Ar Rahnu
introduction
Method of providing short-term financing to a person by pawning his or her gold to the banks or any Islamic pawnshop as a security.
Islamic Concepts
Qardhul Hasan – The borrower is required to pay only the amount borrowed
Ar Rahnu and Al-Wadi’ah – The borrower is required to place a valuable asset as collateral to get a loan and to ensure repayment
Al-Ujrah – The lender is allowed to charge a fee for safekeeping of the pawned items
Mechanism in Malaysia
Its a micro credit instrument
Only gold and jewelry can be pawned
Available to both locals and foreigners, Muslims and Non-Muslims
Loan tenures range from 1-6 months
Has choice either to repay either via lump sum or by monthly installments
Borrowers only need pay the principal plus a safekeeping fee
If borrower cannot repay the loan, granted extensions of up to 3 months
Advantages
No interest (riba) involved only safekeeping fees as agreed will be charged
Pawned items will be in the same condition as before
If unable to repay the debt, they will be notified of the charges and about the forced sale
Sales price exceeds the remaining debt, the excess will be returned
Reasonable pawn value
Process
Lending process
Redeeming process
Auctioning process
Definition
Al rahn- Fixed and eternal
Pillars of Rahn
Rahin(Pledgor) - A person who gift rahn/debtor
Murtahin(Pledgee) - A person who takes rahn/creditor
Marhun(Pledget Asset) - A property to be pledged
Marhun Bih - The debt
Ijab and Qabul - Mutual Agreement