Tabung Haji, a truly Shari’ah-based institution

How Malaysia’s Tabung Haji could provide Haj financing a Shariah-compliant model

By MUSHTAK PARKER | ARAB NEWS Available at: http://arabnews.com/economy/islamicfinance/article190862.ece

THE annual pilgrimage to Makkah in Saudi Arabia takes place this week when up to three million Muslims from all over the world converge on the holy places in Makkah and Madinah and its satellite towns to perform Haj, which is one of the five pillars of Islam.

While the Haj is deemed a spiritual journey, since its inception, it has always been associated with economic activity such as trade when Muslims converged on Makkah from all parts of the Ummah trading with each other and of course at the same time performing rituals of Haj.

While Saudi Arabia as the birthplace of Islam and the host of the religion’s holiest sites has spent billions of dollars in improving the transport, accommodation, health and other infrastructure associated with the Haj over the last three decades, the external management of Haj, especially the travel packages and cultural awareness and education programs, need further improvement.

The one outstanding exception is Malaysia, which in 1963 launched Lembaga Tabung Haji (The Malaysian Pilgrims’ Management Fund). Ask anyone who has been on Haj and he/she will praise the facilities of the Malaysian pilgrims in Saudi Arabia. The inspiration behind Tabung Haji was Royal Professor Ungku Aziz, the father of Zeti Akhtar Aziz, governor of the Malaysian central bank.

Tabung Haji, however, is not merely a pilgrims’ travel and Haj service. It is much more than that. It is in fact a non-banking Islamic savings institution set up under a Special Act of Parliament and comes under the direct control of the Prime Minister’s Office in Malaysia. Its board and senior management are all appointed by the Prime Minister’s Office and they are accountable to the Malaysian government.

Tabung Haji’s original brief was to facilitate a smooth and honest service for would-be pilgrims, especially the rural and urban poor, who had hitherto been ripped off by unscrupulous middlemen and travel operators. However, over the years the institution has been transformed into a modern non-banking “building society.”

Today Tabung Haji’s total funds under management are a staggering 23 billion Malaysian ringgit making it the largest non-banking Islamic savings institution in the world. Its members comprise over five million, thus its added value is that of a savings mobilization entity. The fund has experienced the occasional management upheaval and even the odd fraud.

But it is endearing to the Malaysian government and people and many Muslims worldwide. During the Asian financial crisis in 1998, Tabung Haji even helped bail out some of the Malaysian companies that were under pressure from the crisis.

Today Tabung Haji has investments in Islamic banks (it has an 18.53 percent equity stake in Bank Islam Malaysia), technology companies, plantations, real estate and global services.

The disappointment is that Tabung Haji has singularly failed to export the model to other Muslim countries and those with large Muslim minority populations. It has been criticized of being too conservative, parochial and inward looking. A visit to its website, for instance, will show no English homepage — only in Bahasa.

But more recently there have been murmurings of Tabung Haji seeking cross-border cooperation with other IDB-member countries. Perhaps more importantly, the Malaysian government is now realizing that institutions such as Tabung Haji can contribute much more in the international arena and Prime Minister Mohammed Najib even mentioned Tabung Haji in this respect in his speech launching the 10th Malaysia Plan.

Only a few days ago, Ahmad Husni Hanadzlah, the second minister of finance of Malaysia, urged Malaysian Islamic financial institutions to widen their reach to leverage opportunities both at home and abroad to take the sector to the next level. He urged institutions such as Tabung Haji to expand by cooperating with partners abroad.

The business model for Tabung Haji is proven. But the same unscrupulous middlemen and travel agents which the ordinary Malaysian Muslim experienced in the late 1950s and early 1960s are still prevalent in many countries where some institutions virtually have a free-for-all in exploiting the Haj and ordinary Muslims for maximum profit almost at any cost. This is true of countries such as Indonesia, South Africa, the UK and many others.

Islamic banks are heavily involved in financing Haj packages for their customers, although independent research on prices and terms offered is still lacking. Some Islamic banks such as Sharjah Islamic Bank (SIB) bend over backward to help their customers. SIB has recently launched a zero percent Haj product with the catchphrase: “Haj this year & pay over a year, without profit.” The product allows would-be pilgrims to go on Haj financed by SIB and pay over a year without any profit or additional fees.

