Revised Zakat Distribution: Perspectives on Digital Transformation for Poverty Alleviation

1. INTRODUCTION

Zakat is an Islamic financial instrument with great potential to alleviate poverty and improve welfare.¹ If it is distributed correctly, zakat is a proper solution to overcome economic and social inequality.² However, the main challenges in implementing zakat include limited access to mustahik (zakat recipients) and the lack of transparency in fund management. Digital transformation provides a critical way to address these topics by improving the effectiveness of zakat distributions using technologies such as blockchain, big data, and artificial intelligence.

The digitalization of zakat can be framed as part of a broader discourse on Islam and modernity or the renewal of Islamic civilization by emphasizing that the digital transformation in zakat management is a meeting point between Islamic values and contemporary technological advancements. Integrating digital tools, such as blockchain, big data, and artificial intelligence, in the distribution of zakat enhances the system's efficiency. It ensures that the principles of Islamic social justice are upheld in the modern era. This approach highlights the ability of Islamic practices to adapt to evolving global needs, thereby renewing the contribution of Islamic civilization to contemporary society.

While many studies have discussed the role of zakat in poverty combat, few studies specifically examine how digital transformation modifies zakat distribution models. Most of the previous studies focus on the traditional aspects of zakat management,³ institutional efficiency of zakat,⁴ as well as the role of fintech in zakat.⁵ However, not many studies have comprehensively integrated digital technology's perspective in designing a more inclusive and data-driven zakat distribution model.

This research offers a new perspective by examining the revision of zakat distribution through digital technology. The proposed innovations include a blockchain-based distribution model to improve transparency and accountability, using big data analytics to map the mustahik more precisely, and applying artificial intelligence in zakat distribution decision-making. With this approach, this research contributes to the formulation of a zakat distribution model that is more efficient, adaptive, and responsive to society's needs.

The results of this research are expected to provide theoretical and practical contributions to zakat management. Theoretically, this research enriches the literature on digital transformation in the Islamic financial system, especially in the context of zakat distribution. Practically, the findings of this research can be a recommendation for the government, amil zakat institutions, and other stakeholders in designing technology-based zakat distribution policies that are more inclusive and effective in alleviating poverty. Thus, this research can potentially impact the effectiveness and efficiency of zakat distribution in the digital era.

This research contributes to contemporary Muslim society by proposing a more adaptive and responsive zakat model to the challenges of the digital era. By integrating digital tools such as blockchain, big data, and AI into zakat management, this research offers innovative solutions to global challenges related to poverty and inequality, positioning zakat as a primary tool in combating social and economic inequality. Furthermore, this research reinforces Islamic solutions to global inequality by proposing a model that ensures fair resource distribution by the principles of Islamic social justice and provides a sustainable alternative to conventional welfare systems.

2. Systematic Literature Review

The distribution of zakat in Islam has been established in the Qur'ān, especially in QS. At-Taubah [9]: 60 mentions eight zakat recipient (mustahik) groups. The main principle in the distribution of zakat is justice and equity.⁶ Zakat fulfills consumptive needs and sustainably improves recipients' welfare. In this context, classical scholars such as Al-Mawardi (1996) and Ibn Khaldun (2005) emphasize the importance of strategic distribution so that zakat plays a role in society's social and economic stability.

In practice, the zakat distribution model experiences various challenges, especially in determining the criteria of needy recipients. Some zakat institutions still use conventional methods with manual administrative approaches, often leading to inaccurate targeting. A study by Faizin et al. (2024) shows that one of the main obstacles in zakat distribution is the lack of valid data on the socio-economic condition of the beneficiaries, which results in zakat often not being given to the most needy.

Research by Arbi et al. (2024) showed that the already existing Zakat distribution system has a limited effect on poverty alleviation. Therefore, some Zakat institutions are beginning to pursue a productive approach to distribution. This model is more effective in the long run as it can generate mustahik's economic independence.

Systematically, several countries have implemented productivity-based zakat distribution models.⁷ For example, in Malaysia, zakat is given for education and skills training programs for low-income families, aiming to reduce their dependence on financial assistance.⁸ On the other hand, in countries such as Sudan and Pakistan, zakat is used to finance social infrastructure projects such as the construction of schools and health centers, which aim to improve the quality of life of the poor population there.⁹

However, the lack of infrastructure and human resources required to manage zakat funds effectively is one of the barriers to implementing this productive distribution model. A study by the Islamic Development Bank in 2019 shows that many zakat institutions in developing countries face problems managing transparent and effective distribution. One of the main factors hindering the optimization of zakat distribution is the limited access to information systems and technology.

