Interrelationship between Zakat, Islamic bank and the economy: A theoretical exploration

Abstract

Purpose

The purpose of this paper is to formalize a general equilibrium circular causation relationship model in the Islamic economic framework between wealth tax (Zakat), Islamic bank and the real economy.

Design/methodology/approach

Mathematical modeling along with explanation.

Findings

The integrative interrelationships can be formalized only under the assumption of unity of knowledge as derived from the foundation of oneness of the divine law (shari’ah) according to the Qur’an, Prophetic traditions (Sunnah) and social discourse.

Research limitations/implications

A future work would be to empirically estimate the general equilibrium model.

Practical implications

A guidance to Islamic banks on the constructive utilization of Zakat fund for productive transformation in the real economy.

Originality/value

A general equilibrium model guided by the episteme of oneness of the divine law at work, hence unity of knowledge at work in real problems of ethics and economics according to the Islamic worldview.

Citation

Alam Choudhury, M. and Syafri Harahap, S. (2008), "Interrelationship between Zakat, Islamic bank and the economy: A theoretical exploration", Managerial Finance, Vol. 34 No. 9, pp. 610-617. https://doi.org/10.1108/03074350810890967