How Tabung Haji Continued Paying Dividends from 2014 to 2017: What You Need to Know About the RCI Report

Between 2014 and 2017, Tabung Haji paid a dividend every year, even in years when, on its audited accounts, it owed its savers more than it owned. How was that possible?

In 2022, a Royal Commission of Inquiry (in Malay, the Suruhanjaya Siasatan Diraja) set out to answer exactly that. It published its report, the Laporan Suruhanjaya Siasatan Diraja bagi Menyiasat Isu Pengurusan dan Operasi Lembaga Tabung Haji dari Tahun 2014 hingga 2020, presented on 30 August 2022.

Dividend (hibah) distributed by Tabung Haji, 2014 to 2017

Source: RCI Report on Tabung Haji, para 3.9.2 (page 112). Figures as reported (RM million, shown here in RM billion).

This article explains, in plain terms, how that happened, because the test at the heart of it, whether a dividend is real profit or just your own money handed back, is one every saver can use. Every fact and figure about Tabung Haji here comes straight from the report, with a link to the page it sits on. The only parts written in our own voice are the way the piece is framed and the short reflection at the end.

First, What a Dividend Is Meant to Be

When you keep money with Tabung Haji, you are a saver. Your money goes into a shared pool that Tabung Haji invests. The report explains that the returns are used to pay running costs and zakat, and whatever is left over may be shared with savers as a dividend, known as hibah.

The key word is "left over" and that means A dividend should be from real profit, money the fund has genuinely made on top of what it owes you. It is not meant to be a slice of your own savings handed back to you.

That is also the law. Under Section 22 of the Tabung Haji Act, Tabung Haji cannot pay a dividend unless, at the end of the year, it holds enough to cover what it owes its savers, including the dividend it wants to pay. In short: only pay a dividend if there is a real surplus of funds generated from profit.

The gap between what the fund owns and what it owes

Owns = its investments, property and cash. Owes = mostly the savers' money it must give back.

To follow the rest, keep two simple ideas in mind. What the fund owns is its investments, property and cash. What the fund owes is mostly the savings that belong to people, which they can take out. If it owns more than it owes, it has a surplus which should be the basis for dividend distribution. On the other hand, ff it owes more than it owns, it is short and it would be questionable on how dividends are derived in such scenario.

What the Accounts Showed

Using a review by the accounting firm PwC, the report set out these figures for 2014 to 2017. They are shown here in RM billion, rounded, for easier reading.

	2014	2015	2016	2017
What the fund owned	RM54.8bn	RM60.2bn	RM64.3bn	RM70.3bn
What the fund owed	RM51.9bn	RM60.1bn	RM65.6bn	RM71.1bn
Surplus or short, before the dividend	Surplus RM2.9bn	Surplus RM0.1bn	Short RM1.3bn	Short RM0.8bn
Dividend paid	RM3.2bn	RM3.2bn	RM2.9bn	RM3.3bn
Surplus or short, after the dividend	Short RM0.4bn	Short RM3.1bn	Short RM4.1bn	Short RM4.1bn

Looking at the bottom row, note that how in every year from 2014 to 2017, once the dividend was paid, Tabung Haji owed its savers more than it owned. In 2016 and 2017 it was already short before paying anything, and it paid a dividend anyway. (Because the figures are rounded, a column may look about RM0.1bn out; the exact numbers are in the report.)

The report also gives one striking figure for 2017. Had the proper accounting rules been followed in full, Tabung Haji would have reported a loss of RM1.4 billion that year, instead of the RM3.4 billion profit it actually reported.

So the accounts, read properly, showed the fund was short. How did the dividends still get paid? The report points to three things Tabung Haji did.

How the Dividends Still Got Paid

1. It Valued What It Owned More Highly

Remember the rule: Tabung Haji could only pay a dividend if it owned more than it owed. On its audited accounts, it did not. So instead of the value in those accounts, it used a higher figure of its own for what it owned, called the Realisable Asset Value, or RAV. There is no agreed market standard for working this out.

Think of your own car. It is officially worth RM30,000, but you tell yourself you could sell it for RM50,000, and then you go and spend RM50,000. You have not actually made the extra RM20,000. You have only decided you did. RAV worked the same way: it counted the price Tabung Haji hoped for, not the value on its books.

