This article first appeared in The Edge Malaysia Weekly on August 3, 2026 - August 9, 2026

THE government would ultimately have to honour its guarantee on deposits placed with Lembaga Tabung Haji (TH) if the pilgrims’ fund failed to successfully implement its Recovery and Restructuring Plan 2018.

That was among the key warnings highlighted by the Royal Commission of Inquiry (RCI) in its report released last Wednesday (July 29) following investigations into the pilgrims’ fund’s management and financial affairs between 2014 and 2020.

The guarantee, provided under Section 24 of the Tabung Haji Act 1995 (Act 535), covered about RM88 billion (back in 2022) in depositor funds. For perspective, the amount is equivalent to about 4.3% of Malaysia’s gross domestic product of RM2.03 trillion in 2025, underscoring the significant fiscal implications should the guarantee ever need to be invoked.

As at end-May 2026, depositor savings had increased to RM95.3 billion, from RM93.4 billion at end-2025. Nearly 10 million Muslim depositors in the country rely on the fund for their pilgrimage.

The RCI report exposes serious weaknesses in TH’s corporate governance, financial reporting, investment management and oversight. Beyond TH itself, the findings serve as a cautionary tale for Malaysia’s government-linked companies (GLCs) and government-linked investment companies (GLICs) on the importance of sound governance, prudent investment decisions and effective risk management.

After the fall of the Barisan Nasional government in 2018, TH underwent a major restructuring in 2019 during the Pakatan Harapan administration following years of aggressive hibah payouts and investment losses left its liabilities exceeding its assets, breaching the requirements of the Tabung Haji Act. More precisely, there was a deficit gap of RM11 billion between its assets and liabilities in 2018.

Although TH has since transferred a substantial portion of its underperforming assets to Urusharta Jamaah Sdn Bhd (UJSB) — a special-purpose vehicle wholly-owned by the Minister of Finance Inc — under its restructuring exercise, the move did not fully resolve the underlying issues. As part of the exercise, UJSB issued two sukuk totalling RM19.6 billion and injected RM300 million into TH.

As the RCI aptly observed, the establishment of UJSB was essentially a “damage-control measure” rather than a “complete solution”, as it addressed the immediate balance sheet problems without tackling the root causes of TH’s governance and investment failures.

Prime Minister Datuk Seri Anwar Ibrahim said TH had nearly collapsed because of negligence, weak financial management, greed and failures in governance despite its long-standing reputation as one of the country’s most respected institutions. He also criticised TH’s poor stewardship that had eroded the fund’s founding principles of integrity, trust and prudent financial management.

In a statement last Friday, TH did acknowledge that without the government’s bailout, the situation could have escalated into a financial market crisis and threatened the country’s financial stability, as it would have been forced to sell assets at distressed prices to meet a surge in deposit withdrawals — or a deposit run — after it was unable to declare a profit distribution to depositors.

Nonetheless, the pilgrims’ fund assured that its recovery and restructuring plan has successfully addressed RM12.6 billion in investment losses. Some RM10 billion has been resolved, with the remaining RM2.6 billion recognised progressively through the end of 2025.

TH added that its profit distribution rate had improved, rising to 3.25% for 2024 and 3.5% for 2025, compared with 1.25% in 2018.

Currently, TH is led by chairman Tan Sri Abdul Rashid Hussain as well as managing director and CEO Mustakim Mohamad.

Soon after the release of the RCI report, Anwar said a special parliamentary sitting would be held on Aug 11 to debate the findings of the report. The bigger question, however, is whether anyone will ultimately be held accountable.

It is worth noting that four police reports had been lodged in 2018 and 2019, and six matters were referred to the Malaysian Anti-Corruption Commission (MACC) over allegations, including misrepresentation, concealment of information, corruption, abuse of power, forgery and manipulation of investment reports at TH. However, none of the cases resulted in criminal charges being brought by the Attorney General’s Chambers.

Beyond addressing past failures, the key challenge now is to ensure that the lessons from TH translate into lasting institutional reforms, preventing similar lapses from recurring across Malaysia’s broader public investment ecosystem. More importantly, it should spur further governance reforms at GLCs and GLICs to safeguard public funds and serve the people’s interests sustainably.

