Islamic finance continues to feature as an affirmative action tool in NEP

Malaysian Prime Minister Mohd Najib Tun Abdul Razak last week reiterated in the Dewan Rakyat (the Parliament) that the country's New Economic Policy (NEP), which promotes the economic empowerment of the indigenous peoples and the Bumiputeras (Malays) and their poverty alleviation through affirmative action, will continue and is still relevant today.

The NEP was first introduced in 1971 by no other person than the father of Najib, the much-revered late Tun Abdul Razak Hussein, Malaysia's second prime minister since independence from the British.

The NEP is a highly sensitive issue in the maelstrom of Malay politics and in the national Malaysian polity. It was supposed to have been a 20-year policy ending in 1991, but successive governments would not have dared to sign off its demise.

Even the current review debated in the Dewan Rakyat last week was controversial. Malay elites who benefit from the NEP in its various manifestations are against any tampering with the status quo. Other more thinking Malay scions complain that successive governments have deviated from the original idea of the NEP which was to foster national unity by bringing the majority Malay economic stake in the country on par with especially the Chinese who continue to dominate ownership in the country. They allege that the NEP has been abused to benefit a few Malays in position of influence and power, rather than the ordinary Malay in the street.

The Chinese and Indians on the other hand privately stress that the NEP is discriminatory in that it excludes them from participation.

The basic instinct of Prime Minister Najib is to reform the NEP if not to abolish it outright. However, his opponents especially Malay nationalists have warned him against any such move stressing that he may be willing to sacrifice the NEP to push the catchphrase policy of his premiership, 1Malaysia.

The reformers amongst the ranks of UMNO (United Malays National Organization), the main party in the ruling Barisan Nasional Coalition Government, want far greater transparency in the NEP allocation process.

In fact, in the 10th Malaysia Plan (2011-2015), Najib pledged that affirmative action policies would be implemented inclusively based on market-friendly, needs-based, merit-based and transparent principles. The prime minister added that the NEP was aimed at resolving economic disparities in a constructive and productive manner to ensure that the people were able to participate in national development and enjoy the benefits fairly.

The NEP touches almost all areas of Malay national life, including Islamic finance. The latest manifestation is the launching of a RM1 billion Islamic unit trust fund in November 2010 by the state-owned Pelaburan Hartanah Bhd (PHB), a subsidiary of Yayasan Amanah Hartanah Bumiputera, which is aimed primarily at providing investment opportunities for Bumiputeras (Malays) in prime commercial real estate investments in prime locations in the country.

PHB, headquartered in Shah Alam in Selangor, is effectively an investment holding company established in 2006 with the specific aim of enhancing Malay ownership in prime real estate assets in major cities in the country.

The Amanah Hartanah Bumiputera (AHB) unit trust fund was launched by Prime Minister Mohd Najib, who was confident that "this initiative... will receive the rightful support from the Malaysian Bumiputeras, which will in turn contribute to the overall balance of the country's economy." Premier Najib is in fact PHB's chairman.

The fund size of AHB is 1 billion units priced at par of RM1 per unit. The initial investment is RM500, with subsequent investments in multiples of RM100. The maximum investment any individual Bumiputera can make is RM200,000. The fund is open to Bumiputras from aged three months onward.

The investment objective is too give Bumiputera investors a regular and consistent income stream while preserving the investment holder's investment capital.

"Under the Shariah-compliant investment scheme, Bumiputeras can own equities in major properties. Bumiputera entrepreneurs who are keen to participate in the scheme can go to the 400-odd Maybank branches nationwide to buy the AHB units," said PHB managing director and chief executive officer Kamalul Arifin Othman at the launch.

AHB's current real estate portfolio inter alia comprises the CP Tower in Petaling Jaya; 26 Boulevard Putrajaya; Wisma Consplant in Subang Jaya; and Tesco Setia Alam in Shah Alam, all of which generate good rental income. It aims to expand the fund by RM500 million in 2011 and to acquire more prime real estate assets into its portfolio.

The expected rate of return is projected at not less than 6 percent with income distributed on a semi-annual basis. The return is expected to be competitive and better than the 12-month General Investment Account-I of Maybank Islamic Bank.

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