That higher 'internally assessed' figure is what let the dividend through. For 2017 it added about RM4.5 billion to what Tabung Haji counted as owning, just enough to tip it from owing more than it owned to owning a little more, leaving a thin RM0.37 billion to pay a dividend from. And much of that added value was the fund's own guess: of one RM4.6 billion property valuation, only RM0.56 billion came from professional valuers, and the remaining RM4.04 billion was management's own estimate.

2. It Recorded Its Losses Very Late

When an investment drops in value, you are supposed to write the loss into your books so the figures stay honest. The usual guidance treats a loss as serious once an investment falls about 20 percent. Tabung Haji only recorded a loss after a fall of 70 percent, later loosened to 85 and then 90 percent. In the report's own example, a share bought for RM1,000 was still shown at RM1,000 until its price collapsed to RM100. Had losses been recorded properly for 2017, about RM1.5 billion more in losses would have appeared, far more than the RM0.37 billion the fund had to pay a dividend from. The report records that the fund's finance chief said this policy was changed so the fund could pay the dividend savers expected, not to show the true value of the investments.

3. It Changed How the Dividend Was Worked Out

For 2017, Tabung Haji changed the way it calculated each saver's share, which pushed out about RM0.6 billion more in dividend that year. It was announced in February 2018, then pulled back after savers reacted badly, and the old method was used again.

Where Were the Auditors?

The report looks at the people whose job is to check the accounts. The Auditor General later admitted the 2017 accounts should have carried a formal warning, rather than the clean sign-off they were given. The outside firm Ernst & Young had only reviewed sample statements, not the audited accounts, and its partner did not dispute that, on the audited accounts for 2015 to 2017, the fund owed more than it owned. The Commission's view was plain: the RAV estimate could not be used to justify a dividend; that had to be based on the audited accounts.

What the Report Found on the Shariah Side

The report also looked at the Islamic contract behind the savings. This contract matters because it sets whose money it is and how any profit is shared.

For years, the arrangement was treated as Mudarabah, a profit-sharing partnership: savers put in the money, Tabung Haji invests it, and the two share the real profit. But the report found two problems. The most basic term of such a partnership, how the profit is split, was never written down anywhere. And Tabung Haji used some of the profit to subsidise hajj costs, which this kind of contract does not allow without the savers' agreement, and no such agreement was on record.

Then, in 2016, the contract was switched to Wadi'ah (safekeeping), where the dividend is treated as a goodwill gift rather than a share of profit, done to avoid riba (interest, which Islam does not allow). The report found no reason was recorded for the switch and no proper study was done first, and that it did not sit right with either the law or Shariah, partly because the fund could now use the money for dividends and subsidies without savers' consent. In December 2019, after a proper study, Tabung Haji moved to Wakalah (acting as the savers' appointed manager), which the report says fixed these problems.

The report also said Tabung Haji's Shariah committee should oversee how the dividend is decided, so it stays within Shariah rules, and that the dividend should be based on the audited yearly accounts, not on early management figures.

What the Commission Concluded

The Commission summed it up in one sentence. Translated from the Malay, it found that the way Tabung Haji paid its dividend from 2014 to 2017 broke the safeguard in Act 535 that is meant to make sure savers are paid from real profit, and not from their own deposits.

That is the heart of it: the dividends were not coming from profit the fund had genuinely earned. In the report's words, savers were being paid from their own deposits.

The report also noted the cost. Paying out more than it earned drained the fund's reserves, and Tabung Haji had to dip into those reserves to pay the dividend in 2020 and 2021. When the dividend was cut to 1.25 percent, some savers pulled their money out, and deposits fell from about RM73 billion to RM69 billion during 2019. The 2017 dividend was serious enough that it became the subject of a police report over allegedly misleading board papers from February 2018, and was one of the matters in internal disciplinary action.

The report's advice was simple: pay the dividend only from the audited yearly accounts, and let the Shariah committee oversee it.

And perhaps that is the real lesson, one that outlasts this single case: a dividend only means something if it is real profit. The moment a number is decided rather than earned, the person who trusted it is the one who pays.