In Islamic economics, capitalism is often criticized for prioritizing wealth accumulation for a handful of people while neglecting social justice and the welfare of society.¹⁰ Islamic economics emphasizes the principles of justice, equitable wealth distribution, and social responsibility, which often contradict the fundamental principles of capitalism that prioritize profit and free markets without regard for social impact. With its free market mechanisms, capitalism usually creates social inequalities, where a handful of individuals or companies control the most resources while most of society remains in poverty. In this context, zakat and Islamic social finance emerge as alternatives to address this injustice, ensuring that wealth redistribution can be carried out systematically and effectively through instruments such as zakat, waqf, and infāq.¹¹

Islamic social finance offers a different approach to addressing social welfare issues than conventional welfare systems. While the traditional welfare system relies more on taxes and social assistance provided by the state, Islamic social finance places greater emphasis on the community's economic empowerment through Sharia-based financial instruments, such as zakat, waqf, and careful Hasan (interest-free loans).¹² This system not only aims to provide direct assistance but also to enhance the economic independence of the mustahik (zakat recipients) through programs focused on education, training, and small business financing.¹³ In this case, Islamic social finance aims to create sustainable social balance, not just relying on one-time assistance from the state or social institutions.

The conventional welfare system is often limited in creating long-term independence for aid recipients.¹⁴ In many cases, the social assistance provided is only temporary and tends to create dependency on that assistance. In contrast, Islamic social finance focuses on creating sustainable welfare by empowering zakat recipients through investments in productive sectors. This approach is expected to reduce long-term dependency on social assistance and enhance the community's economic independence.¹⁵ Thus, Islamic social finance offers a more comprehensive and empowerment-oriented alternative solution, unlike the conventional welfare system, which is more focused on meeting basic needs that are often temporary.

The idea that digitalization can improve zakat distribution has emerged in recent decades.¹⁶ Information technology allows zakat management to be more precise and accurate. It ensures that zakat funds get to the people who need them. Data-driven methods can assist in distributing mustahiks according to their level of need and provide a clearer picture of how zakat helps reduce poverty.

Although several zakat distributions models have been created, the main issue remains how effectively they are implemented. Therefore, this research examines how digital changes to the zakat distribution model can improve zakat's efficiency, transparency, and social impact in poverty alleviation. By integrating a digital system in zakat distribution, zakat is expected to play a bigger role in sustainable social welfare development.

Zakat, as one of the five pillars of Islam, holds profound significance in Islamic theology. Zakat is not just a financial obligation for Muslims but a spiritual act aimed at purifying wealth and the soul. From the perspective of Islamic theology, zakat is a way to draw closer to Allah by ensuring that a portion of one's wealth is used to help those in need, especially the mustahik (zakat recipients). This reflects essential social values in Islam, such as justice, solidarity, and social responsibility. Zakat aims to create economic balance, reduce the gap between the rich and the poor, and ensure that social welfare is guaranteed in society.¹⁷

Although zakat has very distinctive characteristics in Islam, giving part of one's wealth to those in need is also found in the traditions of other religions. In Christianity, the concept of tithing requires believers to donate ten percent of their income to the church or the poor. Similarly, in Judaism, there is the tradition of tzedakah, which encourages the faithful to give charity as a moral obligation, although specific rules regarding the amount of donation can vary. Although there are differences in implementation, these concepts all emphasize the importance of charity and wealth redistribution to achieve social justice, similar to the goals of zakat in Islam.¹⁸

In the comparison between zakat and charity in other religions, there is a similarity in the basic goal, which is to help others and reduce social inequality. However, zakat has a unique aspect in Islam because it is a religious obligation that encourages voluntary generosity and specifies the amount and recipients. Meanwhile, although charity is still prioritized in Christianity and Judaism, donations are more voluntary, with no clear obligation like zakat.¹⁹ Therefore, zakat has a more structured and legally binding dimension in Islam, making it an integral part of the broader Islamic socio-economic system.

In Islamic theology, zakat serves as a means to instill strong social values, such as concern for the poor, avoidance of greed, and the role of wealth as a tool for the welfare of the community. This aligns with social principles found in other religions, albeit in different contexts. For example, in Christian teachings, giving is considered a form of compassion towards others, which aligns with the value of love in Christianity.²⁰ However, zakat as an obligation regulated by Islamic law has a greater social impact, as it encourages the faithful to view wealth as a trust and a duty to be distributed for the common good rather than merely as an individual right. Zakat, thus, becomes a pillar in creating a more just and prosperous society.

One rapidly growing trend in Islamic charity management is the digitalization of zakat.²¹ Digitalization of zakat covers many things, such as collecting funds, distributing, and monitoring how zakat impacts the beneficiaries.²² Several countries have implemented digital zakat management systems, such as e-zakat in Malaysia and digital waqf in Indonesia. These systems are designed to increase transparency and effectiveness in the distribution of zakat funds.²³

Ahmed's study (2020) shows that digitalizing zakat can improve distribution efficiency by speeding up fund disbursement and ensuring that assistance is provided to beneficiaries according to standards.²⁴ By utilizing technologies such as blockchain and big data analytics, Zakat institutions can improve their management accountability and reduce the risk of fund misappropriation.

