INTERNATIONAL ISLAMIC UNVERSITY MALAYSIA GRADUATE SCHOOL OF MANAGEMENTFIN 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) ([email protected]) Norashikin Ismail (G1027138) ([email protected]) Iswalah Arshad (G1016348) ([email protected]) Dayang Suhaina Salleh (G1011746) ([email protected]) 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. to increase the socioeconomic status of the co-operative members. .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 care for the environment. and to become a responsible corporate citizen. . and cultural needs and aspirations through a jointly owned and democratically controlled enterprise – ICA. social. There are seven co-operative principles . “An autonomous association of persons united voluntarily to meet their common economic.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”. In Malaysia 1922 “Sharikat Bersama.sama Kerja Kerana Bantu Membantu”.HISTORY OF CO-OPERATIVES Mid 1800. . Limited. Postal And Telecommunications Co-operative Thrift And Loan Society.5 million members.Rochdale Society of Equitable Pioneers of England. Now a part of the Co-operative Group. 1925 Syarikat Kampung Teluk Haji Musa Bekerjasama-sama Dengan Tanggungan Berhad. with 4. banking. transportation and services.784 billion .977 billion worth of assets.single activity. 2004: 4. credit. industry. construction.146 with 6. 9 basic functions (SKN) agriculture.651 with 5.391 million members and RM 25.EVOLUTION OF CO-OPERATIVES Olden days . 31 December. consumer. housing. December 2010: 8.600 million members and assets worth RM 71. Statistics of Co-operatives in Malaysia according to Functions Source SKN . Koperasi Kebangsaan Malaysia . and Angkatan (ANGKASA). The Malay Officers Cooperative Credit Investment Society (MOCCIS) – 2006-2009. Koperasi Belia Bersatu Berhad and 24 deposit-taking cooperatives (DTCs) in 1980’s.mismanagement issues in the 1970s.FINANCIAL COOPERATIVES AND ITS ISSUES Bank Rakyat . Statistics of 20 TOP Co-operatives in Malaysia Source SKN . transportation.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. housing and business activities that are deemed beneficial to members and to also promote thrift and savings? . marketing. fishing. production. Bank Kerjasama Rakyat (M) Berhad Act 1978 (Special Provision 202). 1967 .Bank Kerjasama Rakyat Malaysia.Bank Kerjasama Malaysia.the Co-operative Act was reviewed to allow the Bank to operate in Sabah and Sarawak. from 11 Allow to serve to non-members.Bank Agong (Apex Bank) union banks. 1973 . . 1993 .BANK KERJASAMA RAKYAT MALAYSIA BERHAD Significant years: September 1954 . BANK KERJASAMA RAKYAT MALAYSIA BERHAD 15 Fen 2002 . Bank Rakyat is governed by 3 major by-laws agencies. RM 41.Bank Rakyat became a full- fledged Islamic.7 billion in total assets as of 31 December 2008. Currently. under three different . Total of 105 branches. 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 RAKYAT AND THE RELATED BY-LAWS Ministry of Domestic Trade. Bank Rakyat’s Structure. . COÖPERATIEVE CENTRALE RAIFFEISSENBOERENLEENBANK B. 1940’s Coöperatieve Centrale Raiffeisen-Bank in Utrecht Coöperatieve Centrale Boerenleenbank in Eindhoven formed a partnership together and eventually led to a merger in 1972. Known as Rabobank Nederland.A. . Rabobank started almost similarly to Bank Rakyat in the second half of the 19th century. 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. . 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. The Executive Board. which consisted of banking professionals received the authority from De Nederlandsche Bank to engage in banking activities. and The Board of Supervision. 