Tabung Haji: Roles as an Islamic Assets Management Institution

IFE 750 ISLAMIC ASSET AND WEATH PLANNING MAJOR ASSIGNMENT: THE ROLE OF TABUNG HAJI AS AN ISLAMIC ASSETS MANAGEMENT INSTITUTION

PREPARED BY AHMAD SAUFE BIN NAWI 2009114839

SUBMITTED TO ADJUCNT PROFESSOR DATUK VASSEHAR HASSAN ABDUL RAZACK

04 NOVEMBER 2010

MASTER IN BUSINESS ADMINISTRATION GRADUATE BUSINESS SCHOOL FACULTY BUSINESS MANAGEMENT

INTRODUCTION

The early beginning of Lembaga Tabung Haji In accordance with the concept of Islam as "Addeen" religion for the world and the hereafter, all the worship of Allah SWT commenced to benefit the world and the hereafter. On conviction pilgrimage, Muslims pushed raise money to enable them to afford to meet expenses in the Holy Land. In order to avoid essentials of riba 'is illegal in the Islamic side, many traditional methods of saving money is practiced. There is also a selling culture and inheritance property to make up the expense to the Holy Land, which eventually lead to economic pressure on themselves and family, during and returning from their pilgrimage. These practices are also ultimately damage the structure of the rural economy and intimidate economic growth. To further improve the services and facilities to potential pilgrims, in 1969 the corporation merged with the Office of Pilgrims Affairs operation in Penang, and thus was born the Managing Board and Tabung Haji or simply Tabung Haji, which is established under the August, the Managing Board and Tabung Haji in 1969 with the aim to enable Muslims to save gradually to meet the expenditure pilgrimage, or other benefit expenditures, allows Muslims through their savings to take part more effectively in the field of investment by way of that on the side of Islam, and to provide protection, control and welfare of the pilgrims who perform the pilgrimage to various facilities and services. Tabung Haji has set the goal of providing good service, perfect and very satisfying to Malaysian pilgrims in the business of pilgrimage, giving the maximum profit to the depositors of their savings. This fact is clearly shows that the Provident Fund was established not only to manage the departure of pilgrims to the Holy Land, but it also serves as an alternative body to the Muslims in Malaysia to save money while investing in clean and in accordance with Islamic principles.

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Tabung Haji is very responsive to developments and changes that swept the world in the 90s era. In order to guarantee continuity of its competitiveness in the era of globalization, a study was made in 1995 to expand the scope and role of Tabung Haji. Consequently, on 1 June 1995 a new act of the Pilgrims Fund Act 535, Act, 1995 enacted the act to eliminate the old and the name of the Managing Board of Tabung Haji and Lembaga Tabung Haji is replaced by the August 28, 1997, and coincided with the introduction of the letters TH stands for substituting the name of Tabung Haji.

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The Role as an Islamic Assets Management Institution Since its successful establishment, Tabung Haji plays an important role in mobilizing the saving from the Muslim by putting the depositors’ money in various polls of investment instruments. Nowadays Tabung Haji is the most prominent Islamic Assets Management Institution in the country in appreciating the wealth to the Muslim benefits especially to its depositors. Funds raised from depositors' savings are invested to get a return on selected businesses to comply with Islamic law. Responsibility in investment activity and led implemented by the Department of Investment and Finance Department Corporate & Service. Decisions made in investing activities implemented through the process of monitoring and research comprehensive. Investment prospects will go through several stages before final approval is given in the Minister. In making investment decisions, Tabung Haji is assisted by an independent Panel. The panel consisted of members of corporate groups, economic experts, and investment legislation of sharia. This panel will also help in terms of advice and view of each potential investment, as well as assist in formulating and implementing policies and the new investment procedures.