Although the digitalization of zakat has many advantages, implementation has many problems. One of the main obstacles is the low digital literacy among mustahik and amil zakat. Low digital literacy can hinder technology implementation in the zakat distribution system. In addition, the limited technology infrastructure in some places makes applying a digital system in zakat management less effective. To address the digital literacy gap among mustahik, one of the main obstacles in the digitalization of zakat, several concrete solutions need to be implemented. One of them is to provide comprehensive and structured digital training for mustahik and amil zakah. This training can include using zakat applications and e-wallets and understanding the importance of technology in zakat distribution.²⁵ This training program can be conducted through face-to-face classes, webinars, or tutorials easily accessible through social media or other digital platforms. With this approach, beneficiaries previously unfamiliar with technology will be able to understand how to access and utilize the digital zakat system.

Instead, it may be easier to find the mustahik groups with the help of AI. By analyzing people's socio-economic data, machine learning algorithms can provide more accurate suggestions on who is eligible to receive zakat. As a result, zakat can give more attention to groups in need and can have a greater effect on poverty alleviation.

Digital zakat has excellent potential to empower local communities by increasing accessibility and transparency in zakat distribution. Through digital platforms, zakat recipients (mustahik) in remote areas can more easily access assistance without going through lengthy bureaucratic procedures. Moreover, digitization allows for a more targeted distribution of zakat, utilizing technologies such as big data and artificial intelligence to map community needs more accurately. Thus, digital zakat can enhance the effectiveness and efficiency of distribution while empowering local communities to be more independent in accessing the social assistance they need.

However, there is a probability that the digitalization of zakat could create dependence on global technology, especially in areas with limited technological infrastructure. Using applications and digital platforms controlled by large companies or foreign technology can increase reliance on systems that may not fully support local independence.²⁶ When the zakat distribution system is overly dependent on global technology companies, there is a risk of the control and management of zakat funds shifting from local zakat institutions to more centralized external entities, which can reduce the local community's ability to manage zakat independently. Therefore, special attention is needed to ensure that the infrastructure and technology used can facilitate the sustainability and independence of local communities.

Some institutions have started using digital systems to improve transparency and accuracy in zakat distribution. Baznas in Indonesia, for example, use this technology to track zakat distribution in real time. With this system, donors can monitor how their zakat funds are utilized and provide regular reports on how it impacts beneficiaries' health.

Digitalization can increase accessibility for both the mustahik and donors and increase transparency. With digital-based applications, people can easily pay zakat and choose the programs they want to support. Meanwhile, digital systems can help beneficiaries apply for assistance more easily and efficiently without going through lengthy bureaucratic procedures.

This research aims to propose a more inclusive and sustainable model of digitalizing zakat distribution by considering various challenges and opportunities that exist in the application of digital technology in the zakat management system. The integration of technology in zakat management is not just an administrative tool but also a strategic instrument to increase the effectiveness of zakat distribution in alleviating poverty.

Zakat, as an obligation in Islam, has a very important legal dimension that regulates how it should be managed and distributed. In the digital context, the main question that arises is whether the digital system in the collection and distribution of zakat is in accordance with the principles of Sharia. Scholars generally agree that using technology in zakat, as long as it does not violate the fundamental tenets of Islam, such as justice and transparency, is acceptable. However, some questions arise regarding whether technology can replace the direct role between muzakki (the giver of zakat) and mustahik (the recipient of zakat), especially regarding the validity and direct acceptance of zakat by mustahik. Therefore, it is essential to ensure that the digital zakat system complies with Shari‘ah provisions, such as ensuring that zakat funds are distributed to the rightful recipients and that there are no harmful practices.

Fatwas related to digital zakat have emerged in recent years, and most state that technology, including fintech applications and blockchain, can be used in the distribution of zakat if Sharia principles are adhered to. For example, some scholars state that using technology to enhance transparency and accountability in zakat management is permissible as long as the zakat funds reach the rightful recipients.²⁷ However, some fatwas emphasize verifying that the applications or digital platforms used to collect and distribute zakat are not involved in practices contrary to Sharia principles, such as riba (interest) or transactions with unclear legality. Therefore, strict control and regulation must be applied when using digital technology for zakat.

Accountability and transparency are fundamental principles in Islamic law that must be upheld in the zakat management system, including digital technology. In this case, blockchain is considered one of the technologies that can address this challenge. Using blockchain technology, every zakat transaction can be recorded permanently and transparently, allowing muzakki and mustahik to track the flow of zakat funds in real time. This aligns with the sharia principle that emphasizes the importance of clarity and fairness in the distribution of zakat. However, even though technologies like blockchain offer advantages in terms of transparency, careful oversight is necessary to ensure that no party abuses the system for personal gain or harms the mustahik.

