DEVELOPING ISLAMIC FINANCIAL MECHANISMS THROUGH THE ZAKAT SYSTEM TO FOSTER SOCIAL INNOVATION AND DRIVE SUSTAINABLE ECONOMIC DEVELOPMENT

Abstract

This study aims to: 1) Examine the principles, concepts, and roles of zakat as an Islamic social finance mechanism; 2) Analyze the structural problems and constraints of zakat collection and allocation systems; and 3) Propose an Islamic financial mechanism model using the zakat system to connect social protection, social innovation, economic capacity enhancement, and sustainable development. The research employs documentary research and conceptual synthesis methods. Primary Islamic religious texts include the Qur’an, Hadith, and classical Fiqh literature. Secondary data encompass academic publications, international organization reports, and international empirical case studies. Data were analyzed using five thematic content analysis categories and verified through documentary triangulation. The findings indicate that zakat serves as a mandatory wealth redistribution mechanism targeting eight specified recipient categories to establish economic equilibrium and self-reliance. The findings indicate that: 1) Zakat serves as a mandatory wealth redistribution mechanism targeting eight specified recipient categories to establish economic equilibrium and self-reliance; 2) The operational system faces structural constraints, including fragmented payer-recipient databases, paper-based workflows, lack of transparency, and limited management resources, which restrict its role in poverty alleviation to short-term emergency relief; and 3) The Researcher introduces new knowledge through the Zakat Social Innovation and Sustainable Development Model (Z-SISD Model), which operates through five core mechanisms: resource mobilization, digital governance, needs-based distribution, empowerment, and social impact measurement. The synthesized social innovation encompasses five dimensions: the data dimension through integrated payer-recipient databases, the financial dimension through linkages with Islamic microfinance, the occupational dimension through transforming relief funds into entrepreneurial capital, the governance dimension through digital data disclosure, and the multi-stakeholder collaborative network dimension to establish a sustainable economic ecosystem.