Unemployment Rate and Zakat Collection: Empirical Evidence from Malaysia

Abstract

The COVID-19 pandemic has forced Malaysian Economy into recession, whereby GDP plummeted to negative growth for the first time after the 1998 Asian Financial Crisis. Fiscal and monetary tools are inevitable during this crisis. Businesses are pushed to close shops when a series of Movement Control Orders (MCO) were implemented and causing massive layoffs, a red flag on the unemployment rate and the economy. Zakat, on the other hand, has become a poverty alleviation tool in the Islamic economy landscape and is particularly more relevant during an economic crisis. However, a lack of literature has discussed the impact of macroeconomic indicators on zakat. Therefore, this study is conducted to examine whether the unemployment rate explains the zakat collection trend. Time series data is utilized for the period between 2006 and 2020, and linear regression analysis is conducted. An interesting finding is that the Zakat collection trend by State Islamic Religious Council (SIRCs) and the unemployment rate movement are not statistically significant. This indicates that Zakat collection is not affected by high unemployment in the labor force market and remains strong even during an economic slump, enabled by more digitalization efforts and FinTech adoption.