Fintech Revolution and Zakat İnstitution: A Critical Review of the Literature

Abstract

The FinTech revolution has enabled high-growth organizations to combine innovative business models with technology to enhance efficiency and productivity. It has created a new wave of institutions that continue to change the way people transact, make payments and invest. Whereas there are increasingly voluminous literatures on the FinTech revolution dramatically shaping the business sector, the trend of these studies is apparently slow and very selective in the Islamic social finance sector particularly the institution of Zakat. This institution is very ancient and predates the advent of Islam in Arabia (Samad & Glenn, 2010). It has greatly contributed to the socio-economic development of Muslim societies throughout the Islamic history. During those glorious years of Islamic civilization, the literature had always set the way forward and new directions for the development of Islamic institutions including Zakat. For example, one of the main reasons that the father of modern mathematics, Khawarizmi developed algebra was to help Muslims compute their Zakat dues and inheritance distributions. This dynamic development of literature on Zakat institution was interrupted by the colonization of Muslim countries. Nevertheless, the aftermath of colonialism witnessed a revival of this scholarly trend by the newly independent Muslim countries. In the past eight decades, Muslim scholars have produced volumes of literature on Zakat. Yet it is argued that the areas covered by this literature have remained largely traditional. The bulk of these works are mostly descriptive on topics related to Fiqh, Zakat management and Zakat laws. There are few empirical studies on Zakat collection, Zakat distribution, Zakat governance, Zakat accounting, Zakat auditing, and Zakat efficiency, among others. These kinds of literature have remained dominant and thus create limitations and pose challenges to the institution of Zakat in embracing changes in the global technological landscape. Apparently, there is a dearth of literature examining the extent to which the Zakat institutions have embraced the FinTech ecosystem. The present paper critically surveys the literature to identify the gaps of works on zakat institutions vis-a-vis the FinTech revolution. It reviews the literature on Zakat to determine the extent of works done in the following FinTech ecosystem: 1) startups (Zakat payment, Zakat distribution, wealth management, crowd funding), 2) government (RegTech, Regulatory SandBox) and 3) applications (robo-advisory, smart contract, blockchain). With regards to the startups, literature on zakat institutions is still largely traditional. There are extensive literatures on Zakat efficiency in several jurisdictions, for example (Djaghballou, Djaghballou, Larbani, & Mohamad, 2018), efficiency and governance of zakat institutions to achieve equitable distribution of wealth (Abd. Wahab, Zainol, & Abu Bakar, 2017). Other works on efficiency include (Kameel et al., 2013, Abd. Wahab et al., 2017,(Wahab & Rahim Abdul Rahman, 2012)(Hassan & Noor, 2015). Several other studies have focused on the accounting and auditing aspects of Zakat. These studies revealed the general misconception of zakat in several standards and guidelines, which has consequently resulted in the inappropriateness of corporate zakat recognition and measurement and hence its presentations (Akhyar Adnan & Barizah Abu Bakar, 2009). Other studies discussed the suitability and applicability of the Islamic accountability framework in the zakat funds management, for example (Saad, Aziz, & Sawandi, 2014) .