ISLAMIC FINANCIAL INSTITUTION AND MARKETS

(ZCZC6952)

Lecturer:

DR. MUHAMMAD HAKIMI BIN MOHD. SHAFIAI

1MDB’S TUN RAZAK EXCHANGE LAND SALE TO TABUNG HAJI

Prepared by:

Mohd Faharizan bin Hassan ZP01849

Lily Halina binti Abdul Razak ZP01888

Nadiah binti Mahmud Nasir ZP01894

Zulkifliy bin Jamil ZP02029

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CONTENTS

No. Contents Pages

1. INTRODUCTION 3

2. TABUNG HAJI 3

3. 1 MALAYSIA DEVELOPMENT BERHAD (1MDB) 5

4. TUN RAZAK EXCHANGE – INTERNATIONAL FINANCIAL CENTRE TO RIVAL ASIA’S BEST

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5. REVIEW ON THE TRANSACTION 9

6. CONCLUSION 13

7. RFERENCESS 14

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1.0 INTRODUCTION

Tabung Haji had purchase 1 plot of land from 1MDB in Tun Razak Exchange area

development for the purpose of building a residential tower. The transaction has created a storm

of protest among its depositor, public and politicians.

From point of view opposition politicians, Tabung Haji was paying far more per square

feet (psf) than what 1MDB had paid at RM64 psf when it first bought the land from the

government. This paper will review the role of Tabung Haji and 1MDB as government agency.

We also review the planning for Tun Razak Echange and also review the transaction whether it is

following Islamic principle or not. We hope this paper will give a clear picture of the transaction

as a contribution to establish Islamic Financial Hub in this region.

2.0 TABUNG HAJI

The Pilgrims Management and Fund Board of Lembaga Urusan dan Tabung Haji, more

popularly known as Tabung Haji, was devised as an economic scheme in the context of national

development. Its purpose is to provide saving services that are untained by riba and its main

strategy is to exploit the financial resources of Muslims in such a way, as to avoid the

fragmentation of wealth which is detrimental to the rural economy. The saving services that are

free from riba help Muslims perform their Hajj duty without encountering impoverishing

hardships after their pilgrimage.

In order to utilize the funds of depositors, Tabung Haji uses the wadiah Principle (wadiah

al wakalah), which requires new depositors to fill in the Depositors Personal and Nomination

Form' which includes the statement of “aqad izin”. The principle of “aqad izin” under the law of

the Tabung Haji Act means that depositors agree to save in Tabung Haji and give consent for it

to manage their savings for investment purposes. Based on the consent given by depositors,

Tabung Haji mobilizes the Funds collected for investment. The profit (if any) derived from these

investments is distributed among the depositors in the form of a bonus.

As an Islamic institution, the investment activities of Tabung Haji are carried out

according to Islamic rules and practices similar to Islamic banks and other Islamic ijnvestment

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institutions. Tabung Haji's investment activcities are managed under the following shari'ah

principles:

i) Al-Musharakah

ii) Al-Bai'Bithaman Ajil

iii) Al-Mudharabah.

iv) Al-Murabaha

v) Al-Qardhul Hasan

vi) Al-Ijarah

To ensure that the investment operations of Tabung Haji do not involve any element

which is contrary to Islamic principles, Tabung Haji uses thev services of the Religious

Supervisory Council of Bank Islam Malaysia and the National Fatwa Committee of Malaysia to

advise Tabung Haji oninvestment operations. To ensure the success of investments, Tabung Haji

has established a special panel called the Finance Advisory Council to advise the management of

Tabung Haji on investment operations. Members of this panel are successful, high – caliber

businessmen, bankers and high-level government officials who are experts in finance and

economy in Malaysia.

Tabung Haji emphasizes that investment activities are not involved in anything which is

contrary to Islam. In this regard, Tabung Haji does not invest in sectors such as banking (except

Bank Islam Malaysia), Insurance (except Takaful of Malaysia) and hotels. In other words,

Tabung Haji will not invest in companies that are involved with activities which are prohibited

by Islam. AS a safeguard, Tabung Haji from time to time refers to the Religious Supervisory

Council of Bank Islam Malaysia regarding doubtful companies or sectors. The four major types

of investment made by Tabung Haji are:

i. Investment in shares (equity participation);

ii. Investment in subsidiary companies;

iii. Investment in land and buildings; and

iv. Short-term investment.

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Though Haji was also established in order to enable Muslims to invest and effectively

participate in the nation's economic activities. Tabung Haji has successfully expanded its

investment activities to include various economic sectors, such as, commercial, industrial,

plantation, etc.

