Institut Kajian Zakat Malaysia Universiti Teknologi Mara PERFORMANCE

Institut Kajian Zakat Malaysia – Universiti Teknologi Mara PERFORMANCE INDICATORS MODEL FOR ZAKAT INSTITUTION Abd Halim Mohd Noor, Rozman Hj Md Yusof & Ahmad Che Yaakob KONFERENSI ZAKAT ASIA TENGGARA 30 OKT – 3 NOV 2007 M PADANG SUMATERA BARAT - INDONESIA

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 TABLE OF CONTENTS n n n INTRODUCTION ZAKAT IN SOUTH EAST ASIA ZAKAT MANAGEMENT ORGANIZATIONAL PERFORMANCE INDICATOR: A PROPOSAL CONCLUSION

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 INTRODUCTION Organization-specific factors played major roles in determining success of any organizations. • Corporate governance, • Economic and managerial efficiency, • Syariah-compliance accounting system, • Human resource, Knowledge and Productivity.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 INTRODUCTION Zakat organizations have a task to ensure and convince the public that not only the fund collected will be distributed in accordance with syariah but zakat institutions will be administered professionally and efficiently. The failure to achieve these objectives will reduce public confidence and zakat payees will decline and may choose other alternatives to fulfill their zakat obligations. The ability of zakat organizations to exhibit excellent performance is of paramount importance on sustaining the confidence of the muslim public.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 INTRODUCTION Performance is an abstract concept and it must be represented by concrete, measurable phenomena or events in order to be measured. Performance is a measure of results achieved while performance efficiency is the ratio between effort expended and results achieved. The difference between current performance and theoretical performance limit is the performance improvement zone.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA Zakat institution in the South East Asian region has registered an impressive growth and development due to the existence of many organizations that manage the zakat funds.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA Although zakat collections in Islamic countries have increased, but the realities is that the amount collected is still low and has yet to reach its full potential. Zakat collection is estimated to be less than one percent of a nation’s gross domestic product (GDP) (Kahf, 1999). This small percentage will not have a significant impact on a nation’s socioeconomics.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA Salih (1999) has identified several factors that contribute to the low collection of zakat in Islamic countries. The factors are as below: • Ineffectiveness of zakat collecting organizations • High administrative costs in managing zakat fund (up to 30% of zakat collected) • Ineffectiveness of information dissemination on the importance of paying zakat • Lack of confidence among zakat payers on the current zakat institution

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA Zakat Organizations and Collections, 2005 Country Number of zakat organizations Collection US$ million (2005) 1 Malaysia 14 127 2 Singapura 1 8. 77 3 Indonesia Not available* Not available ** 4 Brunei 1 9. 19 *There is no official data, however, in Jakarta alone there are more than 20 agencies that collect and distribute zakat. **Dompet Dhuafa, one of the zakat organizations reported a collection of US$ 1. 56 million in 2004[1]. [1] Laporan Keuangan 1425 H, Dompet Dhuafa Republika, Indonesia

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA Data Comparison Among Countries Income per Capita (US$) 2005 Zakat Collection US$ mill (2005) % of zakat collection as to GNP Population s, millions (2004) Estimate % of muslim population s (2004) 6. 842* 23, 600* 6. 6** na 0. 361 67 Indonesia 899 3, 700 1. 56*** na**** 241 88 Malaysia 248 10, 400 148 0. 11 25. 2 61 131. 3 24, 220 8. 77 - 4. 3 14. 9 GDP US$ bil (2005) Brunei Singapore *Data 2003 **Data 2002 *** Dompet Dhuafa collection only **** Salih (1999) estimated that zakat collection in Indonesia is between 1% to 2% depending on the method of calculation used. However, actual data showed a much lower percentage. For details, refer Salih (1999)

