Muslims' Wilful Failure To leverage Institutional Capital

 Muslims’ Willful Failure To Leverage Institutional Capital

M. Bakri Musa

May 26, 2026

Contemporary Muslims’ willful failures to leverage major sources of capital such as zakat (tithe), waqaf (endowments), takaful (insurance), and faraid (probate/inheritance) contribute to the ummah’s economic laggardness. 

Such failures pale to such news-grabbing profligate misuse of nearly US$1 billion zakat funds by prominent American Muslim charities or the fraudulent misappropriation of RM280 million in Perlis. Malaysia also has over RM90 billion worth of assets trapped under faraid.

Malaysia spends billions on the massive religious establishment and churns out hundreds of PhDs in Islamic Studies annually. Yet few see much less resolve this critical issue, distracted as they are with such trivialities as whether non-Muslim organizations can host Eid celebrations. The Mufti of Perlis for example, grins his way out by claiming that zakat is not under his jurisdiction. It may not be by statute, but he is morally responsible.

Likewise, a few years ago the Federal Mufti and his fellow ulama were pictured luxuriating in a private jet on their way for Hajj, gratis, courtesy of the custodian bank for those zakat funds. As interest payments are haram in Islam, those banks enjoyed a bonanza with the use of interest-free funds. That Mufti too did not see the problem of either the free jet trip or the bank’s free use of funds.  

            Zakat is the fourth pillar of Islam. It should be the first and central. Little point in declaring your faith in Allah and His Last Prophet, praying five times a day, fasting during Ramadan, and undertaking Hajj if you are not generous at heart and in your deeds. The hadith of a prostitute admitted to heaven because she once saved a dog dying from thirst by bringing it water is instructive. 

            Before you can give zakat you first must have assets. Thus, their acquisition is a religious obligation, or should be. Islam does not glamorize poverty. Wealth, like water, has to be circulated; the economist’s “velocity of money.” Zakatalso serves this vital function.

            Malaysian zakat collection exceeded RM5 billion in 2025, compared to personal income tax’s RM50 billion. Had some of that zakat funds been invested, not only would that ensure a steady stream of future income but also create jobs. The noblest as well as most effective charitable deed is to provide someone a job and with that, income and self-worth.

            Zakat in Malaysia is a tax credit rather than tax deductible while zakat’s beneficiaries are exclusively Muslims. That is unjust and as such cannot be Islamic.

            While zakat is specifically mentioned and explicitly mandated in the Qur’an, waqaf and takaful are not. The concept of waqaf developed when Caliph Omar conquered some fertile land. Unable to haul it back to Mecca as he could with seized gold or prized stallions, he had the previous owners maintain the land and repatriate annually a portion of the harvest to its new Meccan rulers. 

Waqaf later morphed into a convenient vehicle to protect assets from rapacious rulers. Eternally bequeathed to Allah, those greedy sultans could no longer grab those assets. Waqaf also ensured that an enterprise survive its founder. 

            Takaful is derived from the Qur’anic mandate for mutual help and societal good. Takaful predated Islam. When those ancient pagan Arab traders travelled in their caravans, they had implicit agreements among themselves to protect and make good on each other should any of them be robbed or attacked.

            Waqaf and takaful also demonstrate early Muslims’ deep grasp of Qur’anic insights and wisdom. To them the Qur’an was not limiting rather the beginning of the search for divine mandates for worldly benefits. Perversely, it took western intellectual prowess to develop waqaf and takaful into their modern counterparts – corporations and insurance, powerful indispensable instruments for economic growth. Meanwhile contemporary Muslims consider any new Qur’anic interpretations as bidaah (corruption and/or adulteration). To them, corporations are but instruments for profiteering; insurance, gambling.

Current efforts at maqasid syariah (divining Qur’anic laws) focus on intent rather than results. If an initiative were to result in the preservation and/or enhancement of faith, life, intellect, lineage, and property, then it is maqasid. If it does not, then it cannot be, no matter how noble the intent or authoritative the scholars cited. Maqasid should be operationally defined and evaluated.

When my family was young, I carried life, health, and disability insurances as well as a home mortgage. Those were essentials, thus far from haram. Not having them would be willful negligence if not outright selfishness and the height of irresponsibility. Contemporary Muslims, obsessed with labels, consider those instruments outside of maqasid if not outright haram. As for my zakat, I donate it to local entities I know and trust.

Imagine the communal good if zakat funds were to be invested in pasar malam, help rice farmers buy tractors, or build lodging facilities at city mosques to accommodate rural visitors not comfortable with modern hotels. Such investments would be powerful tools for poverty alleviation. And that is good in any religion. 

Development economists have long advocated both direct cash as well as opportunity creations, so-called “Cash + Plus” approach to poverty alleviation. The “Plus” could be jobs, trading opportunities, better schools, adequate healthcare, and access to credit. To Nobel Peace Laureate Muhammad Yunus, access to credit should be a basic human right.  

Consider Islamic mortgages; they are expensive, complex, and also riskier in being not non-recourse. Unlike conventional “un-Islamic” mortgages where the interest is based on a declining balance, Islamic mortgages’ are like hire purchases, on the initial loan amount divided by the number of payments. That cannot be maqasid no matter how tortured you massage its intent and meaning. 

Today’s Muslims fail to grasp the consequential difference between the Qur’anic ribaa, which were but tools for enslavement, versus today’s interests which are time-value of money and opportunity costs monetized. This monumental conceptual failure contributes to our underdevelopment.  

Muslims should quit our quixotical pursuit of so-called Islamic finance. Learn from the West. Leverage or at least not squander our institutional sources of capital so they could fulfil their Qur’anic mission of uplifting the ummah. Just like there is no Islamic science, there is also no Islamic finance. It is at best an advertising gimmick; at worse, a massive fraud perpetrated upon the ummah.