8 m RM61.Analysis : Bank Rakyat & Rabobank Nederland Comparative Analysis 1) Quantitive Comparison Membership Capital Assets Turnover Profits before tax RM1.4b RM8.6b RM2.942 1414 1.5b RM171.9b RM4.5b 2) Qualitative Comparison .866b RM27.0b 756.7b Bank Rakyat FYE2010 Individual Cooperatives Rabobank Nederland As at 30 June 2010 RM2. Personal financing is 85% of consumer financing.Analysis : Bank Rakyat & Rabobank Nederland Key Success Factors Bank Rakyat Low credit risk Largest exposure is personal financing Consumer financing is 88. . Mostly to civil servants.2% of total financing. Strong corporate governance and adoption of best practices on risk management. Closely monitored by BNM on its activities. general and financial performances. Focus on serving food and agribusiness sectors. Reduce its holding of riskier wholesale-funded securities and built-up sizeable liquidity buffer. Well-Planned international strategy. Charged low service charge and does not pay dividends to shareholders. . Based on long-term view of clients/members relationship and profitability. Limited exposure to the distressed assets and counterparties. Numerous franchise-enhancing acquisitions. Proactive management of risks faced by the bank.Analysis : Bank Rakyat & Rabobank Nederland Key Success Factors Rabobank Nederland Proven resilient of Rabobank’s business model. Venture into risk taking activities. . Inferior competencies level of Bank Rakyat’s management line-up as opposed to Rabobank Nederland. Collateralised lending. Put 20% cap of its total gross financing for its business financing. Focus on personal financing only. hence lagging in terms of performance vis-à-vis Rabobank Nederland. Risk-free approach.Analysis : Bank Rakyat & Rabobank Nederland Gaps Analysis Complacent-approach in strategising business. Risk-averse. Analysis : Bank Rakyat & Rabobank Nederland Gaps Analysis Risk Management capability may lack Robustness. Rates not much difference between members and non-members i. Mudharabah and Musharakah. Risk management may only adequate for in its current business.p. Driven by gain maximization rather than nurturing the members. only.e. Not optimally employed available and relevant Islamic’s contracts e. lossess competative advantage. difference by 5 b.g. . Mimicking similar business model of a bank. May not at par with Rabobank Nederland. Venture into risk-taking activities for rewards in line with the teaching of Islam. Merger and acquisition. . Establish effective risk management and framework . Approach should be more people oriented. Cooperative role: Benchmark against Rabobank Nederland and replicate its business model that is incautiously in line with shariah requirements.Analysis : Bank Rakyat & Rabobank Nederland Recommendation Bank Rakyat should review and rectify its fundamental flow. 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. .Analysis : Bank Rakyat & Rabobank Nederland Recommendation Practice as an Islamic’s institution. Depart from conventional way of doing business. Government may have exerted unnecessary influence. One way to eradicate poverty. Riba system.Analysis : Bank Rakyat & Rabobank Nederland Conclusion Cooperatives are important elements in supporting any Islamic’s country. Economic turbulence can be avoided. . Although exist in muslim countries but has weak implementation. Benefits and the real potential could not be maximised. . to consider the true context of cooperatives. Our view: Scorecard Need driven.Analysis : Bank Rakyat & Rabobank Nederland Recent Development Malaysian’s government is targeting to establish another four cooperative banks to be as competitive as Bank Rakyat by year 2020. 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.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. Concern on viability and going-concern on local cooperatives. W) placed a high value on the economic welfare of the people.A. Holy Holy Prophet .COOPERATIVE FROM ISLAMIC PERSPECTIVE Cooperatives is not only cater Muslims world but it also gain success and flourished in other European country i.e.W encourages Muslims to strengthen their brotherhood (a steps towards the economic rehabilitation) and moving towards achieving falah.A. Prophet S. (S. Netherland and Belgium. self-responsibility. Education and strong foundation (knowledge) is the most important element in order to create awareness on cooperative.COOPERATIVE FROM ISLAMIC PERSPECTIVE (cont’d) Promote values of self-help. life (nafs). equality. democracy. . and property (mal ). equity and solidarity. intellect (’aql). progeny (nasl ). It helps to fulfil the Shariah principles namely the protection and preservation of the basic necessities (daruriyyat) including protection of religion (din). Thank You Q&A . %.34: " .