3. Method

This study uses a mixed methods strategy that combines qualitative and quantitative techniques to investigate how digital transformation can improve zakat distribution in poverty reduction efforts. This strategy allows for a deeper understanding of how effective digital zakat disbursement is through technology implementation and its impact on the mustahik.

This study collected two types of data. First, primary information was collected through in-depth interviews with key people, such as zakat institution managers, Islamic economics experts, fintech developers, and muzakki. In addition, a quantitative survey will be conducted among muzakki and mustahik to measure their happiness level and the effectiveness of Zakat distribution through digital technology. Second, additional information consists of analyses and examples.

Data collection techniques were conducted in 3 ways: first, qualitative interviews. It was used to explore stakeholders' perspectives on the challenges and opportunities of technology implementation in zakat distribution. Second, a quantitative survey was applied to measure the effectiveness of the digital system in zakat distribution, using the Likert scale to evaluate mustahik and muzakki satisfaction on transparency and accuracy of digital zakat distribution. Third, document analysis was used to review annual reports of zakat institutions, government policies related to digital zakat, and relevant academic studies.

Data analysis techniques are conducted in 4 ways: first, qualitative analysis. Data from interviews will be analyzed using the thematic analysis method to identify patterns and key findings related to the implementation of digitalization in zakat distribution. Second, quantitative analysis. Survey data will be analyzed using descriptive and inferential statistics, with a regression test or Structural Equation Modeling (SEM), to evaluate the relationship between the digitalization of zakat distribution and its impact on mustahik welfare. Third, comparative study. Comparing conventional and digital zakat distribution models based on effectiveness, transparency, and accuracy.

This research will use purposive and stratified random sampling techniques to determine a representative sample size. The targeted sample size is 300 respondents, consisting of 150 muzakki (zakat givers) and 150 mustahik (zakat recipients) who have participated in the digital zakat program. This sample was chosen to represent various demographic and socio-economic characteristics to ensure the diversity of data obtained in this study.

The selection criteria for the research participants are as follows:

1. Muzakki, the respondent must be an individual or institution that has made zakat payments through a digital system in the last 6 months.
2. The respondent, Mustahik, must be a zakat recipient registered in the digital zakat distribution system used by the zakat institutions participating in the research.
3. Another criterion is that respondents must have minimal access to digital devices (such as mobile phones or computers) and basic knowledge of digital zakat applications.

This research will encompass a diverse demographic, including age groups, gender, education level, income, and geographical location. This aims to obtain a more comprehensive picture of how various groups respond to and engage with the digital zakat system. For example, the research will include mustahik from urban and rural areas to observe differences in the acceptance and effectiveness of the digital system based on location. Additionally, differences in age and education levels will be analyzed to understand the extent to which digital literacy affects users' experiences and satisfaction with digital zakat.

4. The Impact of Digital Transformation on Poverty Alleviation

Digital transformation has dramatically reduced poverty by enhancing access to financial and social services.²⁸ Research conducted by Devereux and Vincent indicates that integrating digital technology into social welfare initiatives can speed up aid delivery and reduce social disparities.²⁹ In the realm of zakat, embracing digital methods could improve the allocation of funds to those in need.

Using data-driven techniques, Zakat institutions can use digital systems to find groups below the poverty line. Using big data analytics, zakat institutions can categorize beneficiaries based on the level of need and geographical area. This can help create more efficient zakat programmes better suited to the socio-economic circumstances of the community.

Digital transformation improves zakat distribution and helps the poor gain access to money. Mustahik groups often do not have access to formal banking services, which makes it difficult for them to manage the received zakat funds effectively. Digital financial technologies (fintech), such as digital wallets and app-based bank accounts, allow mustahiks to obtain and use zakat funds more easily and safely. This model has been applied through mobile money programs for social assistance distribution in some countries, such as Pakistan and Bangladesh.

Digitalization enables the capacity building of beneficiaries through online-based training programs, in addition to the financial aspect. With the help of digital education platforms, mustahiks can increase their economic independence by learning skills such as entrepreneurship, digital marketing, or other technical skills. For example, Baznas has created a technology-based zakat program in Indonesia that provides financial assistance and offers training and business mentoring for beneficiaries. This method aligns with the idea of productive zakat, which means that zakat is used as seed capital to improve the economic welfare of people with low incomes sustainably.

Regarding economic empowerment, research conducted by al Azizah and Choirin³⁰ shows that the digitalization of zakat can increase economic opportunities for low-income people by giving them access to a broader market. Thanks to technological advances, individuals who have undergone training can now sell their goods or services online through e-commerce sites or social networking platforms. This method allows them to work independently, reducing their dependence on zakat support over time.

Beyond the previously highlighted benefits, the digital transformation of zakat distribution can also enhance the clarity and reliability of managing funds. For instance, blockchain technology enables the permanent recording of transactions, guaranteeing that zakat funds are allocated appropriately and preventing misuse. Mohamed et al.³¹ show that adopting blockchain in Islamic philanthropy can increase public trust in zakat institutions, encouraging more muzakki to participate in zakat payments.

