INTERNATIONAL ISLAMIC UNVERSITY MALAYSIA GRADUATE SCHOOL OF MANAGEMENT

FIN 6620 AL-SHARIAH, ECONOMICS AND SOCIETY

Comparative Studies on Cooperatives: Measure of Success in Islamic Economic Perspective

PREPARED FOR: DR MOHD NAHAR MOHD ARSHAD

Fazlinda Abdul Rahman (G1013488) (fazlindaabdulrahman@yahoo.com.my) Norashikin Ismail (G1027138) (shikin43@yahoo.com) Iswalah Arshad (G1016348) (iswalah@yahoo.com) Dayang Suhaina Salleh (G1011746) (suhainasalleh@gmail.com)

Presentation Outline
Introduction Case Summary
Analysis Recommendation Islamic Perspective Q&A

INTRODUCTION
1st January 2012 UN Year of Cooperatives. Ban Ki-Moon Co-operatives are a reminder to the

international community that it is possible to pursue both economic viability and social responsibility.
7 million persons in Malaysia.

Dasar Korperasi Negara or National Co-operatives Policy (DKN)

Introduced in 17 July 2010. Strategies:

co-operatives to achieve in contributing 5% GDP by the year 2013 and 10 % by the year 2020; to increase the socioeconomic status of the co-operative members; to care for the environment; and to become a responsible corporate citizen.

DEFINITION OF CO-OPERATIVES & ITS PRINCIPLES

A sustainable business model that puts the needs of

the people first and is rooted locally to serve the needs of their members.

An autonomous association of persons united

voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise ICA.

There are seven co-operative principles .

HISTORY OF CO-OPERATIVES
Mid 1800- Rochdale Society of Equitable Pioneers of

England.

Now a part of the Co-operative Group, with 4.5 million members.

In Malaysia

1922
Sharikat Bersama- sama Kerja Kerana Bantu Membantu. Postal And Telecommunications Co-operative Thrift And Loan Society, Limited.

1925

Syarikat Kampung Teluk Haji Musa Bekerjasama-sama Dengan Tanggungan Berhad.

EVOLUTION OF CO-OPERATIVES
Olden days - single activity.

9 basic functions (SKN) agriculture, banking, credit, housing, industry, consumer, construction, transportation and services.
31 December, 2004: 4,651 with 5.391 million members and RM 25.977 billion worth of assets. December 2010: 8,146 with 6.600 million members and assets worth RM 71.784 billion

Statistics of Co-operatives in Malaysia according to Functions

Source SKN

FINANCIAL COOPERATIVES AND ITS ISSUES

Bank Rakyat - mismanagement issues in the 1970s. Koperasi Belia Bersatu Berhad and 24 deposit-taking

cooperatives (DTCs) in 1980s.

The

Malay Officers Cooperative Credit Investment Society (MOCCIS) 2006-2009.

and

Angkatan

(ANGKASA).

Koperasi

Kebangsaan

Malaysia

Statistics of 20 TOP Co-operatives in Malaysia

Source SKN

QUESTIONS TO BE ANSWERED
How much of those values are being advocated by the

financial related cooperatives in Malaysia?

all those values?

Is Bank Rakyat as top cooperative in Malaysia embraced

Is Bank Rakyat staying true to its mission to help

improve the economic well-being of members by providing financing facilities at an affordable rate for agriculture, production, marketing, fishing, transportation, housing and business activities that are deemed beneficial to members and to also promote thrift and savings?

BANK KERJASAMA RAKYAT MALAYSIA BERHAD

Significant years:
September 1954 - Bank Agong (Apex Bank)

union banks. 1967 - Bank Kerjasama Malaysia. 1973 - Bank Kerjasama Rakyat Malaysia. Bank Kerjasama Rakyat (M) Berhad Act 1978 (Special Provision 202).

from 11

Allow to serve to non-members.

1993 - the Co-operative Act was reviewed to allow the

Bank to operate in Sabah and Sarawak.

BANK KERJASAMA RAKYAT MALAYSIA BERHAD

15 Fen 2002 - Bank Rakyat became a full-

fledged Islamic.
RM

41.7 billion in total assets as of 31 December 2008. Total of 105 branches.

Currently, Bank Rakyat is governed by 3

major by-laws agencies.

under

three

different

BANK RAKYAT AND THE RELATED BY-LAWS

Ministry of Domestic Trade,

Co-operatives and Consumerism (KPDNKK)

Central Bank of Malaysia (BNM)

Ministry of Finance Malaysia (Mof)

Co-operatives Commission of Malaysia (SKM)

Akta Institusi Kewangan Pembangunan 2002 The Development Financial Institutions Act 2002 Akta Bank Kerjasama Rakyat Malaysia Berhad (Peruntukan Khas 202) 1978 Bank Kerjasama Rakyat Malaysia Berhad Act (Special Provision 202)1978

Akta Koperasi 1993 Cooperative Act 1993

BANK RAKYAT

Bank Rakyats Structure.

COPERATIEVE CENTRALE RAIFFEISSENBOERENLEENBANK B.A.

Rabobank started almost similarly to Bank Rakyat in

the second half of the 19th century.

1940s Coperatieve Centrale Raiffeisen-Bank in

Utrecht Coperatieve Centrale Boerenleenbank in Eindhoven formed a partnership together and eventually led to a merger in 1972.
Known as Rabobank Nederland.