3.0 1 MALAYSIA DEVELOPMENT BERHAD (1MDB)

1Malaysia Development Berhad (1MDB) is a strategic development company, wholly

owned by the Government of Malaysia.1MDB was established to drive strategic initiatives for

long-term economic development for the country by forging global partnerships and promoting

foreign direct investment.

Roles of 1MDB are;

i. 1MDB leads market-driven initiatives to assist the Government in propelling Malaysia

towards becoming a developed nation that is highly competitive, sustainable and

inclusive. As a strategic enabler, 1MDB continues to explore areas that can catalyse new

sources of growth and lay the groundwork for a brighter future.

ii. 1MDB maximizes social objectives in both its investment projects and CSR activities,

balancing the bottom line with benefits to society

iii. 1MDB actively seeks out strong partnerships – whether in the public sector or with

private companies, NGOs and non-NGOs, internationally and locally – with the aim of

advancing growth.They make anchor investments and co-invests to get high-impact

projects off the ground and catalyse private investments. Once opportunities have been

created, we build win-win partnerships through equal capital JVs capable of bringing in

FDI. Our partners bring in capital, capabilities and technology that can contribute

towards our socio-economic goals

iv. 1MDB must invest directly in human capital development for a sustainable economic

future. In our CSR activities, we initiate strategic partnerships to ensure maximum

impact with long-term benefits.

v. 1MDB unlocks the potential of our young people to enable them to make a difference

for the nation in line with our vision for a brighter Malaysia. We do this in our CSR

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youth development programmes as well as recruiting and nurturing young talent within

our organisation.

1MDB is currently involved several high-profile projects such as the Tun Razak

Exchange, Tun Razak Exchange's sister project Bandar Malaysia and the acquisition of three

Independent Power Producers.

i. Energy

1MDB owns Tanjong Energy (now known as Powertek Energy Sdn Bhd), a 75% stake in

Genting Sanyen Power (now known as Kuala Langat Power Plant or KLPP) and a 75% stake in

the coal-powered Jimah Energy.

In February 2014, 1MDB was named as the preferred bidder for Project Track 3B by the

Energy Commission. The project will involve the construction and operation of a 2 x 1000MW

coal plant on a site adjacent to the Jimah power plant in Negeri Sembilan.

These developments continue 1MDB’s strategic intent towards fulfilling the country’s

long-term energy security.

ii. Real estates

1MDB’s developments, the Tun Razak Exchange (TRX) and its twin project Bandar

Malaysia, extend beyond just real estate. Strategic real estate developments are leveraged to

capture high multiplier effects and spur a vibrant economy. The projects are “building blocks” to

help shape Kuala Lumpur as a robust global city destination for investors and tourists alike.

BANDAR MALAYSIA, three kilometers away from the Tun Razak Exchange (TRX), is

set to have the most innovative urban solutions for liveability in a new urban ecosystem,

relooking at the relationship between people, buildings, traffic and nature in the capital city. The

urban redevelopment of the old airport in Sungai Besi is designed to support Greater KL as a

new engine of growth.

A mixed development, Bandar Malaysia will promote liveability as a distinctive urban

character for Greater KL, housing green infrastructure, sustainable housing and a range of

commercial and lifestyle facilities. The 495-acre Bandar Malaysia is envisioned to be an

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inclusive, public transit-oriented city that is designed as a walkable community through a series

of safe, secure and pleasant pedestrian and cycling networks, set against a backdrop of open

spaces and greenery.

Bandar Malaysia aims to be the yardstick for sustainable urban housing within Malaysia.

The township is earmarked to achieve the highest sustainability ratings, continuing the green

development benchmark already set by the Tun Razak Exchange. Bandar Malaysia will also

include affordable urban housing reflecting 1MDB’s commitment towards promoting liveability.

Its affordable housing concept aims to provide an affordable, quality family lifestyle in the city,

emphasizing child-friendly facilities with a safe and secure living infrastructure

4.0 TUN RAZAK EXCHANGE – INTERNATIONAL FINANCIAL CENTRE TO RIVAL ASIA’S BEST

Tun Razak Exchange (TRX), formerly known as Kuala Lumpur International Financial

District (KLIFD), is a development to create one of the most liveable financial districts in Asia.

It is being built upon 70 acres of prime real estate in Kuala Lumpur, Malaysia, and will feature

office spaces complemented by world-class residential, retail and leisure spaces with the concept

of a unique work-live-play experience. 1MDB officially launched the Tun Razak Exchange

(TRX) on 30 July 2012.

The Tun Razak Exchange is described to be designed with the future in mind and will

incorporate technologies including district-wide digital connectivity, enhanced energy, water and

waste management systems, and e-services in residential and commercial properties.

