Mainstreaming Zakat Instrument to Money Demand Function

Evidence from Muzakki in Indonesia

Abstract

In the Islamic economic structure, zakat has been introduced as the main instrument. In the development of the Islamic monetary policy in particular with regard to the amount of money, zakat becomes necessary to investigate its impact. The study focuses in Java, using 200 Muzakki. Structural Equation Modelling (SEM) is adopted to examine the relationship among the seven constructs i.e., Social Values, The Rate of PLS, State, Regulation, Goods and Services, Consumption and Money Demand. While the reliability and validity were established, the structural relationship between the constructs reveals that the integrated money demand model has a strong relationship with the social value in many ways. In relation with goods and services, social value has its significant role to assist the amount of consumption to realize developed money demand model. Islamic social values significantly influence each of good and services as well as money demand model. People will increase the motive for holding money if he wishes to donate some for social purposes. In general, if the people are prosperous, the money demand will increase. Specifically, the result shows several constructs have significant impact in promoting money demand model in Islamic perspective. This suggests that the model as well as the instrument should be further implemented in Islamic money demand.