Structure of Rabobank Nederland

Rabobank Nederland
Five bodies that govern its operations:

General Meeting at which the boards of all the local member banks were represented; Central Delegates Assembly Meeting that have local representation of the local member banks and have an important advisory function; The Executive Board, which consisted of banking professionals received the authority from De Nederlandsche Bank to engage in banking activities. Board of Directors that work in consultation with the Executive Board. The chairman of the Board of Directors attended the meetings of the Executive Board and had the right to join in discussions on all topics; and The Board of Supervision.

Analysis : Bank Rakyat & Rabobank Nederland Comparative Analysis

1) Quantitive Comparison
Membership Capital Assets Turnover Profits before tax RM1.7b

Bank Rakyat FYE2010 Individual Cooperatives Rabobank Nederland As at 30 June 2010

RM2.0b 756,942 1414 1.8 m

RM61.9b

RM4.5b

RM171.6b RM2,866b

RM27.4b

RM8.5b

2) Qualitative Comparison

Analysis : Bank Rakyat & Rabobank Nederland Key Success Factors

Bank Rakyat
Low credit risk

Largest exposure is personal financing

Consumer financing is 88.2% of total financing. Personal financing is 85% of consumer financing.

Mostly to civil servants.

Closely monitored by BNM on its activities, general and financial

performances.

Strong corporate governance and adoption of best practices on risk management.

Analysis : Bank Rakyat & Rabobank Nederland Key Success Factors

Rabobank Nederland
Proven resilient of Rabobanks business model.

Based on long-term view of clients/members relationship and profitability. Charged low service charge and does not pay dividends to shareholders.

Venture into risk taking activities.

Numerous franchise-enhancing acquisitions.

Well-Planned international strategy.

Focus on serving food and agribusiness sectors.

Proactive management of risks faced by the bank.

Limited exposure to the distressed assets and counterparties. Reduce its holding of riskier wholesale-funded securities and built-up sizeable liquidity buffer.

Analysis : Bank Rakyat & Rabobank Nederland Gaps Analysis

Complacent-approach in strategising business.

Risk-free approach.
Focus on personal financing only.

Risk-averse, hence lagging in terms of performance vis--vis

Rabobank Nederland.

Collateralised lending. Put 20% cap of its total gross financing for its business financing.

Inferior competencies level of Bank Rakyats management

line-up as opposed to Rabobank Nederland.

Analysis : Bank Rakyat & Rabobank Nederland Gaps Analysis

Risk Management capability may lack Robustness.

May not at par with Rabobank Nederland. Risk management may only adequate for in its current business.

Driven by gain maximization rather than nurturing the

members.

Rates not much difference between members and non-members i.e. difference by 5 b.p. only.

Mimicking similar business model

of a bank, lossess

competative advantage.

Not optimally employed available and relevant Islamics contracts e.g. Mudharabah and Musharakah.

Analysis : Bank Rakyat & Rabobank Nederland Recommendation

Bank

Rakyat

should

review

and

rectify

its

fundamental flow.

Cooperative role:

Benchmark against Rabobank Nederland and replicate its business model that is incautiously in line with shariah requirements. Approach should be more people oriented.

Venture into risk-taking activities for rewards in line

with the teaching of Islam.

Establish effective risk management and framework . Merger and acquisition.

Analysis : Bank Rakyat & Rabobank Nederland Recommendation

Practice as an Islamics institution.

Depart from conventional way of doing business.

Initiate and embark into viable contracts like mudharabah musyarakah financing. and

Radical

approach

Detach

itself

from

the

government influence and lets the professional to manage its business.

Government may have exerted unnecessary influence.

Analysis : Bank Rakyat & Rabobank Nederland Conclusion

Cooperatives are important elements in supporting

any Islamics country.

One way to eradicate poverty. Economic turbulence can be avoided.

Although exist in muslim countries but has weak

implementation.

Benefits and the real potential could not be maximised. Riba system.

Analysis : Bank Rakyat & Rabobank Nederland Recent Development

Malaysians

government

is

targeting

to

establish another four cooperative banks to be as competitive as Bank Rakyat by year 2020.

Our view:
Scorecard Need

driven.

to consider the true context of cooperatives.

Analysis : Bank Rakyat & Rabobank Nederland Recent Development

Rabobank Group

has indicated its interest to

establish its presence in Malaysia to cater the need exist in the agriculture business.

Our view:

Foreign cooperative to take advantage to venture into untapped areas in agriculture sector that local cooperatives failed to see its potential.

Stiffer competition.
Concern on viability and going-concern on local cooperatives.

COOPERATIVE FROM ISLAMIC PERSPECTIVE

Cooperatives is not only cater Muslims world but it

also gain success and flourished in other European country i.e. Netherland and Belgium.
Prophet S.A.W encourages Muslims to strengthen their brotherhood (a steps towards the economic rehabilitation) and moving towards achieving falah. (S.A.W) placed a high value on the economic welfare of the people.

Holy

Holy Prophet

COOPERATIVE FROM ISLAMIC PERSPECTIVE (contd)

Promote

values of self-help, self-responsibility, democracy, equality, equity and solidarity.

It helps to fulfil the Shariah principles namely the

protection and preservation of the basic necessities (daruriyyat) including protection of religion (din), life (nafs), progeny (nasl ), intellect (aql), and property (mal ).

Education and strong foundation (knowledge) is the

most important element in order to create awareness on cooperative.

Thank You Q&A