Whither Tabung Haji?

Published in Astro Awani & Asia News Today, image by Astro Awani.

The decision to place Lembaga Tabung Haji (TH) under the regulation of Bank Negara Malaysia (BNM) has created a passionate response among the Muslims here, despite the assurance that it is an interim solution until the findings of the Royal Commission of Inquiry (RCI) are presented to the government for further actions.

No surprise here on why it has created a passionate response. When TH was first established in 1963, it was the only institution – one of its kind – where you can never find it anywhere else in the world including Muslim countries.

Since then, it has become a model for some Muslim countries which went on to establish similar institution.

The government has emphasised the regulatory improvement of TH that it has in mind is in line with its intention for TH to return to its original mandate of managing depositors’ savings for the purpose of performing hajj, in addition to savings for investment.

“BNM’s regulatory scope at present, pending the completion of the RCI, is focused only on deposit taking, as well as risk and liquidity management, with a different regulatory framework from the general rules imposed on other banking institutions,” said the Ministry of Finance in a statement.

The government has good grounds to place TH under the supervision of BNM. The simple incontrovertible fact it needs government intervention to prop up TH’s financial resources after an economic downturn hits the country is a good enough reason that the fund, which manages some RM82 billion in assets, requires major changes to the way it operates.

Hence, the proposal to improve TH’s management and operations would involve a new policy model and a review of amendments to the Tabung Haji Act 1995.

It cannot still operate under the present structure where politicians sitting on the board had played a pivotal role over its management and investment panel that had led to the sorry state of affair, resulting in government intervention via a recovery and restructuring plan.

Under Bank Negara’s Fit and Proper Criteria, politicians are not allowed to be on the board of companies under its watch. And the board is required to grill the management and investment panel on their decisions, not for the board to take over the roles and functions of the management and investment panel.

The establishment of RCI announced on July 14 by Deputy Prime Minister, Datuk Seri Ismail Sabri Yaakob, was precisely because under the present structure there were issues that arose from audits carried out in the board.

Hence, among the scope of the RCI is to focus on findings by the consultants on issues related to Tabung Haji from 2014 to 2020, but would not involve the Tabung Haji Recovery and Restructuring Plan.

According to the deputy premier, “the RCI is also to determine if there were elements of cover up and if misleading information was provided” apart from recommending appropriate action to be taken against parties that were either directly or indirectly involved in any wrongdoings, or had violated laws.

“The commission is to present to the government its findings and recommendations on the next course of action, if necessary, within three months,” he said.

TH’s RM82 billions of assets under management is a huge amount that will have a knock-on effect on the economy, especially the financial markets, if it is not properly managed.

BNM has an interest in this because among its roles and functions are to ensure monetary and financial system stability, developing the financial system infrastructure in advancing the financial inclusion agenda, and providing advice on macroeconomic policies and the management of public debt.

The RM82 billion deposits of TH – the highest since its establishment in 1963 – represents 10% of the entire deposits within the country’s Islamic banking industry which must be governed with concomitant checks and balances mechanisms in place because the deposits are placed in Islamic banking institutions.

Since the government guarantees the depositors’ savings in TH under Section 24 of the Tabung Haji Act 1995, it has a bigger stake and responsibility to ensure the savings are better regulated to ensure prospective pilgrims will be able to perform the hajj, and TH can continue to generate income from shariah-compliant investments.

The government also has given its pledge the absolute rights of the management and operations of the hajj would still be carried out by TH while it is under the supervision of BNM.

All the above reasons alone are more than sufficient to allow TH be under the supervision of BNM because it will result in a stronger, financially healthier and better TH of the future, especially in a post Covid-19 world.

But why were there strong passionate arguments against placing TH under BNM’s supervision, especially when most of the arguments are already addressed by the government and TH themselves?

If we analyse these arguments, the common thread in all of them is a plea not so much for the government not to implement its idea but rather to take the time to consult all stakeholders before coming to a decision, and also for the government to wait for the outcome of the RCI and its recommendations before implementing its decision of a new policy model and a review of amendments to the Tabung Haji Act which the supervision of BNM entails.

This is a fair concern in light of the need for inclusivity especially when the highest deposit currently attained at RM82 billion is a clear sign of the people’s confidence and trust in TH.

So, if time is of the essence, the onus is on the government to speed up on the meetings of the RCI by quickly getting its members, terms of reference and schedule of its deliberations announced soonest possible.

The government has already said it expects the RCI to present its findings and recommendations on the next course of action, if necessary, within three months. But three months can be a long time if the first meeting of the RCI takes a longer time to materialise.

While the RCI is having its deliberations, the government should be on a consultation spree with TH’s stakeholders to assure them and to quickly work on TH’s proposal that a comprehensive study be conducted by the Prime Minister’s Department, Finance Ministry, and Bank Negara to evaluate the proposed new policy model by taking into account the existing capacity including assets, liability, human resources expertise and others.

Jamari Mohtar is Director, Media & Communications at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.