However, although digital transformation has excellent potential in poverty alleviation through zakat, some challenges, such as the digital divide and limited internet access in remote areas, must be overcome. Therefore, this research will also explore strategies that can be used to overcome these obstacles, such as collaboration with the government in providing digital infrastructure or providing technology subsidies for zakat institutions that want to adopt digital-based systems. Thus, it is expected that the technology-based zakat distribution model proposed in this research can be applied inclusively and provide a broader impact on poverty alleviation.

5. Effectiveness of Digitalisation in Zakat Distribution: Acceleration and Efficiency

Digital transformation in zakat management has significantly improved the efficiency and effectiveness of fund distribution to the mustahik. Various amil zakat institutions (LAZ) in Indonesia, such as BAZNAS, Dompet Dhuafa, and LAZISNU, have started adopting digital technology to optimise zakat distribution. Using fintech applications and blockchain technology makes the zakat distribution process faster, more transparent, and more accountable. This digitalization also contributes to reducing operational costs that have been an obstacle in conventional distribution.

Before the implementation of digital technology, zakat distribution often experienced delays due to manual administrative processes, which included mustahik data verification, fund disbursement, and aid distribution. Based on interviews with BAZNAS representatives, the zakat distribution system before digitalization took 7 to 14 days from collection to disbursement of funds to beneficiaries. However, after implementing digital-based systems, such as the Baznas Digital and Zakat Pay applications, this process can be shortened to just 1 to 3 days.

Dompet Dhuafa has also trialed the application of blockchain technology in zakat distribution to improve transparency and accountability [Mokodenseho et al. 2023: 01-09]. According to one of the Dompet Dhuafa managers interviewed, this technology allows every transaction to be permanently recorded in a system that cannot be changed, thus preventing the potential for misappropriation of funds. In addition, with the innovative contract system, zakat funds can be directly channeled to verified mustahik without going through many intermediaries, thus reducing the risk of delays and additional costs.

Digitalization of zakat also reduces operational costs that have been quite large in the conventional distribution system.³² LAZISNU, for example, noted that before digitalization, the operational cost of zakat distribution could reach 15-20% of the total funds collected, mainly for administrative needs, manual verification, and physical aid delivery. After implementing a digital distribution system through the NU Care-LAZISNU platform, operational costs can be reduced by 8-10%. This efficiency allows the mustahik to utilise more funds directly.

The shift to digital processes can speed up and reduce costs and provide opportunities for Mustahik to engage in finance. Some LAZs have collaborated with Islamic banking institutions and fintech companies to create digital accounts or e-wallets for zakat recipients. This arrangement allows the Mustahik to receive assistance directly without attending the LAZ office or Zakat distribution events in person. According to a BAZNAS representative, this program has been incorporated into the Community Development Zakat program in remote areas. It allows the mustahik to get assistance through a digital platform without being limited by location.

While digitalisation has many benefits, implementing it can be problematic. Dompet Dhuafa has identified limited digital literacy among mustahiks, especially in rural and remote areas. Some recipients still face difficulties when using digital applications to access zakat funds, which suggests that education and mentoring programmes are needed to enable recipients to benefit from this technology fully.

Data security is also critical in the digitalization of Zakat.³³ The LAZISNU representative stated that although the digital system makes things more transparent, confidential data may still be disclosed.³⁴ Therefore, zakat institutions must ensure that their systems follow strict cybersecurity protocols so that the personal data of zakat recipients is not misused.

However, LAZ managers acknowledge that digitalization has improved the effectiveness of zakat distribution.³⁵ BAZNAS, Dompet Dhuafa, and LAZISNU continue to be committed to enhancing the digitalized zakat distribution system by increasing collaboration among various fintech companies and Islamic financial institutions. Artificial intelligence (AI) is a new approach for analyzing and predicting the assistance the mustahik might need.

Digitalizing zakat distribution has increased transparency and accountability, lowered operational costs, and accelerated the process. Based on the data and interview results, this conclusion can be made: Digitalisation of zakat has great potential as a key solution to improve the welfare of the mustahik and effectively reduce poverty in the future by continuously developing the technology and overcoming the existing challenges.

6. Transparency and Accountability in Digital Zakat Management

Transparency and accountability are key to building public trust in zakat management.³⁶ Many advancements, such as smart contracts and artificial intelligence (AI) audit systems, have occurred during the transformation of the zakat sector to digitalization. These advancements can increase public trust in the way zakat funds are distributed. Zakat institutions such as BAZNAS,³⁷ Dompet Dhuafa,³⁸ and LAZISNU³⁹ have started using these technologies to make zakat resources more transparent and accountable.

