2021). Analyzing Zakat as a Social Finance Instrument to Help Achieve the Sustainable Development Goals in Kedah. Studies of Applied Economics, 39(10). https://doi.org/10.25115/eea.v39i10.5346. [Google Scholar] [Crossref]

31. Pablo, H. (2014). O Constitucionalismo entre a Fragmentação e a Privatização: Problemas Evolutivos do Direito e da Política na Era da Governança Global. Dados, 57(4), 1137–1168. https://doi.org/10.1590/00115258201435. [Google Scholar] [Crossref]

32. Pamuncak, M. B., Possumah, B. T., & Halim, Z. A. (2022). Integrating Zakat and Microfinance. In Research Anthology on Microfinance Services and Roles in Social Progress (pp. 600–612). IGI Global. https://doi.org/10.4018/978-1-6684-7552-2.ch032. [Google Scholar] [Crossref]

33. Pg Md Salleh, A. M. H. A. (2015). Integrating financial inclusion and saving motives into institutional zakat practices. International Journal of Islamic and Middle Eastern Finance and Management, 8(2), 150–170. https://doi.org/10.1108/IMEFM-12-2013-0126. [Google Scholar] [Crossref]

34. Ropiah, S. (2025). Implications of Islamic Law on Credit-Based Sales in Reducing Social and Economic Inequalities in Society. Jurnal Ilmiah Mizani: Wacana Hukum, Ekonomi Dan Keagamaan, 12(1), 185. https://doi.org/10.29300/mzn.v12i1.7091. [Google Scholar] [Crossref]

35. Sarif, S., Ali, N. A., & Kamri, N. ‘Azzah. (2024). Zakat for generating sustainable income: an emerging mechanism of productive distribution. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2312598. [Google Scholar] [Crossref]

36. SHAWAMREH, C. (2013). The Legal Framework of Islamic Finance. In Contemporary Islamic Finance (pp. 39–61). Wiley. https://doi.org/10.1002/9781118653814.ch3. [Google Scholar] [Crossref]

37. Shiyuti, H. A., Zainol, F. A., & Yusoff, M. N. H. (2022). Product Distributional Mechanism as an Asnaf Entrepreneurship Support: A Case Study in Wilayah Persekutuan Kuala Lumpur, Malaysia (pp. 575–584). https://doi.org/10.1007/978-3-031-08087-6_41. [Google Scholar] [Crossref]

38. Skees, J. R., & Barnett, B. J. (2006). Enhancing microfinance using index‐based risk‐transfer products. Agricultural Finance Review, 66(2), 235–250. https://doi.org/10.1108/00214660680001189. [Google Scholar] [Crossref]

39. Vranovci, S. (2025). Exploring the Relationship between Client Protection Practices and Sustainable Performance in the Microfinance Sector: A Study of Kosovo’s Microfinance Institutions. WSEAS TRANSACTIONS ON BUSINESS AND ECONOMICS, 22, 574–583. https://doi.org/10.37394/23207.2025.22.51. [Google Scholar] [Crossref]

40. Wong, C. F. (2024). Malaysia National Industry Environmental, Social and Governance framework. In ESG Innovation for Sustainable Manufacturing Technology: Applications, designs and standards (pp. 65–73). Institution of Engineering and Technology. https://doi.org/10.1049/PBME027E_ch4. [Google Scholar] [Crossref]

41. Yap, C. K. (2024). Exploring the Impact of Personality Traits on Managerial Skills using FIKR (Facet, Insight, Knowledge and Resilience) Personality Assessment Tool: Implications for Manager Selection and Development. Pakistan Journal of Life and Social Sciences (PJLSS), 22(2). https://doi.org/10.57239/PJLSS-2024-22.1.00410. [Google Scholar] [Crossref]

42. Zabolotskaya, V. (2019). Governmental Programs of Small Business Support in the USA. World Economy and International Relations, 63(12), 15–22. https://doi.org/10.20542/0131-2227-2019-63-12-15-22. [Google Scholar] [Crossref]

43. Zahri, Mohd. ‘Adli, Muhd Adnan, N. I., Irfan, I., & Mohd Kashim, M. I. A. (2023). Microfinancing from the Zakat Fund in Baitul Mal Aceh and the Readiness of Malaysia’s Asnaf Entreprenuers. Samarah: Jurnal Hukum Keluarga Dan Hukum Islam, 7(1), 418. https://doi.org/10.22373/sjhk.v7i1.16012. [Google Scholar] [Crossref]

• Data Integration in Malaysian Syariah Courts: A Study of Challenges and Solutions
• The Concept of Family Well-Being from the Perspectives of Islam, Western Thought and Malaysia Madani
• Leveraging AI Tools for Islamic Scholarship: Podcast and eBook Innovations in Teaching the Sunni Intellectual Tradition
• Cryptocurrency and Shariah: Analyzing the Implications of Islamic Jurisprudence on Bitcoin and its Ethical Framework
• Islamic Credit Card and its Value-Based Proposition: A Perspective from Maqasid Al-Shariah