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

Abstract

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.