ON March 12, Lembaga Tabung Haji (TH) announced a hibah, or dividend rate, of 3.05% for its financial year ended Dec 31, 2019 (FY2019). While the rate was higher than the 1.25% announced for FY2018, it was still much lower than TH’s historical ones of between 4.5% and 6.5%.

Rates of between 3% and 4% are the new normal for TH as the top management aims to take it back to what it was set up for — to be a savings fund for Malaysian Muslims to use for a once-in-a-lifetime pilgrimage to Mekah and Madinah.

But as the cost of the pilgrimage keeps increasing year after year, will the lower dividend rate make it unaffordable for Malaysian Muslims to perform the Haj? Should TH strive for higher returns by investing in riskier assets to meet its obligation of absorbing some of the cost of performing the Haj?

To CEO Datuk Nik Mohd Hasyudeen Yusoff, the fund has a unique responsibility that none of the other investment funds in the country have. Besides managing its depositors’ money, it also has to manage their pilgrimage to Mekah and absorb a portion of the cost.

“Asset allocation is the big strategy. You invest in such a manner because you want to meet certain objectives — in our case, we want stable income. We are managing money for people who want to go to Mekah, so we don’t want to expose them to too much of a risk.

“But, of course, when you invest, you look at where the opportunities are as well. So, I think our asset allocation is quite flexible, in the sense that if we see opportunities, we can react to them,” he tells The Edge in an exclusive interview.

Following the restructuring of TH’s assets and liabilities in 2018 — including the transfer of its non-performing investment assets to Urusharta Jamaah Sdn Bhd — a Minister of Finance Inc company — the board of directors adopted an asset allocation strategy that relies heavily on fixed-income investments.

Fixed-income investments now make up 55% of TH’s asset allocation while equity investments make up 25%. Property investments contribute about 15% and money market instruments, the rest.

“You have to go back to basics. It is a savings structure, meaning you are expected to save money in addition to getting returns. TH was started because there were no avenues for Muslims to save money in a shariah-compliant way for them to go for Haj.

“So, we need to make sure that this concept requires you to keep on saving but, of course, on the other side, we are not going to just keep your money — we will invest it. Of course, if you take higher risks, you will get higher returns, but the risk could crystallise,” says Hasyudeen.

“I think our depositors wouldn’t want to see a situation where we have to restructure TH’s investments.”

Haj subsidy makes it harder to give high returns

TH is indeed an important public institution, with 9.3 million depositors who make up half of Malaysians who profess Islam. That is why developments at TH could have political ramifications throughout the country.

The fund has been absorbing some of the pilgrimage cost since 2009. Back then, the actual cost of performing the fifth pillar of Islam for eligible Muslims was around RM12,000. With pilgrims paying RM9,980 for the basic Muassasah (all-inclusive) package, TH had to absorb only about 16.8% of the cost every year.

However, the cost has been increasing every year because of inflation and Saudi Arabia’s policy concerning the Haj. This year, the actual cost is RM22,900 but the Muassasah package for the average pilgrim is still RM9,980.

This means around 56.5% of the cost is being absorbed by TH, which is eating into its income and hampering its ability to provide depositors with higher returns. Last year, TH spent close to RM370 million on absorbing the pilgrimage cost.

The dividend income from a TH investment account is calculated net of zakat, which takes up 2.5% of income. This, together with the higher absorbed cost of Haj, saw TH lose 50 basis points from its dividend rate last year, says Hasyudeen. “It is meant to be a savings fund for pilgrimage but, of course, our returns help the pilgrims get there faster. We are not like the EPF (Employees Provident Fund) or PNB (Permodalan Nasional Bhd), which only manage funds. TH does two things — manage funds and Haj operations.

“We can push for higher returns but by doing so, we will also take on higher risks. Is that TH’s purpose? We will try our best to administer the depositors’ money but the returns must be in line with TH’s purpose.”

Will there be more asset disposals?

As much as RM9.63 billion worth of TH’s assets were transferred to Urusharta Jamaah in 2018, fulfilled by the issuance of RM19.9 billion worth of sukuk. The more than RM10 billion difference was borne by the government to ensure the successful restructuring of the fund.

The fund is now left with investments in only four public-listed companies — BIMB Holdings Bhd and its listed subsidiary Syarikat Takaful Malaysia Keluarga Bhd, TH Plantations Bhd and Theta Edge Bhd. 

BIMB, the holding company of Bank Islam Malaysia Bhd, is the jewel in TH’s crown. The fund has a 53.82% stake in the Islamic financial institution, which was worth RM2.82 billion at its closing price of RM2.92 per share last Wednesday.

BIMB paid a dividend of 61.95 sen per share in its financial year ended Dec 31, 2019 (FY2019), which translates into RM597.8 million worth of dividends for TH.

Hasyudeen reiterates that as an asset manager, TH will always look for opportunities when it comes to investment in assets, even with regard to its investment holdings. “However, BIMB will remain a strategic holding because we have certain objectives for the bank. We are looking at helping SMEs, so rather than doing a scheme under TH, we will do it through Bank Islam.