Above diagram showed the flow how an investment portfolio being assessed before a decision to put some fund in that investment portfolio. The first process of assessment and evaluation of a potential investment portfolio is by assessing the portfolio investment risk and this part will be done by the risk management department of Tabung Haji. After the risk for the portfolio investment is being calculated, the investment portfolio then will be managed by the portfolio assessment committee before being proceeded for any discussion and analysis of the investment proposal in the pre – council meeting. Later, upon granting green light from the pre – council meeting, the investment portfolio will then undergo the investment panel. The investment panel will provide recommendation on the investment portfolio and will precede it to the post – council meeting. During the post – council meeting, it will be following up the advice from the investment panel to be forwarded to knowledge of the board of directors. Once the investment portfolio approved by the board of directors, the board of directors later will seek for Minister in Prime Minister Office (currently: Brigadier General (Retired) Dato’ Jamil Khir Baharom) approval for the investment portfolio. Tabung Haji later can invest in the investment portfolio once approved by the Minister. In the case of disapproval of investment portfolio, it will be return back to the board of director and backward from it was first start by calculating the risk done by the risk management department to have some modification on the investment portfolio. As an Islamic Asset Management Institution played by Tabung Haji, it mobilize the saving from its depositors by investing them into various investment medium such as in equity investment, fixed income investment, halal food industries and others instrument that is in accordance with Syariah. Coinciding with the objective of its establishment to provide an opportunity for Muslims in Malaysia, through their savings, investments and businesses to venture into the country, has participated in areas of potential investment and assure that include short-term stock investments and long-term economic sectors such as industrial, service, farming and property ownership.

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In the conduct of investment activities, the management of TH has always adopted a policy of careful investment and prudent. Any activity undertaken by the companies involved will be regularly monitored to ensure they are lawful and profitable and viable. TH is also actively investing in these instruments of Islamic finance investments such as bonds, corporate notes, government investment certificates, bank account Mudharabah and "bill of acceptances." Investments in subsidiaries are Tabung Haji strategy to enable it to engage directly in the sectors that have the potential and viability. At this time, given the investment focus on sectors of farming, property development, construction, service and production of halal products. Five wholly owned subsidiary of Tabung Haji which operate in these sectors are: TH Plantations Berhad (The plantation sector), TH Properties Sdn Bhd (Property development sector) ,TH Technologies Sdn Bhd (Construction sector) ,TH Travel & Services Sdn Bhd (The services sector, Hajj, Umrah and tourism) ,TH Global Services Sdn Bhd(distribution and manufacture of halal food and beverages sector).

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Equity Investment In accordance with its vision, Tabung Haji maximizes the Muslim wealth in this country by investing in equity as such stock that permissible by Syariah. Equity investment is a major investment Tabung Haji. Until December 31, 2008, book value Net equity investment of almost RM10.7 billion and dominate the allocation of assets in excess of 50%. With this large amount of investment, Tabung Haji holds shares in 180 listed companies, 53 companies were not and 16 other listed subsidiaries (including a company listed subsidiary). Malaysian stock market was started in 2008 with the strong, continued good performance of 2007.

However, starting from the second quarter in 2008, the share prices on Bursa

Malaysia had begun to decline in the impact of the crisis global finance. In the second half of 2008, economic recession began to hit the developed countries and lead to falling commodity prices. The stock market commodity-producing country such as Malaysia has also experienced a decline sharply. The movement of the Composite Index (KLCI) and the Index Sharia (FTSE Bursa Malaysia Emas Shariah) during 2008 is shown in the charts follows.

Gain on trading of shares in the year 2008 showed a decrease of RM880 million or 71% from RM1.23 billion in 2007 to RM353 million in 2008. In addition, equity investments have also generated a total of RM578 million, income from dividends, increased over 100% compared to 2007. Profit from trading stocks and income dividends from equity investments accounted for respectively 23% and 38% of total revenues recorded by Tabung Haji in 2008.