One country where the Haj travel and service packages industry is virtually in a state of anarchy, with very little control or recourse to independent arbiters in the case of a dispute, is in South Africa which has a two million plus Muslim population.

There are allegations of wanton over-charging compared with other Haj travel operators or airlines; the arbitrary imposition of dumm (penalties) on pilgrims during the Haj; mis-selling in terms of the quality and state of accommodation and food supplied in Makkah and the environs; the single-minded pursuit of private commercial profit out of these Haj services; and the claim by one or two organizations that South Africans must go on Haj through them (which is obviously not accurate).

The latter is particularly a potentially big problem especially for the poor, uneducated and vulnerable Hajis. There have been allegations that these organizations insist on charging additional fees for instance where a Haji gets his own visa the organization will add a No Visa Fee. Similarly, the Qurbani or Fiddiya fee under the package includes a premium whereas Hajis can just walk into any branch of Al-Rajhi Bank and buy a voucher at face value.

The South African Haj travel industry is in permanent turmoil while the South African government refuses to get involved because it sees this as a religious issue. This is where the government is badly misinformed, because it’s usually the ordinary, poor and vulnerable South African Muslim would-be pilgrims that get exploited.

It is imperative that the Saudi government through the Ministry of Haj comes up with a strategic policy to bring the Haj travel and service industry into the 21st century to include both financial and social inclusion.

Saudi Arabia as the host country is the only one that can drive this policy. Given Tabung Haji’s success, Riyadh and Kuala Lumpur should seriously think of implementing the Tabung Haji model in as many countries or regions as possible. The Islamic Development Bank (IDB), which operates the Sacrificial Meat Slaughter and Distribution Project, should also be involved. They have outsourced the voucher for the Fiddiya to Al-Rajhi Bank, which has a monopoly. Perhaps it is time to widen the voucher franchise not only to include Islamic banks in the Kingdom but in many other countries. The above policy can only be implemented on a government-to-government basis because only governments have the power to implement schemes such as Tabung Haji in their respective jurisdictions.

The benefits of the above policy and strategy are manifold.

They include:

a) A Tabung Haji-like national or regional institution would be a mutual savings institution and not a commercial profit organization where a few shareholders (very often imams and so-called religious personalities) are the beneficiaries. In the case of the Tabung Haji model, it is the members (the savers) who benefit. The Board of Trustees and the senior management are appointed by the government.

b) The model is already in place so the start up costs would be minimal and can be tweaked to suit a particular national or regional environment. Tabung Haji could be the technical adviser and even a minority investor.

c) This strategy is consistent with social and financial inclusion policies, which are aimed at empowering the poor and the minorities.

d) An institution like Tabung Haji anywhere would be an excellent way of mobilizing local savings on a Shariah-compliant basis. The savings culture in many Muslim countries save Malaysia is generally very low.

e) Tabung Haji is not only a savings and investment fund, but also an educational institution thus preparing a would-be Haji on the culture, climate, health provisions, attire and on the religious rituals of Haj. This would make for a better-informed would-be pilgrim which could contribute to the smoother running and control of Hajis in an around the holy sites. This is something, which the Saudi authorities should seriously take on board, because they have the power to negotiate with pilgrim-sending countries not only on quotas but also on Haj services.

f) A Tabung Haji-like model preempts fraud, abuse and exploitation — everything that a pilgrim does not wish to be subjected to as he or she contemplates a spiritual journey, which for many poor pilgrims would be the one and only Haj they would perform in their lifetime.

g) This type of model and strategy is also a major confidence-builder and could encourage Muslims to access the wider Islamic finance industry. In the particular case of South Africa, there has been much cynicism about Islamic finance because of the mistakes and excesses which some of the pioneers including Al-Baraka Bank have made in the country.

h) A Tabung Haji-like approach would give security, comfort and recourse in law as members to ordinary Hajis who may have complaints or disputes. In this way the organization would empower Hajis rather than marginalize them to the mercy of the unscrupulous travel operators and Haj organizations.

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Muscat, Oman