Historical Development: Tabung Haji

Incorporated in 1962, Tabung Haji is a manifestation of the governments concern over the welfare of
Muslims in relation to their pilgrimage to the Holy Land. The journey to Kaabah, generally used to
cost lifetime savings to most Malaysian Muslims with lots of sacrifices and hardships. The economic
plight of these Muslims in general and particularly after performing the Hajj was very distressing and
has had adverse implications on the economic development and national growth. For years it
remained unnoticed until royal professor Ungku Abdul Aziz of the University of Malaya, a reputed
academician and an authority on rural economy, presented the idea of setting up the Pilgrims Saving
Corporation with a view to assist Muslims perform the pilgrimage to Mecca without impoverishing
them and sparing them from financial hardship on their return. Thus the Corporation was to provide
facilities both, to save and invest profitably.
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Based on research and observations made mainly in 1950s, professor Ungku Aziz found that
Muslims saved money mainly on account of their innate desire to perform the Hajj. They saved in
pillows, under mattresses and floors, in cupboards, in earthen jars buried for safety, or purchased
land or livestock to be sold later to meet expenses for their journey to the Holy Land. These
traditional methods of savings were not only detrimental to the rural economy but also effected the
national economic development.
Recourse to adopting traditional ways of savings emanated from peoples desire to be absolutely
sure that money to be spent on pilgrimage was clean and untainted from riba. Savings in banks or
financial institutions necessarily involved riba at that time, i.e. before the formation of Bank Islam
Malaysia. Professor Ungku Aziz recommended that future pilgrims could save in a bank or financial
institution that is guaranteed to be riba-free yet yields profits. Profit derived from such an investment
would be returned in the form of profit-sharing or dividends to depositors. For the depositors, this
course was not only helpful in avoiding riba, but also assisted them in meeting their Hajj expenses in
a most efficient way.
The recommendation could only be implemented in 1962 when Sheikh Mahmoud al-Shahltut, Rector
of Al-Azhar University, Cairo visited Malaysia. After studying the paper, he approved the plan as one
that is Islamically acceptable and would benefit Muslims in Malaysia and urged for its immediate
implementation. Thus, the Pilgrims Savings Corporation was incorporated in August 1962 and
launched on Sept. 30, 1963.
In 1969, the Corporation was merged with Pilgrims Affairs Office, operating since 1951, to give birth
to the Pilgrims Management and Fund Board or Lembaga Urusan Dan Tabung Haji under the laws of

Malaysia Act 8, The Pilgrims Management and Fund Board 1969 (and Act A 168, The Pilgrims
Management and Fund Board (Amend.) 1973).
Revised Lembaga Tabung Haji Act 1995: Inspite of great successes, the past investment approach
of Th was at times criticized as outdated by some people and had also been of concern to leaders of
the country. Th was therefore, urged to strive forward to be not only a successful Islamic institution
promoting Hajj, but should also seek to expand and be more proactive in its investments, in line with
the countrys vision to be an industrialized nation by the year 2020.
Given that desire to modernize and also instill professionalism in the management and staff, the
Pilgrims Fund Board Act 1969 (Revised 1973) was amended and revised in 1995. Together with the
exclusion of Th from the Government Scheme of Service (SSB) and the introduction of its own
employment scheme, the amendment envisaged Th to be able to make it more productive and
innovative in its investments.

Source: Towards Islamic Banking: Experience and Challenges, Institute of Policy Studies.
Republished with permission.