Debt-Taking and Charity-Giving Among Low-Income Households: Strengthening Resilience in Islamic Perspective

Abstract

Households’ financial problem was perceived to be solved by taking other source of fund such as debt. In Islam, taking debt should be considered as the last resource when other sources were not available. Islam gives solution for those who have financial problem. Giving just small amount of money would give barakah to the giver. Charity-giving is not privilege for the rich people, but also for those in dire conditions. This paper attempts to explore whether low-income households’ perception on consecutive debt-taking influences their perception on regular charity-giving especially to achieve stipulated outcomes, i.e. households’ financial resilience. Structural Equation Modelling (SEM) is employed to analyse 1780 data from respondents across six areas in Indonesia. Low-income households perceived consecutive debt-taking to have negative relationship with regular charity-giving and positive relationship with outcomes (households’ financial condition and lifestyle satisfaction). Meanwhile, regular charity-giving has negative relationship with the outcomes when consecutive debt-taking intervene the relationship. Financial education and selection of financing institution have been proven to have relationships with variables which influence both regular charity-giving and consecutive debt-taking behaviours. As recommendation, charity education or sharing values should be included in the current financial education program. Formal financial institutions and social finance institution should also encourage supervision and continuously give financial education to social funds receivers.

Cash Waqf Behavior: Explaining Financial Consciousness and The Moderating Role of Religiosity

“…This finding is supported by the descriptive statistics result that respondents with high financial capability tend to show high cash waqf behavior. Muslims with high financial capability (e.g., having more sources for taking on loans) may be more motivated to achieve their social welfare through charity giving (Arsyianti et al, 2018). Financial capability also enables people to practice and gain competency so they can become involved in financial institutions (Johnson & Sherraden, 2007); this might include Islamic social finance institutions, especially through cash waqf.…”

“…Huda et al (2012) and Sadallah et al (2022) find that locus of control as part of perceived behavioral control has a simultaneously significant influence on zakat behavior. Arsyianti et al (2018) adds that external locus and internal locus motives influence charity-giving behavior.…”

“…Improving financial capability should include improving individual behavior and strengthening institutions' access to financial opportunities (Sherraden et al, 2022). Arsyianti et al (2018) found that low-income households feel financially burdened by regular charitable giving, suggesting that their financial capability contributes to their charitable behavior.…”

“…Muslim participation in cash waqf has been widely investigated using various approaches, such as consumer behavior approaches through the theory of reasoned action and the theory of planned behavior (Huda et al, 2021;Iqbal et al, 2019;Razak et al, 2021); psychological approaches (Baqutayan, 2020;Baqutayan et al, 2018); and sociodemographic approaches (Arsyianti et al, 2018). However, the overall investigation remains incomplete since no studies use behavioral finance approaches.…”

Socio-Economic Determinants of Individual Muslim Zakat Payment Behavior in Indonesia

“…Personal obligations such as debt and home ownership can also affect whether individuals pay their zakat. Some studies have shown that having debt can discourage someone from paying zakat (Arsyianti et al, 2018;Arsyianti & Kassim, 2016). Additionally, research examining the correlation between homeownership and zakat suggests that individuals tend to give more money to others when they are homeowners (Wiepking & Breeze, 2012).…”