Zakat is one of the five pillars of Islam and forms the foundation of Islamic economic system. The practice of zakat combines both the elements of ritual and revenue-raising. From zakat payers’ perspectives, paying zakat is a ritual act intended to purify their wealth. From a system of revenue-raising perspective, the main objective of zakat is to alleviate the hardships of zakat recipients, particularly the poor. We discuss the purposes of zakat and the historical development of zakat administration and management in Malaysia. We examine the current challenges and criticisms of zakat distribution and propose an integration between zakat and development impact bond as an approach to maximizing impact from zakat investment.