Government launched the TRX with a gross development value of RM26bil as an

initiative to promote Malaysia as an international financial hub and to attract foreign direct

investment. TRX will provide new investment opportunities by connecting the business

community with the global market. TRX is expected to attract 250 international financial

services companies and offer 40,000 knowledge and skilled job opportunities.

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Property consultancy C.H. Williams Talhar & Wong said the TRX “could create new

demand for at least 6 million sq feet of new office space, which will buy the office property

sector.”

The project is seen as a strategic priority by Malaysian Prime Minister Najib Razak who

assembled a special task force led by the Minister in charge of the Economic Planning Unit to

assist with facilitating investments and business operations. Several government incentives

including income tax exemptions, stamp duty waivers and cost rebates have been introduced to

attract international corporations and expedite the process of setting up businesses within TRX.

It will also be an Islamic hub, reflecting Malaysia's existing status as one of the key

centres for Sharia-compliant business in the world. The Tun Razak Exchange hopes to be to KL

what Canary Wharf is to London, or Battery Park to New York: a world- class financial district.

The TRX has been identified as one of the many high-impact public-private partnership (PPP)

projects that will help to drive the economic transformation agenda.

TRX is strategically located at the southern gateway to Kuala Lumpur’s city centre

flanked by main arterial roads and is a natural extension to the Golden Triangle – the city’s

commercial, shopping and entertainment hub. The district will also high accessibility with a

dedicated Mass Rapid Transit (MRT) underground interchange planned to be the largest in

Malaysia, nearby RapidKL stations, new highway connections and direct routes to Kuala

Lumpur International Airport.

The Master Plan includes a total of 25 buildings and over 21 million feet of total building

Gross Floor Area (GFA) spread across office, residential, hotel, retail, F&B and cultural

offerings. TRX has a development period of 15 years to be completed in phases with the initial

Phase 1 slated for completion in 2017. Upon its completion, the district is expected to contribute

towards job creation, attracting knowledge-based talent, increasing the number of world leading

companies to the city, and drive greater economic growth for the country. This national project

will vastly support ETP’s goal to raise Malaysia’s Gross National Income per capita to

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USD15,000, create 3.3 million jobs and secure USD444 billion in investments by 2020. The

signature tower which will be the landmark of the TRX will have a height of 380m.

In June 2014, the international property and infrastructure group, Lend Lease, was chosen

by 1MDB RE to be a major investor partner in Phase 1 to develop the Lifestyle Quarter in TRX,

which will consist of a 2 million feet retail mall seamlessly connected to TRX’s multi-layer

central park, three residential towers and a hotel. An official signing ceremony was held to

officiate the joint venture partnership between 1MDB RE and Lend Lease.

5.0 REVIEW ON THE TRANSACTION

i. Legality the transaction Tabung Haji buy land from 1MDB

Bay’ or the contract of sale can be described as “the exchange of property for property”,

or “the exchange of goods or properties” and it therefore includes, besides sale proper,

barter (Bay’ al-Mukdyada) and currency exchange (Bay’ al-Sarf).

The Qur’an approves the sale to the extent that no element of Riba is involved: “Allah

permitted trade and forbidden Riba” (Sura al-Baqarah, 2:275). Generally speaking, Riba

is “any unjustified increase of capital for which no compensation is given”, or unlawful

profit (for example: any accrual / interest on the loan of money), as opposed to lawful

profit. Western understanding often translates it to usury (excessive interest), or even any

interest at all.

A sale is concluded by a formal offer and acceptance. The redaction of a contract is

encouraged. It, however, can also be perfected by the simple exchange of the goods and

the price sealing the transaction through mere execution (Bay’ al-Mu’atah or Bay’ al-

Mu’awadah).

General conditions of sale:

1. The parties must be persons of sound mind and reason. Lunatics or minors who

have not yet attained the age of intellectual ability therefore are excluded.

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2. There must be mutual consent and clear consistency between offer and

acceptance.

3. There should be unity in session. When the meeting is broken and the parties split

without consent, this equals a refusal of the offer, unless otherwise agreed upon.

4. The subject of the sale must be property of legal tender (intoxicating elements,

pigs, dogs and carcasses are excluded).

5. The subject of the sale must exist at the time of the sale and must be owned by, or

at least in the physical or constructive property of the seller.

6. The sale must be instant and absolute. A sale attributed to a future date or

contingent on a future event is void. The delivery must be certain and should not

depend on a contingency or chance.

7. The subject of the sale must be properly identified, excluding uncertainty of the

object, quality and quantity.

8. The price of the sale must be certain.

9. The sale must be unconditional, unless such a condition is recognised as a part of

the transaction according to the usage of the trade. The terms of the sale must be

stated clearly.

