When the Islamic bank was first established in 1963, they realised leveraging on the conventional platform was an easy way out to create an Islamic banking system. Despite of financial outcry, multiplications, and lack of welfare on the customers, the bank continues championing the financial system. Behaving as an alternative to the conventional financing, Islamic banking is no different. With all the conventional guidelines and controlled regulations of IMF and the World Bank, the Islamic bank's hands are tied. Nothing much has been done to ensure a complete move out to assist customers in getting ‘good financing facility,' which is humane in nature. This chapter is an attempt to explore Zakat Bank out of banking furore using a Zakat platform. The finding suggests that the establishment of Zakat Bank is crucial to ensure the true financing based on Shariah principles and guidelines. This chapter adopts library research including reports and guidelines from the financial regulators. The chapter concludes with a proposed model for a Zakat Bank for authority's consideration.
TopIntroduction
Zakat could play a major role in sustainable economic development by helping society to alleviate poverty and promote social equality. Zakat provides additional source of fund for supporting welfare of the society. Zakat is not only welfare-oriented that dependent on the contribution of the giver but an obligation that must be carried out to qualified recipients (Johari, Aziz, Ibrahim and Ali, 2014). Therefore, it is very important that the zakat management to be efficient so that the right of zakat recipients and the society will not be affected (Johari et al., 2014). The distribution of zakat is to fulfil six basic needs of the zakat recipients; food, clothing, shelter, education, health and transportation (Embong, Taha and Nor, 2013). Less studies focus on whether the Islamic banking really helps the needy in providing financing or the role of Islamic Banking in Zakat financing. All these while, poverty reduction has always been associated with zakat institutions. However, Dusuki (2008) states that the concern over poverty reduction via microfinance initiative is also of relevance as Islamic banks are expected to be guided by Islamic economic objectives, among others, to ensure that wealth is fairly circulated among as many hands as possible without causing any harm to those who acquired it lawfully.
The World Bank Research Group in house data base ‘Global Findex’ statistics show that globally, 1.7 billion adults are unbanked which means that nearly 1/4 of the world population does not have an account at a financial institution or a mobile money provider (Global Findex, 2017). The unbanked numbers marginally decreased over period of 3 years from 2 billion in 2014 to 1.7 billion in 2017 and the main reason was due to account possession in high-income economies. Nearly, all unbanked adults live in developing economies such as China, India, Pakistan, Indonesia, Nigeria, Mexico and Bangladesh. These statistics are alarming as there exist serious problems in the current banking system which simultaneously affect the banked customer.
TopThe Current Banking System Model
Despite of battling in having owns mandate in Shariah, another conundrum faces by Islamic banking from the top apex in banking layers is the Shariah Principles. When Islamic banking was first introduced in 1963, leveraging into the conventional platform is an easy way out to do banking. The practice continues until today. Sadly, the nodding attitude in Islamic banking towards all the regulations and standards from the top layers in banking system affecting Shariah and paving its from being responsibly managed. The top layers in banking system consists of an international organisations such as The International Monetary Fund (IMF), World Bank, Bank of International Settlement, etc. The layers in the banking system is best illustrated from figure 1 below;
Figure 1. Layers of Financial framework
The incorporation of standards issued by the international organisations will be distributed to the central banks. Central banks will act as an agent to disseminate information, standards, guidelines and any written directives from the international organisations. Standardisation is meant to create a harmonised practices in the financial system. Undeniably standardisation is needed towards globalisation.