ZakatTech Blockchain to track zakat collection

It is expected to enhance end-to-end Shariah compliance for the halal and Islamic finance industries

by AFIQ AZIZ/ pic by TMR

THE detailed and transparent movement of alms (zakat), from the moment of collection to the point of disbursement, could soon be tracked via ZakatTech, a pilot project that is expected to be introduced by the fourth quarter of the year.

Spearheaded by the International Shariah Research Academy for Islamic Finance (ISRA) and SysCode Sdn Bhd, the project is also the first Islamic finance transaction platform that is based on blockchain technology.

SysCode CEO Reza Ismail told The Malaysian Reserve the project is also expected to enhance end-to-end Shariah compliance for the halal and Islamic finance industries.

He said ZakatTech Blockchain would enable the tracking of funds throughout the whole process.

“Transactions are recorded via a custom asset structure which enables tracing and tracking of donated funds at an unprecedented level,” he said.

He said with such levels of transparency and traceability, the confidence of the general public to donate zakat through verified channels could be further enhanced.

“Accordingly, the total zakat collection and its distribution towards the needy can be increased and upscaling of the societal socio-economy can be effectively implemented,” he said.

Reza said the platform’s sandbox environment is already fully functional and ready to begin pilot implementations.

“Most of the Pusat Pungutan Zakat (PPZ) institutions are already aware of this initiative as we have introduced it to them in a regional muzakarah in Brunei recently.

“We are presenting to specific parties who can pilot this project towards the end of 2019. We will announce these parties accordingly when the time is right,” he added.

As it is, zakat collection and distribution involves millions of records, which are also one of the most transacted data in the country, making traceability a pivotal element in the whole transactional processes.

Last year alone, Selangor, Wilayah Persekutuan Kuala Lumpur, Putrajaya and Labuan collected a total of RM1.4 billion in zakat from about 437,000 contributors, which served over 150,000 qualified asnaf — the needy according to Islamic law.

PPZ-Majlis Agama Islam Wilayah Persekutuan alone had aimed to collect RM710 million of zakat this year, forecasting the number to reach RM1 billion by 2023.

In 2018, the agency collected RM651 million worth of zakat from 180,985 contributors where RM551.56 million was distributed to 110,045 asnaf in the same year.

In Selangor, where 52.5% of the 5.8 million residents are Muslims, the targeted zakat collection is RM900 million to accommodate more than 40,000 asnaf.

Reza said blockchain would be the best method in addressing transparency and traceability concerns regarding zakat.

“Current technology cannot ensure full transparency and traceability for

this type of transactions, where the database is built for the purpose of recording and presenting data in different forms such as strings, numbers and alphabets.

“Blockchain technology is built for the purpose of recording and securing data through the implementation of a mathematical model. Therefore, the technology proposition here is totally different.

“This ensures data integrity from the point of origin to the final point of consumption (of the said data). Using said mathematical models, we can be assured at any point of time that the data has not been tampered with, because we can calculate it,” Reza said.

Meanwhile, ISRA ED Prof Dr Mohamad Akram Laldin (picture) said the ZakatTech project would enhance the zakat ecosystem, which different zakat institutions can connect with.

“It is not an application by itself, rather a service that enables zakat institutions to use a blockchain platform to record and trace their transactions.

“Each participating zakat institution will be able to participate via its own existing application. However, a standard application will be developed by our team.

“In addition, zakat institutions will also be able to maintain and connect to their own database management systems, if they opt to. This will enable zakat institutions to manage the proceeds, and connect zakat payers and recipients in a more effective and efficient way,” Mohamad Akram said.

Reza said the platform is built on a federated blockchain environment powered by Hyperledger Blockchain Fabric, with its root nodes deployed on a custom-built cloud platform powered by Microsoft Azure.

Hyperledger is an open-source engine for business blockchain, and takes care of the most important features for evaluating and using blockchain for business use cases, while Microsoft Azure is a cloud computing service created by Microsoft Corp for building, testing, deploying and managing applications and services through Microsoftmanaged data centres.

Reza said the Hyperledger implementation does not require a “tokenised” environment, or any miners to be involved in its transactions.

“Instead, Hyperledger utilises endorsement policies by organisations and peers participating in the transaction. The Hyperledger endorsement policies are fully customisable and the platform implements different policies based on different types of transactions.

“This is in line with the objective of enabling various types of institutions to use blockchain as a service to enhance Shariah compliance,” he said.