10. If no modes of payment are stipulated, they are assumed to be cash and

immediate. The payment of the price can be postponed to the future and in

instalments. This aspect will be useful for financing transactions.

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11. The goods must be free of rights of others (eg, mortgage), though the Hanafi

allow such sale subject to prior permission of the mortgagee.

Tabung Haji’s Board of Directors, Prof. Emeritus Tan Sri Dr Abdul Shukor Husin, who

is also the Chairman of Universiti Sains Islam Malaysia (USIM) Board of Directors and

the Chairman of the National Fatwa Council for Islamic Affairs said, “In a sale, buyers

do not determine the price and we have no right to dispute an offer price. In an Islamic

trade, a seller sets a price and if the buyer agrees to it, and the item and payment changes

hands, that is considered a trade,”

Tabung Haji bought the 1.56-acre plot land in the Tun Razak Exchange (TRX) project at

RM188 million in April with a plan to build a residential tower. According to the

transaction, it is clear that the transaction has followed the Shariah rule.

ii. Role of Tabung Hajj as a collector from depositor

In order to utilize the funds of depositors, Tabung Haji uses the wadiah Principle

(wadiah al wakalah), which requires new depositors to fill in the Depositors Personal

and Nomination Form' which includes the statement of “aqad izin”. The principle of

“aqad izin” under the law of the Tabung Haji Act means that depositors agree to save in

Tabung Haji and give consent for it to manage their savings for investment purposes.

Based on the consent given by depositors, Tabung Haji mobilizes the Funds collected

for investment. The profit (if any) derived from these investments is distributed among

the depositors in the form of a bonus.

In the case of buying of 1MDB land, the depositor should not be angry with the decision

made by Tabung Haji since Tabung Haji Act gives the power to management to utilize

the collection for investment. Moreover, buying a land is one of the scopes of

investment given to Tabung Haji.

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iii. Bussines decision making on the transaction

Picture: Location and land price comparison near TRX area

Prime Minister Datuk Seri Najib Razak has defended Lembaga Tabung Haji's purchase

of a piece of land from 1MDB, saying that it generated RM170 million in profit. He said

the land purchase was a profitable move that benefitted those keeping their money in the

pilgrims fund.

If all goes to plan, in perhaps 14 years that construction site will be a glittering new

financial centre, with the office buildings, retail facilities and leisure and lifestyle options

to rival the great Asian financial hubs of Hong Kong and Singapore.

It will also be an Islamic hub, reflecting Malaysia's existing status as one of the key

centres for Sharia-compliant business in the world.

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Dato' Azmar Talib, the chief executive of the real estate business of 1 Malaysia

Development Berhad (1MDB) said "Policymakers have identified Malaysia's financial

sector as being ripe for expansion. TRX is a strategic response to this and aims to help

Malaysia realise its potential as a regional International investors are studying an

information memorandum recently sent out by 1MDB to attract financial commitment to

the project, estimated to have a gross development value of about US$8 billion.

6.0 CONCLUSION

Based on our study, we know that the decision to buy piece of land at Tun Razak

Exchange done by good reason. As one of the Islamic financial institution in Malaysia, Tabung

Haji should be a part of the player to develop Islamic Financial Hub in this region. From the

transaction, neither party are loss but the situation are win win situation, where 1MDB get profit

in a short term while Tabung Haji will get profit for a long term. Tabung Haji can proceed the

decision because the investment will get benefit to depositor for next three year.

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6.0 RFERENCESS

http://www.theedgemalaysia.com/business-news/167697-najibs-speech-on-10mp.html

http://www.1mdb.com.my/

http://www.themalaysianinsider.com/malaysia/article/3-lessons-from-1mdbs-trx-land-sale-to-tabung haji

http://www.themalaysianinsider.com/malaysia/article/najib-defends-tabung-haji-land-buy-from-1mdb-says-profitable#When:12:59:52Z

http://www.lawgazette.com.sg/2010-09/feature3.htm

http://www.malaysiandigest.com/news/552964-tabung-haji-sells-1mdb-land-to-avoid-further-slander.html

http://www.themalaysianinsider.com/malaysia/article/3-lessons-from-1mdbs-trx-land-sale-to-tabung-haji

http://www.tunrazakexchange.com/what-is-tun-razak-exchange/

https://info.march2freedom.org/2015/05/14/why-is-1mdb-selling-trx-land/

http://greatermalaysia.com/2015/07/03/3-facts-najib-defends-tabung-haji-land-buy-from-1mdb-says-profitable/

http://rafiziramli.com/2015/05/dato-seri-najib-ada-kuasa-hentikan-pembelian-tanah-1mdb-oleh-tabung-haji-pulangkan-wang-tabung-haji/

http://chedet.cc/?p=1702

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