Fixed Income Securities Investment Another way Tabung Haji maximize the Muslim wealth is by making investments in fixed income securities include investments in bonds and commercial paper and funding to subsidiary and corporate. Until December 31, 2008, total net book value investment in fixed income securities totaled RM3.3 billion, representing 16% of the asset allocation of Tabung Haji. Size of fixed income securities market in Malaysia for in 2008 rose to RM542 billion for both government and corporate bonds, where 37% of is based on Syariah.

Halal Food Industry Investment Tabung Haji has identified the halal food sector as a strategic investment in line with government to develop this industry. Business identified includes food processing and beverages, poultry meat and dairy, cosmetics, care healthcare and pharmaceuticals. Tabung Haji will also find strategic investment opportunities in companies the potential to grow food.

Investment in Islamic banking Tabung Haji investment in banking sector led by BIMB Holdings Berhad (BHB), the associate listed on Bursa Malaysia. For the year 30 June 2008, the BHB has been recorded turnover of RM1.43 billion or 16.3% increase compared with RM1.23 billion the previous year. The profit before zakat and taxes, was RM379.6 million or 36.7% increase compared to RM277.6 million the previous year. Further, BHB pay a dividend of 1.45% after tax for financial year 2008. Results generated by its robust BHB Company, Bank Islam Malaysia Berhad (Bank Islam), which is the pioneer and market leader in the banking industry Islam in Malaysia. Islamic Bank recorded a turnover of RM1.18 billion (up 16.8% from RM1.01 billion in earlier) while profit before zakat and taxes, it is of RM316.9 million (an increase 49.5% from RM212.0 million the previous year). Tabung Haji and Bank Islam have also embarked

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strategic partnership through Auto Teller Machine Integration System (ATM) and Cash Deposit Machine (CDM) Bank Islam 15 April 2008 to facilitate the depositors Tabung Haji to manage their savings through the Islamic Bank ATM and CDM. This is one of value added customer service especially on the Tabung Haji depositors account holders of Bank Islam.

Private Equity Investment Tabung Haji has identified private equity as a source of potential investments to generate a stream of income and long-term returns to Tabung Haji. So far, Tabung Haji has identified an investment in the concession business is expected to profitable returns to the Tabung Haji. In addition, Tabung Haji will continue to explore investment potential in the services sector to ensure the continued growth of such sectors health, education and nutrition industry.

Property Investment In an effort to generate returns that are competitive in an increasingly challenging market, Tabung Haji has again active in the search for real estate investment opportunities. The approach is cautious and selective in evaluating an investment has been given the opportunity to Tabung Haji to select potential investments the expected returns. Tabung Haji plays its role as an economic pillar of the community with strategic real estate ownership. Tabung Haji plans to buy office buildings Lityan located in Peremba Square, Saujana Resort, and Selangor In the agreement signed on 30 October 2008. This building will be leased by Lityan for its headquarters. Tabung Haji has also received approval for the purchase of 38-storey office building near Platinum Park by KLCC to be developed by TTDI Development Sdn Bhd, a property developer. With a floor area of 359,000 square feet and is expected to completed in 2013, this prestigious building will be meet the requirements of grade A office space and demand tenants in this premier location. Outside the country,

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especially in the city of Mecca and Medina, Saudi Arabia, Tabung Haji continue to seek investment which can give good returns and achieve objectives provides accommodation to pilgrims comfortable during the pilgrimage season at reasonable prices. In May 2008, Tabung Haji has successfully entered lease agreements Movenpick Hotel in Madinah for 10 year for Malaysian pilgrims during the season Hajj and Umrah pilgrims open to all when outside Hajj season. In 2008, the monitor acting Tabung Haji investment in development projects Hajar Tower, the Makkah is currently under construction and expected to be completed complete by mid 2009. In short, in academician point of view Tabung Haji has played significant role in managing the Islamic Assets and wealth in our country’s perspective. It’s pure objectives to maximize the Muslim wealth is honorable effort made by the one and only body that have pure initiative to put the Muslim Ummah ‘s pride in the eyes of the world.

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