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT IN SOUTH EAST ASIA

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT MANAGEMENT Effective management of zakat is highlighted in al-Quran and al-Sunnah and clearly practiced by the caliphates. zakat is not only a religious duty but also a financial commitment that must be managed by the state.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ZAKAT MANAGEMENT The management of zakat has to operate professionally as required by syarak. The philosophy of good governance (not only of zakat) can be found in several verses of al-Qur’an. It is a duty of each Muslim manager to adhere to the will of Allah and administer his acts to the best of his ability towards excellence. Zakat managers should also incorporate long term planning as to increase the skill through human development programs. Ultimately, the asnaf will in future be zakat payers themselves.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ORGANIZATIONAL PERFORMANCE Organizations demand a high level of flexibility, coordination and adaptability in the face of rapidly shifting markets and competitive strategies. There a number of performance-enhancing solutions available such as training, process improvement initiatives, quality management, lean manufacturing, and balanced scorecards, among others. Organizational performance is described in the literature in terms of many aspects, varying from financial measurement, to group performance and to the performance of the physical workplace.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ORGANIZATIONAL MODEL The 7 S organizational Performance Model

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 ORGANIZATIONAL MODEL Nowadays organization and work as a whole are undergoing dramatic change which has implications for conceptualizing and understanding performance. There are five major trends namely: • continuous learning; • pro activity; • teamwork; • globalization; and • technology

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 PERFORMANCE INDICATOR: A PROPOSAL Each zakat management team must be able to demonstrate the capability to operate at its optimum and efficient level in ensuring the rational of its existence. Collection and distribution of zakat must be implemented as such it yield maximum benefits intended. Collection is important to ensure that zakat is collected duly while distribution must reach the intended recipients and also provides confidence to the payee that zakat is distributed fairly.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 PERFORMANCE INDICATOR: A PROPOSAL

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 PERFORMANCE INDICATOR: A PROPOSAL Twenty five variables were selected to measure the performance of zakat institutions. Each variable were assigned weight to reflect the importance of their contribution to the performance of the organizations.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 PERFORMANCE INDICATOR: A PROPOSAL

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 CONCLUSION This proposed model is an initial attempt to measure performance of zakat organizations. Obviously the proxies used to capture the dimensions are not exhaustive while weights used in assigning the importance of each dimensions to the performance indicator are subject to further deliberations. Zakat in South East Asia has experienced tremendous growth in terms of collection and distribution. However, further progress could only be materialized through increase efficiency and consistency of zakat organizations in fulfilling their noble tasks.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 CONCLUSION The need of performance indicators and benchmarking could never be understated. Its presence instills competitiveness among organizations that lead to increase efficiency. Probably more importantly, zakat will be better managed and the ummah gain tremendous benefits.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 INPUT Input dimension refers to the factors needed to run an organization. Data for input include the perspectives of asnaf (zakat recipients), staff and the institution. To asses the level of input of an organization, the following items are considered, namely: i) the availability of infrastructure, ii) number of staff, knowledgeable staff and iii) the presence of data base.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 OUTPUT Output or end product refers to the distribution of zakat. The end product is the benefit/result obtained by the final recipient of the institution in this case by the asnaf. Using output as an indicator is indeed an objective measurement. Output is proxy from various perspectives such as number of asnaf who are paying zakat instead of receiving it. This would indicate success of the institution’s distribution of zakat which enabled past recipients to increase their income. Other output proxies include whether i) zakat given had fulfill their necessities, ii) perception of asnaf on the organization and satisfaction of amount and iii) type of zakat received by the asnaf.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 PROCESSES Processes within an organization are one of the components to measure performance. There are many processes in distributing zakat, for example, it involves budgeting process. Process here refers to: i) annual budget, ii) distribution procedures and iii) feedback from zakat payers.

KONFERENSI ZAKAT ASIA TENGGARA, PADANG, INDONESIA. 30/10 -3/11/2007 QUALITY Quality is an important aspect of performance indicator. The variables used are: i) status of distribution, ii) status of collection, iii) accounting system and iv) financial audit used in the organization.