Here are key highlights from the RCI report:

The RCI report uncovered what it described as “creative accounting” practices — the use of unconventional and often misleading accounting strategies to manipulate financial statements. This enabled TH to continue paying generous hibah (profit distributions) between 2014 and 2017 despite lacking the financial capacity to do so, ultimately eroding its reserves.

TH relied on the realisable asset value (RAV) instead of the asset value reported in its audited financial statements, to determine compliance with Section 22 of the Tabung Haji Act during the four-year period. The use of RAV inflated TH’s asset values above those reported in its audited accounts while no impairment adjustments were made for investments that had declined below their acquisition cost.

As a result, TH reported a net profit of RM3.4 billion in 2017, when it would have recorded a net loss of RM1.4 billion.

The commission found that the generous hibah payouts attracted depositors seeking higher returns but caused the pilgrims’ fund board to drift from its original mandate, exposing it to the risk of a bank run should distributions fall.

That risk materialised in 2019 when TH declared a hibah of just 1.25%. Deposits fell to RM69 billion by the end of the year from about RM73 billion before the announcement. Nevertheless, TH was fortunate that the withdrawals were smaller than initially feared.

The pursuit of consistently high hibah payouts also compelled TH to take on greater investment risk, increasing its exposure to equities in an effort to generate higher returns. As a result, its investment portfolio became more vulnerable to market volatility.

Despite mounting financial pressures, the RCI report found that TH continued to award sizeable bonuses to its staff and subsidiary board members, raising questions over its governance and remuneration practices.

Between 2010 and 2017, its employees received annual bonuses equivalent to two to 13 months’ salary. In 2014 alone, the bonus provision reached RM74 million, including a two-month “special bonus” on top of an 11-month annual performance bonus.

The commission said such payouts were unjustified, given TH’s deteriorating financial position between 2014 and 2017, when its liabilities exceeded its assets as reported in its audited financial statements and acknowledged by the National Audit Department.

Political considerations influenced key decisions at TH, including those involving hibah distributions, haj fees, board appointments and financial support, according to the RCI report.

One example cited by the commission was the government’s decision to freeze haj charges for Muassasah pilgrims from 2009. The policy required TH to subsidise pilgrimage costs using its investment profit, a practice the RCI said weakened the fund’s long-term financial sustainability.

The commission revealed that a strategic review by external consultant Roland Berger, which warned of TH’s deteriorating financial position in 2017, was “unfortunately” ignored by the fund’s management amid political considerations ahead of the 2018 general election.

TH had in 2017 appointed Roland Berger to conduct a review of its five-year strategic business plan. While the RCI described the consultant’s assessment as comprehensive, it found that management neither acted on its recommendations nor tabled the report to TH’s board.

The commission also raised concerns over the appointment of politicians to TH’s board, including the chairmanship, between 2014 and 2018, saying the practice had created “unrest among the community”. Umno politician Datuk Seri Abdul Azeez Abdul Rahim was TH chairman between 2013 and 2018.

The RCI further identified what it described as systemic governance failures arising from the multiple directorships held by TH’s high-ranking individuals across the fund’s subsidiaries.

For example, former CEO Datuk Seri Johan Abdullah held positions in 18 subsidiaries while former chief financial officer Datuk Rozaida Omar sat on the boards of nearly two dozen subsidiaries.

The commission concluded that the “over-involvement” resulted in a “critical lack of focus” on their primary responsibilities at TH, while creating “severe” conflicts of interest.

The Center to Combat Corruption & Cronyism (C4 Center) has urged the government to act on the RCI’s recommendation to amend the Tabung Haji Act to prohibit politicians from being appointed as the chairperson or members of TH’s board.

In a statement last Friday, the anti-corruption advocacy group said the government should also end the practice of appointing politicians to the boards of statutory bodies, GLICs and GLCs through new legislation or amendments to existing laws.

C4 Center also called for the enactment of a Political Financing Act, including mandatory public disclosure of all political donations and a complete ban on corporate and anonymous contributions, to strengthen transparency and prevent the misuse of public funds for political purposes.

Read also:
Special Report: TH’s troubled investments
The major factors behind TH’s financial distress

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