Revisiting poverty alleviation in Muslim economies: the impact of zakat and Islamic human development

Abstract

Purpose This study aims to examine the impact of zakat and the Islamic human development index (IHDI) on multidimensional poverty across member countries of the Organisation of Islamic Cooperation (OIC). It further explores how the relationship between zakat and poverty differs across regional and income classifications, offering policy insights for promoting inclusive development in Muslim-majority economies. Design/methodology/approach Using an unbalanced panel data set of 41 OIC countries from 2010 to 2023, this study applies the fixed-effects model (FEM) to estimate the direct and heterogeneous effects of zakat and IHDI on multidimensional poverty, measured through the multidimensional poverty index (MPI). Findings The results show that zakat significantly reduces multidimensional poverty across OIC countries, with heterogeneous effects across regions and income levels. The poverty-reducing impact of zakat is stronger in Asian and Arab OIC countries than in African OIC countries and increases monotonically from low-income to high-income economies, indicating the importance of institutional capacity and economic formalisation. IHDI exhibits a strong and robust negative association with poverty, reaffirming the relevance of the Maqāsid al-Shari‘ah framework. In contrast, macroeconomic variables show limited significance, while population growth remains a key driver of poverty. Research limitations/implications This study is limited by using a macro-level zakat proxy derived from gross capital formation, which may not fully reflect actual zakat collection or distribution efficiency. In addition, the IHDI construction is based on available cross-country data and may not capture all context-specific dimensions of Islamic welfare. Practical implications The findings highlight the importance of productive, digitally integrated zakat systems, while weaker effects elsewhere call for basic standardisation, improved governance and strengthened public trust to enhance compliance and effectiveness. Policymakers are encouraged to integrate Islamic human development principles into poverty alleviation programmes and promote regional collaboration among zakat authorities to reduce institutional disparities within the OIC. Originality/value This study provides novel empirical evidence by integrating Islamic social finance and human development within a multidimensional poverty framework. By combining zakat and IHDI into a single model, it introduces a faith-aligned and policy-relevant perspective on how Islamic economic values can effectively support sustainable and inclusive poverty reduction across Muslim-majority countries.