Before using digital tools, reporting of zakat funds was mainly done manually. Such manual practices can lead to errors and delays in sending information to muzakki and mustahik. In an interview, a BAZNAS representative said⁴⁰ that traditional methods often face problems verifying transactions, resulting in inaccurate records of incoming and outgoing funds. With blockchain-based digital platforms, every transaction is recorded consistently. This allows regulators and donors to track the flow of funds in real-time.

A Dompet Dhuafa manager said⁴¹ their zakat initiatives have yielded significant results thanks to innovative contract technology. According to the manager, this technology enables the automatic allocation of funds to verified mustahiks, eliminating the administrative processes that often hamper the process. Since every transaction must adhere to the terms of the digital contract, this innovation prevents the misuse of funds.

In addition, audit systems supported by artificial intelligence increase the accountability of digital zakat organizations. For example, LAZISNU⁴² has developed a system that automatically checks transaction data to find suspicious irregularities. LAZISNU representatives said that the system could find unusual transaction behavior, such as double fund distribution or errors in data entry. With the help of the AI-driven audit system, LAZ can quickly respond to potential problems before zakat funds are misused.

Although various technologies have been added to increase transparency, there are still many challenges to increasing public trust in digital systems. BAZNAS⁴³ representatives stated that muzakki and mustahik do not have enough digital knowledge. Many still choose conventional methods since they do not fully understand how smart contracts and blockchain work to secure and clarify zakat funds.

In addition, Indonesia's digital zakat law is still being drafted.⁴⁴ According to Dompet Dhuafa,⁴⁵ although the Financial Services Authority (OJK)⁴⁶ and the Ministry of Religious Affairs⁴⁷ have made policies to encourage digital zakat, there is still a lack of rules governing the use of technologies such as blockchain and artificial intelligence in the management of religious and social funds. Clear legal regulations are needed to ensure that these technologies can be used in a Sharia-compliant manner.

The digital transformation of zakat involves data protection. LAZISNU points out that as the use of digital platforms increases, personal data can be exposed to muzakki and mustahik. Therefore, LAZ should ensure that the digital infrastructure includes strong data security measures, such as data encryption and compliance with cybersecurity protocols. In addition, users should be better educated on how to protect their digital accounts.

LAZ has started creating web—and app-based transparency platforms that allow the muzakki to monitor how their zakat is distributed directly. This kind of transparency can increase public trust. For example, Baznas has launched a digital reporting feature on its platform. This feature presents the latest reports on how zakat funds are distributed according to mustahik categories and the type of assistance provided. This initiative is expected to increase public trust in zakat management through digital means.

According to discussions with various LAZ managers, there is a consensus that enhancing transparency in the management of digital zakat should be a priority, supported by technology and clear regulations. Digitalization focuses on speeding up the process of zakat distribution while establishing a reliable framework for all stakeholders involved, including muzakki, mustahik, and relevant authorities. Thus, zakat organizations, regulators, and tech companies must work together to develop a safer and clearer digital zakat environment.

As zakat management goes digital, there is an excellent opportunity to improve transparency and accountability. A digital zakat framework can be a more effective tool to drive equitable distribution and sustainably improve poverty alleviation by addressing current issues such as digital literacy, regulations, and data protection.

7. Challenges and Obstacles in Digital Zakat Implementation

Transforming to a digitalized Zakat system has many benefits, such as making it more efficient and more transparent.⁴⁸ However, the implementation of these changes often faces challenges. During the discussion, BAZNAS representatives pointed out that mustahiks lack digital skills.⁴⁹ Many zakat beneficiaries are not yet familiar with digital tools such as fintech apps and e-wallets, which hinders them from getting the support they need. Several solutions can be implemented to ensure that zakat recipients (mustahik) have digital skills. One is by conducting regular training on using relevant fintech and e-wallet applications. This training can be conducted in various formats, such as face-to-face classes, webinars, or even easily accessible video tutorials for beneficiaries. This will give them a basic understanding of accessing and utilizing digital platforms for zakat.

In addition, digital zakat distribution is hampered by a lack of technological resources, especially in remote areas. A Dompet Dhuafa representative said that many places in Indonesia still face issues with internet connectivity and digital banking services.⁵⁰ As most mustahiks do not have adequate access to online platforms, the online distribution of zakat is hampered. Digitalization of zakat is not effective across communities if there is no strong infrastructure.

In addition to technical barriers, the hesitation of established zakat institutions is an additional obstacle to embracing digital technology. LAZISNU revealed in a recent interview that some Zakat managers are still hesitant about digital platforms because they are used to traditional methods that rely on face-to-face recording and channeling.⁵¹ They are mainly concerned about the possibility of technical errors, data security, and the reliability of digital transactions, all of which are not yet fully guaranteed.

SWOT analysis shows strengths, weaknesses, and threats. One of the main obstacles to internal weakness is that the human resources of zakat institutions are not ready to use digital technology. Managing technology-based systems is often a problem for LAZs that do not have IT experts. Meanwhile, the possibility of cyber breaches is also considered when digitalizing zakat.