“BIMB is performing very well and we like the level of dividends it gives us every year … We have a portfolio of assets and each component provides us with returns and objectives.”

For years, BIMB has been the target of rumours about the merger of Islamic banks in the country. In 2007, it was said that it would be merged with Maybank Islamic Bhd and in 2015, there was talk that it would tie up with Malaysia Building Society Bhd. In November 2017, the government was said to be keen on a merger between BIMB, Bank Simpanan Nasional Bhd (BSN) and Bank Muamalat Malaysia Bhd. BSN is a government-owned development financial institution while Bank Muamalat is a subsidiary of DRB-Hicom Bhd.

Hasyudeen says TH is open to a merger between BIMB and other Islamic financial institutions but only if it brings greater returns and is a step towards achieving the fund’s objective of investing in BIMB in the first place.

However, nothing is on the table at the moment, he adds.

Investments must be for the good of depositors

Prior to the restructuring and asset transfers in 2018, TH had investments in a wide range of companies, including a 30% stake in TH Heavy Engineering Bhd (THHE) and a 29% stake in Pelikan International Corp Bhd.

Through TH Hotel & Residences Sdn Bhd, the fund also owned six hotels throughout the country. Four of the hotels, located in Kota Kinabalu, Alor Setar, Bayan Lepas and Kuala Terengganu, were transferred to Urusharta Jamaah.

When asked whether TH is obligated to take up all the assets that were transferred to Urusharta Jamaah when the tenure of the sukuk ends, Hasyudeen says no. “We are in the business of managing depositors’ money. If that asset cannot generate returns for the depositors, then it is not worth our while to take it up. So we have to be very careful about what assets we should take up to generate returns for our depositors.”

When asked whether the fund was looking at reacquiring its investment in THHE now that Petroliam Nasional Bhd has reinstated its licence as an oil and gas service company, Hasyudeen says the fund is not looking at that option currently. He points out that if TH were to invest in a company and hold it as a strategic investment, it will need to have expertise in the sector in which the company is operating.

“You need to remember that we need capabilities. You can’t just look at a lot of sectors and not really have people who are really good in those sectors. I think this is something we are very mindful of,” he says.

At the moment, TH is consolidating its own assets to ensure that they become the best they can be. For example, in property development, it is looking at whether or not to acquire more land for TH Properties Sdn Bhd.

With RM70 billion under its management, TH is an important public institution, not only because of its fund size but also because of its importance to Muslims across the country. It is worth noting that previous governments had used TH’s dividends as a political tool to garner support from the Muslim population, whose votes are crucial to winning general elections.

In the meantime, will the current management declare dividends for this financial year even if the challenges roiling the global economy reduce its total asset value to below its total liabilities?

“No, we cannot do that,” says Hasyudeen. “The Tabung Haji Act does not allow us to do so. We have to comply with the Act. We are its custodian, so we have to honour what it says. As a professional manager, you have to act in the best interest of your depositors.

“You still have to try to grow the assets and, as far as the government is concerned, it is our responsibility to provide it with proper advice on how to deal with issues. I think that is our part.

“It is important that institutions are strengthened because, at the end of the day, we are basically investing the people’s hard-earned money in order to go for Haj.”

How the journey to the Holy Land began

After Islam made its way to the Malay archipelago in the early 13th century, many Muslims in this part of the world dreamt of going to the Arabian peninsula to perform one of the five pillars of Islam in the holy city of Mekah and visit Prophet Muhammad’s grave in Madinah.

However, the cost of doing so was so prohibitive that many had to sell whatever possessions they had at the time to cover the travelling cost and their stay there. Some became poor upon returning to their homeland.

“Back then, there were no financial institutions that operated on Islamic principles. So, the Muslims invested in cattle or land, and when the time came for them to perform the Haj, they sold these assets.

“Sometimes, they did not receive the real value of the assets, and when they returned, they became poorer,” explains Lembaga Tabung Haji CEO Datuk Nik Mohd Hasyudeen Yusoff.

To address this situation, in December 1959, Prof Diraja Ungku Aziz Ungku Hamid, a renowned economist and later vice-chancellor of Universiti Malaya, came up with the idea of establishing an organisation to manage the savings of the Muslim community in preparation for Haj.

The Prospective Haj Pilgrims Savings Corporation (Perbadanan Wang Simpanan Bakal-Bakal Haji or PWSBH) was thus set up in 1963. And from Sept 30 that year, PWSBH started receiving deposits from Muslims, which were invested in compliance with shariah law.

Thus began the journey for Malaysian Muslims with a dedicated government body managing their savings free from usury and non-shariah-compliant investments.

In 1969, PWSBH was merged with the Haj Affairs Management Office that had been in operation since 1951. The merged entity was named Lembaga Urusan dan Tabung Haji and later, in 1995, renamed Lembaga Tabung Haji.

TH has grown by leaps and bounds since 1963. From only 1,281 depositors with total savings of RM46,610, it now has about 9.3 million contributors and manages funds worth more than RM70 billion. Depending on the quota imposed by the Saudi Arabian government, between 25,000 and 30,000 Malaysians perform the Haj every year. — Kamarul Azhar