A model proposal for Islamic social finance: The institutional zakat system

Social finance carries out various activities for disadvantaged and socially excluded groups that cannot benefit from the financial system. Social finance consists of two significant branches: traditional social finance and Islamic social finance. The main difference between them is that Islamic social finance activities are conducted by Islamic law. Zakat, one of the five pillars of Islam, is also the most important institution of Islamic social finance. The legitimacy of zakat could be found in the Qur'an, Sunnah, and Ijma, which are the primary sources of Islam. Zakat, an essential institution in both religion and Islamic social finance, is managed differently across Muslim countries. In some, it is left to the discretion of individuals, while in others, it is collected voluntarily or on a mandatory basis. In most of these countries, zakat is collected by state institutions. Based on the Islamic Social Finance Report published by the Islamic Research and Training Institute (IRTI) in 2020, in some countries where zakat is collected by the state, taxpayers prefer not to give to these institutions. This is attributed to a lack of trust in zakat institutions among certain segments of society. This study proposes an Institutional Zakat System with five fundamental functions—management, coordination, supervision, education, and communication—that adheres to Islamic principles, gains the trust of all societal stakeholders, and assigns the state a regulatory and supervisory role only. To assess the management capabilities and methods related to zakat activities, the websites and annual reports of eighteen Non-Governmental Organizations (NGOs) including six religious groups operating in our country and contributing significantly to Islamic social finance, were analysed, and face-to-face interviews were conducted with their managers. It was observed that while CSOs (civil society organizations) favour the jurisprudential, administrative, and financial oversight provided by the Zakat Oversight Institution, religious communities are more cautious. A general perception among CSOs is that religious communities or groups would be reluctant to participate in such an audit mechanism. This reluctance is attributed to the high trust in their human resources and organizational structures. In conclusion, it has been observed that Türkiye lacks a sufficiently transparent and accountable structure regarding zakat. Issues such as coordination, transparency, and audit remain problematic. This study aims to provide suggestions for addressing the challenges identified in the collection and distribution of zakat both in countries with zakat institutions and in Türkiye.