The Role of Indonesia Magnifience of Zakat and Waqaf in Reducing Proverty

Abstract

Indonesia faces major challenges in its poverty alleviation efforts, especially with the significant gap between urban and rural areas. The poverty rate reaching 9.36% in March 2023 shows the need for innovative approaches to address structural problems in wealth redistribution. Zakat and waqf as Islamic economic instruments have great potential in poverty reduction, but their effectiveness is still not optimised. This study aims to analyse the role of zakat and waqf in poverty reduction in Indonesia using poverty headcount ratio as the main indicator. Using quantitative Robust Least Square regression approach, this study evaluates the impact of zakat and waqf management on poverty level during the period of 2018-2023. The analysis results show that zakat management significantly reduces poverty headcount ratio with a coefficient of -0.002418, which means that every one unit increase in zakat can reduce poverty by 0.24%. Waqf also shows a significant negative effect on poverty headcount ratio with a coefficient of -0.002437, which indicates that a one unit increase in waqf management can reduce poverty by 0.24%. Zakat has a significant role as a direct redistribution mechanism in reducing poverty, while waqf contributes through productive asset management that provides long-term benefits. This research confirms the importance of technological innovation, such as blockchain-based systems, to improve the transparency of zakat and waqf management and strengthen public trust in management institutions. The resulting policy implications include improving zakat and waqf literacy, regulatory reforms to support more professional management, and collaboration between the government, private sector, and Islamic institutions. The findings make a significant contribution to the literature on Islamic economics and support efforts to achieve inclusive and sustainable economic development in Indonesia.