Malaysia’s Tabung Haji reckoning: The billions lost, the rescue and what comes next

[KUALA LUMPUR] Nearly a decade after financial problems at Malaysia’s state-run pilgrimage fund forced a multibillion-ringgit government rescue, the release of a long-classified inquiry has revived questions over who should be held accountable – and whether reforms since then are enough to prevent a repeat.

The 211-page Royal Commission of Inquiry (RCI) report into Lembaga Tabung Haji’s (TH) management and operations between 2014 and 2020 was declassified on Jul 29 and scrutinised at a special sitting of Parliament on Tuesday (Aug 11).

The administration under Malaysian Prime Minister Anwar Ibrahim, who took office four years ago, said it had delayed the release of the report to allow the fund to strengthen its finances and advance, while avoiding any erosion of depositor confidence. But the delay itself has heightened the controversy. 

TH was established to help Malaysian Muslims save for the haj and has since grown into a major investment institution. It holds the savings of some 9.7 million depositors and manages nearly RM100 billion (US$24.4 billion) in assets.

Over the decades, it accumulated a large investment portfolio to generate returns for depositors, with interests ranging from plantations to property at home and abroad, including prime London real estate.

While the fund’s past financial woes were widely known, the details of the governance lapses have fuelled calls for those responsible to be held accountable. 

Paying out more than it could afford

Crucially, the RCI found that the distributions paid between 2014 and 2017 did not meet safeguards under the Tabung Haji Act, which permits payouts only when the fund has distributable profits and its assets exceed its liabilities.  

A financial review found that the institution had been operating with an asset-liability deficit since 2014. By end-2017, assets stood at RM70.3 billion against liabilities of RM74.4 billion.

The RCI also found that, had the applicable accounting standards been properly applied, TH would have recorded a RM1.4 billion net loss for 2017 instead of the RM3.4 billion profit reported.

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The warning signs had surfaced years earlier. Bank Negara Malaysia issued five warning letters over TH’s weakening financial position, reserves and liquidity from 2014, but Parliament was told this week that the warnings went largely unheeded. 

The commission identified weaknesses in financial reporting, governance and investment decision-making, as well as political interference.

The big rescue

A 2018 recovery plan warned of a run on deposits, with just 1.3 per cent of depositors holding half of all savings. About RM6 billion was subsequently withdrawn in a short period. Had the fund collapsed it could have exposed the government to RM74.5 billion in TH liabilities because deposits were state-guaranteed. 

In December 2018, the government moved to repair TH’s balance sheet by transferring underperforming assets to Urusharta Jamaah Sdn Bhd (UJSB), a special-purpose vehicle owned by the Ministry of Finance.

UJSB issued RM19.6 billion in sukuk and paid RM300 million in cash – a total consideration of RM19.9 billion – against assets with a market value of RM9.7 billion at the time, indicating a gap of RM10.2 billion.

The RCI regarded the UJSB mechanism as the least disruptive option available to stabilise TH, but cautioned that the restructuring did not resolve underlying weaknesses in governance, risk management and cost controls.

Winding up Tuesday’s debate, Finance Minister II Amir Hamzah Azizan laid bare the scale of the legacy losses: the 14 investments flagged by the RCI had resulted in nearly RM13 billion in total losses.

Of this, RM10.2 billion was ultimately borne by the government through the 2018 rescue, while TH absorbed a further RM2.6 billion between 2018 and 2025. 

Finances have recovered but reforms lag

TH’s 3.5 per cent profit distribution for 2025 was the highest in eight years, while total assets of RM98.58 billion exceeded liabilities of RM95.63 billion.

Transparency International Malaysia (TI-M) president Raymon Ram told The Business Times that “there has clearly been material progress since 2018.” But he cautioned against equating financial rehabilitation with completed institutional reform.

TH says 75 per cent of the RCI’s 25 recommendations have been implemented. Profit distributions have been based on audited annual financial statements since 2022.

Dara Waheda Mohd Rufin, senior manager of research at the Institute for Democracy and Economic Affairs (IDEAS), said important structural issues remain unresolved.

She called on the government to clarify which recommendations were outstanding and provide a timeline for implementation.

“Reform cannot be limited to repairing Tabung Haji’s finances, it must also strengthen the institutional safeguards that determine who is appointed, how decisions are scrutinised and how those entrusted with public institutions are held accountable,” she told BT.

The RCI also recommended changes to the Tabung Haji Act 1995, including clearer division of responsibility for haj operations and financial management, stronger expertise requirements for board appointments and restrictions on active politicians serving on TH and subsidiary boards.

Facing the music 

The Malaysian Anti-Corruption Commission has since remanded five individuals, including former managers and executives linked to TH subsidiaries, in investigations arising from the report. 

The RCI recommended forensic audits into the 14 investment decisions, seven of which went under water.

They included investments in Malaysian property, Saudi hotel leases deemed “unusual and highly abnormal”, Indonesian plantations and shares in agribusiness FGV, with the RCI flagging issues ranging from unmet investment conditions and unpaid proceeds to alleged overpayment, weak safeguards and substantial impairments. 

Looking beyond Tabung Haji

For observers, the implications extend beyond TH. 

Universiti Sains Malaysia associate professor Azmil Tayeb said the scandal risks eroding confidence in the institution, particularly among Muslims “who have been saving for a lifetime to go on haj”.

TI-M’s Ram said the principle extended beyond TH to other institutions entrusted with substantial public funds and strategic assets.

“Board positions in institutions managing significant public funds, depositors’ savings or strategic national assets should never be treated as political rewards. They are fiduciary responsibilities,” he said.

What comes next?

The immediate test is whether investigations lead to action and the remaining RCI recommendations, including amendments to the Tabung Haji Act, are implemented. 

Ram said publication of the report and parliamentary scrutiny should mark “the beginning of accountability, not its conclusion”.

“The lasting measure of reform will not be whether Tabung Haji has recovered from the failures identified by the RCI, but whether Malaysia has built a governance system strong enough to prevent those failures from happening again,” he said.