Cybersecurity is critical in the digital development of zakat. BAZNAS representatives said that the possibility of illegal access to the data of the mustahik and muzakki could undermine public trust in zakat digital platforms. As a result, zakat institutions should give the highest priority to investment in improved security systems such as data encryption and multifactor authentication. However, zakat institutions with limited financial resources face significant challenges due to the costs of utilizing these cybersecurity solutions.

There is no precise regulation on the digitalization of zakat on the low side. The Ministry of Religious Affairs and the Financial Services Authority (OJK) regulate digitalized zakat involving blockchain and artificial intelligence technologies. According to a representative of Dompet Dhuafa, the lack of clarity of this regulation has caused some LAZs to be reluctant to fully adopt the technology for fear of violating applicable legal provisions.

Although there are various obstacles, the digitalization of zakat also opens up great opportunities to increase the effectiveness of zakat fund distribution. In the SWOT analysis, the main chance that can be utilized is the increasing penetration of the internet and smartphones in Indonesia. With more than 200 million internet users in Indonesia, the potential of digital zakat application utilization is getting bigger. This momentum allows zakat institutions to expand their service reach through digital-based innovation.

In addition, a collaboration between LAZ and the technology sector can help overcome the challenges of digitalizing zakat. For example, LAZISNU revealed that they are collaborating with fintech companies to develop a zakat payment system that is more accessible to the broader community. This collaboration accelerates digitization and increases public trust in technology-based zakat management.

To overcome these challenges, digital education and socialisation-based approaches must be strengthened. BAZNAS and Dompet Dhuafa have started conducting digital literacy training for mustahik to use digital zakat services optimally. In addition, increasing human resources capacity in zakat institutions should also be a priority so that they can manage digital systems more professionally.

Overall, the challenges in implementing digital zakat can be overcome with the right strategy, including improving technology infrastructure, strengthening regulations, and collaboration between zakat institutions and the technology sector. With firm commitment from various parties, the digitalization of Zakat will increase fund distribution and strengthen Zakat's role in poverty alleviation in the digital era.

8. Implications of Digital Transformation on Mustahik's Economic Empowerment

Digital transformation in zakat distribution not only improves the efficiency of fund management but also significantly impacts the economic empowerment of the mustahik. Digitalization enables faster, more accurate, and transparent zakat distribution so that the Mustahik can immediately get assistance.⁵² However, problems such as limited digital literacy, uneven technological infrastructure, and resistance from traditional zakat institutions still make optimizing digital-based empowerment programs challenging.

One of the main obstacles revealed by BAZNAS representatives in the interview is the low level of digital literacy among mustahiks. Many zakat recipients do not know how to use digital technology in their economic activities, so assistance provided through online platforms has not been optimised. To overcome this, BAZNAS started providing digital literacy training to mustahiks to help them grow their micro businesses and gain access to digital banking services.

In addition to digital literacy issues, digital-based mustahik economic empowerment faces challenges due to a lack of equitable technology infrastructure. Dompet Dhuafa representatives emphasized that limited internet connection in some remote areas makes it difficult for the mustahiks to access zakat fintech applications and online training programs. It is impossible to maximize the potential of digitalization in Mustahik empowerment without enough infrastructure. Therefore, cooperation with the government and the private sector is needed to accelerate the development of digital infrastructure in areas that have not been reached by technology.

The resistance of traditional zakat institutions towards digital systems is also a factor that needs to be considered.⁵³ According to interviews with LAZISNU representatives, some zakat managers are still more comfortable using conventional methods because they consider digital systems to have higher technical and security risks. In addition, they are worried that implementing the digital system will eliminate the personal approach in zakat distribution, which has been considered necessary in building relationships between muzakki and mustahik.

SWOT analysis categorizes these obstacles as weaknesses and threats that must be addressed immediately. Regarding internal weaknesses, the lack of digital experts in zakat institutions is a significant obstacle in technology-based fund management. Meanwhile, external threats, data security risks, and digital fraud must be considered when implementing digital zakat.

Nonetheless, digital transformation also opens up great opportunities for mustahik economic empowerment. In the SWOT analysis, opportunities that can be utilized are the increasing internet penetration and smartphone usage in Indonesia. With over 200 million internet users, digital platforms can effectively provide skills training, access to capital, and marketing for micro-enterprises. Dompet Dhuafa representatives highlighted that digitalization had enabled them to develop an online-based business incubation program that Mustahik from different regions can access.

In addition, blockchain technology and digital recording systems can increase transparency in providing business capital for mustahiks. According to BAZNAS, applying the blockchain system to distribute zakat funds allows for more secure and non-manipulable transaction records, thus ensuring that the assistance provided reaches the rightful recipients. This can increase public trust in the digital zakat system while strengthening the mustahik economic ecosystem.

