Whether it is placed under Bank Negara Malaysia or the Securities Commission, or resets itself with more prudent investment guidelines, what is certain is that the Pilgrims Fund Board (Tabung Haji) needs a stricter level of supervision on the handling of money.
The simple fact that it needs government intervention to shore up its financial resources after an economic crisis hits the country is reason enough that the fund, which manages some RM82 billion in assets, requires major changes to the way it operates. It cannot continue to operate under the current structure where it comes under the purview of the Minister in the Prime Minister’s Department in Charge of Religious Affairs.
For the time being, the government, via the Ministry of Finance, will place Tabung Haji under Bank Negara Malaysia until a Royal Commission of Inquiry (RCI) on the management of the fund from 2014 to 2020 is completed.
Some quarters in PAS and Umno — the two main Malay-based political parties — are against Tabung Haji coming under the watch of Bank Negara. Umno Youth leader Datuk Asyraf Wajdi Dusuki proposes that the fund be placed under the Securities Commission since it collects deposits and invests the money.
Under the watch of an investment panel, Tabung Haji invests the deposits into fixed income, equities, properties and a few private ventures. It used to give decent return to depositors — more than what the Employees Provident Fund (EPF) offered — until the financial year 2018, when there was a change in government, and following an audit by a leading accounting firm.
The audit for the financial year ended December 2017 found that the fund was not able to pay out dividends between 2014 and 2017 because its liabilities were more than its assets. The fund managed to get clearance to pay out dividends by under-providing for its investments. The under-provision was allowed by the minister in charge then.
For instance, TH Plantations Bhd, in which it holds substantial interest, was booked at RM4.70 per share in the accounts when the market price was only RM1.70 at the end of 2017.
The case for Tabung Haji to come under the watch of Bank Negara is that it will be de-politicised, its capital adequacy and liquidity will be stress-tested, and dividend payments will not be at the discretion of the board and management. Moreover, deposits are already guaranteed by the government.
Under Bank Negara’s “fit and proper rule”, 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.
The argument to not place Tabung Haji under Bank Negara is that it would be subjected to strict regulatory measures, affecting its ability to invest effectively and give returns to its depositors.
A PAS leader has suggested that the shortcomings of Tabung Haji can be rectified by strengthening the board and investment panel.
What he says is true. What Tabung Haji lacks is a strong board and an astute investment panel that look into ensuring capital preservation as the priority for investment decisions. It can be done by changing the laws governing Tabung Haji.
But so far, there is no political will to rectify and institutionalise the framework of Tabung Haji that curtails politicians from coming on board. The requirements for its investments being subjected to robust stress testing — and its operations constantly checked for liquidity risk — are loose.
There is no political will to make accountable the board, the investment panel and the top management. Politicians tend to be appointed to the Tabung Haji board and the investment panel allows questionable investment decisions by the management.
This eventually results in the fund’s investments performing miserably when there is an economic downturn.
It has happened before in the year 2000. In the aftermath of the 1997-98 Asian economic crisis, Tabung Haji saw an almost complete overhaul of its investment panel of eight members, with seven of them replaced. The group’s operations were restructured into six entities, with plantations being identified as one of the core business activities.
The clean-up took place under the helm of Tan Sri Mohd Bakke Salleh, who was appointed to Tabung Haji as group managing director and chief executive, a position he held from 2001 to 2005.
Bakke left Tabung Haji in December 2005 to head Felda Holdings Bhd. He was replaced by Tan Sri Ismee Ismail, who helmed the fund from January 2006 to 2016.
Ironically, Ismee was a long-time board member of troubled 1Malaysia Development Bhd (1MDB), an entity from which Bakke resigned as chairman after only a few months, suspecting irregularities pertaining to its transaction with PetroSaudi International. Ismee resigned from 1MDB only in May 2016, by which time it had already been established that funds raised by 1MDB had been illegally channelled to individuals and that the entity had liquidity issues.
An active politician, Datuk Seri Azeez Abdul Rahim, was appointed to the board in 2011 and made chairman in 2013. To be fair, he was one of the many politicians who were appointed to Tabung Haji over the years.
Azeez resigned from Tabung Haji after the change in government in 2018. Now, he is being charged with alleged corruption for road projects and money laundering involving an amount of RM140 million.
Generally, the management and executives in Tabung Haji are competent. But oversight of the board and investment panel is weak, partly due to the fact that they are only answerable to the Minister of Religious Affairs, who is normally a politician or, in the current case, a political appointee.
It is hard to fathom how the Tabung Haji board and investment panel can be strengthened without an external oversight authority that comes with no political alignment. Either the laws governing Tabung Haji need to be changed or it has to come under a more stringent supervisory body such as Bank Negara.
As for the depositors, irrespective of which regulator Tabung Haji is eventually placed under, all they want is a financial institution that will safeguard their savings that is meant for performing the haj and, at the same time, provide them with decent annual returns.
M Shanmugam is contributing editor at The Edge