MARCH 11 — Every year when Ramadan arrives, millions of ringgit flow into Malaysia’s zakat system within a short period of time. In just a few weeks, substantial funds are collected and channelled to those in need through state zakat institutions.

In Selangor alone, Lembaga Zakat Selangor recorded zakat collections of approximately RM1.22 billion in 2024, among the highest in its history, with more than RM1.19 billion distributed to eligible recipients (asnaf). In the Federal Territories, Majlis Agama Islam Wilayah Persekutuan, through its Zakat Collection Centre, reported that zakat collections throughout 2025 approached RM1 billion, with more than RM1.1 billion distributed to those in need.

These figures rarely feature in mainstream economic discussions. Yet the reality is clear: zakat represents one of the largest domestic social finance mechanisms in Malaysia. It plays a crucial role in supporting the economic stability of low-income households and easing the cost-of-living pressures faced by vulnerable communities.

The question, therefore, is why zakat is still often perceived merely as a seasonal religious practice rather than as a strategic component of the nation’s economic development and social sustainability framework.

In today’s global business environment, Environmental, Social and Governance (ESG) has become an essential benchmark for investors, corporate reputation and long-term risk management. The “S” dimension in ESG focuses on community wellbeing, poverty reduction, economic inclusion and social stability.

Interestingly, the zakat system has long delivered these functions in a systematic manner.

Zakat as socio-economic infrastructure

Unlike informal charitable contributions, zakat in Malaysia is administered through well-established institutional structures under state Islamic religious councils. The system encompasses organised processes for collection, eligibility assessment, distribution and monitoring.

From an economic perspective, zakat functions as a wealth redistribution mechanism that helps reduce income inequality. Funds collected from zakat contributors are channelled to eligible asnaf groups, including the poor, those burdened by debt and individuals who require support to sustain their livelihoods.

Cash assistance helps households manage daily expenses. Food aid reduces the risk of food insecurity. Educational assistance supports upward social mobility for younger generations. Medical support ensures that treatment is not interrupted due to financial constraints.

Within the ESG framework, these interventions represent tangible and measurable forms of social value creation.

Globally, social challenges remain significant. The World Bank estimates that nearly 700 million people worldwide still live in extreme poverty in 2025. Meanwhile, the International Labour Organization (ILO) reports that almost half of the global population lacks adequate social protection in 2024.

Although Malaysia is categorised as an upper-middle-income country, rising living costs, urban inequality and the vulnerability of low-income households remain pressing challenges. In this context, the zakat system serves as an important complement to the nation’s broader social protection framework.

Aligned with global development goals

The practices of zakat and charitable giving are also closely aligned with the Sustainable Development Goals (SDGs) established by the United Nations.

Zakat contributes directly to SDG 1 (No Poverty) by providing financial assistance to vulnerable households, while food distribution supports SDG 2 (Zero Hunger). Health assistance contributes to SDG 3 (Good Health and Well-Being). At the same time, wealth redistribution helps reduce disparities as outlined in SDG 10 (Reduced Inequalities).

This demonstrates that zakat is not only religiously significant but also closely aligned with global development priorities.

However, its strategic potential remains underutilised within Malaysia’s economic and business discourse.

Public listed companies in Bursa Malaysia are increasingly emphasising sustainability reporting in their annual disclosures. Nevertheless, community spending is often reported as aggregated figures without deeper analysis of long-term social impact.

This is where strategic collaboration can be strengthened.

The corporate sector can partner with zakat institutions to develop long-term capacity-building programmes such as skills training, entrepreneurship development among asnaf communities and employment placement initiatives. Such approaches can transform short-term aid into more productive social investments.

From a sustainability accounting perspective, this strategy also helps create shared value between businesses and society. Stable and resilient communities contribute to a healthier and more sustainable business environment.

Measuring impact to strengthen trust

In an era of sustainability-driven investment, transparency and accountability are becoming increasingly important. Reporting social impact can enhance the confidence of zakat contributors, investors and the broader public.

Potential indicators include the number of households that successfully increase their income, the duration of assistance before economic stability is achieved and the effectiveness of asnaf development programmes.

Impact measurement does not undermine the spiritual essence of zakat. On the contrary, it strengthens institutional integrity and ensures that funds are utilised more effectively.

Malaysia is thus uniquely positioned to develop a value-based social sustainability model. The country possesses an institutionalised zakat system, a corporate sector that is increasingly mature in ESG practices and national commitments to the Sustainable Development Goals.

If these three elements are strategically aligned, Malaysia could emerge as a regional reference point for social finance development.

Ramadan demonstrates that economic solidarity can be mobilised at scale within a short period. It reveals the capacity of society to support vulnerable communities collectively.

Yet the real challenge lies in ensuring that this spirit translates into sustained social development strategies.

Poverty and inequality are not seasonal issues. The empathy and social responsibility cultivated during Ramadan should therefore continue to inform public policy and corporate strategy throughout the year.

When zakat is recognised as a strategic social finance instrument, it does more than fulfil a religious obligation. It becomes a catalyst for broader economic sustainability and societal wellbeing.

In this sense, Ramadan is not merely a season of generosity. It illustrates how values, economics and social responsibility can move in tandem to shape a more sustainable future for the nation.

* Dr Dalilawati Zainal is a senior lecturer at the Department of Accounting, Faculty of Business and Economics, Universiti Malaya, and may be reached at dalilawati@um.edu.my

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.