Zakat institutions and the fintech sector can collaborate to accelerate digital transformation in mustahik economic empowerment. To facilitate the disbursement of zakat funds directly to mustahik accounts,⁵⁴ LAZISNU collaborates with various digital payment platforms and markets to help the Mustahik market its goods online, increasing its market reach and income.

Education and mentoring methods must be improved for digitalization to support economic empowerment effectively.⁵⁵ Dompet Dhuafa's business mentoring program involves applications that allow Mustahiks to get feedback from seasoned entrepreneurs. These initiatives offer funding opportunities and help Mustahiks manage their businesses more professionally.

While some barriers prevent the implementation of digital zakat, the benefits far outweigh those barriers. By applying the right approach, such as improving digital skills, building technological infrastructure, and collaborating with the private sector, the digital transformation of zakat can successfully strengthen the Muslim economy and reduce poverty in the modern era.

9 Conclusion and Implications

In summary, this research says that incorporating digital technology into the Zakat distribution system is essential to improve the efficiency and effectiveness of Zakat distribution. The shift to digital methods enables better channelling of zakat through online payment systems, smart contracts, and blockchain technology, which increases accountability and reduces the possibility of misuse of funds. This makes the distribution of zakat faster, more transparent, and better able to serve more beneficiaries. An examination of various zakat management institutions, such as BAZNAS, Dompet Dhuafa, and LAZISNU, shows that the use of technology in zakat distribution not only accelerates fund distribution but also encourages technology-based productive zakat initiatives that can sustainably improve the welfare of beneficiaries.

The research also found that the digitalization of zakat opens up new opportunities for mustahik economic empowerment. Fintech grant-based financing models, online marketplaces for mustahiks, and zakat crowdfunding platforms increase recipients' access to capital. A mustahik who engages in the digital environment is more likely to achieve financial independence. This is demonstrated by programs such as Zakat for Community Development (ZCD) from BAZNAS, Digital Waqf for MSMEs by Dompet Dhuafa, and market-leveraged Zakat initiatives by LAZISNU. Data-driven real-time surveillance systems and artificial intelligence enable more accurate assessments of the success of economic empowerment initiatives, which facilitates more appropriate policy actions.

Despite its many advantages, digital zakat still has many challenges to overcome. Limited digital skills for mustahiks, especially in rural areas, are a key issue identified in this study. They are less engaged with digital platforms for financial activities. In addition, traditional zakat managers refusing to participate is also an issue, as they believe that conventional methods are more stable than digital systems. Some zakat organizations face difficulties adopting technology due to inconsistent infrastructure and unskilled staff.

Building public trust in the digital tithe framework and ensuring data security are significant issues. Cybersecurity is critical, especially given potential risks such as personal data breaches and misuse of digital funds. However, some muzakki remain skeptical about the reliability of digital platforms in channelling their zakat contributions despite blockchain technology and smart contracts potentially increasing transparency. Therefore, stronger regulation and increased public education are required to foster trust in the digital zakat environment.

The SWOT analysis conducted in this study shows that although the digitalization of zakat has some problems, many opportunities are available. Technology enables creative methods to increase the effectiveness of zakat distribution, accelerate access to mustahik funds, and expand the list of beneficiaries. Various digital zakat programs have been successful, showing that this transformation can be an essential strategy for poverty reduction.

Consequently, this study suggests several strategic actions to enhance the performance of zakat digitalization. First, both mustahik (recipients) and zakat managers should be equipped with better digital skills by providing structured training and continuous guidance to ensure effective use of digital platforms. Second, it is crucial to strengthen digital security regulations and adopt standardized protocols to safeguard sensitive information, thereby fostering public trust in technology-based zakat management. Third, a more inclusive digital zakat ecosystem must be established, where collaboration between LAZ (Lembaga Amil Zakat), the government, the private sector, and technology companies enables innovation, resource-sharing, and broader outreach. Finally, continuous awareness campaigns should be launched to promote digital literacy, encourage adoption among stakeholders, and demonstrate the efficiency and transparency of the system.

By implementing these strategies, digital zakat management can enhance efficiency, accountability, and transparency while contributing to the economic empowerment of mustahik. As this research highlights, digitalization has the potential to transform zakat into a powerful instrument for sustainable poverty reduction and social welfare in the digital era.

Author’s Contribution

Muyassarah Muyassarah: data collection. Sokhikhatul Mawadah: data documenting. Naili Saadah: analysis and manuscript preparation. Fita Nurotul Faizah: collection of data. Liafatra Nurlaily: collection of data. Mansur Mansur: collection of data.

Conflict of Interest

The authors of this manuscript declare that they have no financial or non-financial conflict of interest regarding the subject matter or materials discussed in the manuscript.

Data Availability Statement

Data availability is not applicable as no new data were created or analysed in this study.

Funding Details

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Generative AI Disclosure Statement

The initial draft was assisted by the AI application ChatGPT, but further structuring and analysis were carried out entirely by the authors.