Principles and Practices of
Rahnu
Chapter 2:
Ar-Rahnu
By
Dr Siti Mariam Mellisa Binti Abdullah
BASIC STRUCTURE OF PAWNBROKING
• A basic structure flow of the rahn
contract will involve 2 parties,
mainly a pawbroker as credit
provider and a customer.
• customer pawns his
valuable item (e.g.
jewellery) as a collateral for
the financed amount.
• Pawnbroker provides
financing based on assets
value.
• customer pays the debt.
• 4) Pawnbroker returns the
jewelry to customer
Introduction to Ar-Rahnu
• WHAT IS AR-RAHNU?
• Rahn is an Arabic noun derived from the word rahana which means constancy or holding and binding.
• Rahn refers to taking a property as a security against a debt, whereby the secured property can be
utilised to repay the debt in the case of non-payment.
• Rahn is a concept that is permitted by the Shariah where its main objective is to protect the well being
of the debtor and the creditor to guarantee the settlement amount.
• Ar-Rahnu or better known as Islamic pawn broking can be defined as a 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.
• one of the micro financing facilities that is available for medium and lower income group who are
seeking financial assistance.
• Provide quick and easy money to their customers.
NATURE OF AR-RAHN
Rahn is to convince the creditor that the debt will not simply disappear
or vanish incase of default payment on part of the debtor.
Pledged property will be sold or auctioned and the proceeds will be
taken by the creditor to compensate losses
Creditor is only entitled to the total amount owed to him by the debtor
and the balance will be returned back to the owner
Rahin
Pledgor- a person who gives rahn/ debtor
Sighah
Ijab (offer) qabul (acceptance)
Pillars of Marhun bih
Rahn The liability of rahn/ the debt
Marhun
Pledge asset- a property to be pledged
Murtahin
Pledgee- person who takes rahn / creditor
THE LEGALITY OF CONCEPT OF RAHN
• The legality of concept of rahn has been mentioned in the Quran
in al-Baqarah verse 283 :
ْ ضا فَلْيُ َؤ ِد الَّ ِذى
اؤت ُ ِم َن ً ْضكُ ْم بَع ُ ْضةٌ ۗفَا ِْن ا َ ِم َن بَع َ سفَ ٍر َّولَ ْم ت َ ِج ُد ْوا كَاتِبًا فَ ِر ٰه ٌن َّمقْبُ ْو َ َواِ ْن كُنْت ُ ْم عَ ٰلى
ُ ّٰللا َربَّ ٗه ۗ َو ََل ت َ ْكت ُ ُموا الشَّ َها َد ۗة َ َو َم ْن يَّ ْكت ُ ْم َها فَ ِانَّ ٗه ٰاِِ ٌم ََلْبُ ٗه ۗ َو ه
َ ّٰللا ِب َما تَعْ َملُ ْو َن
ع ِليْم َق ه ِ َّ ا َ َمانَت َ ٗه َولْيَت
“If you are on a journey, and cannot find a scribe, something should
be handed over as security, but if you decide to trust one another,
then let the one who is trusted fulfil his trust; let him be mindful of
God, his Lord. Do not conceal evidence: anyone who does so has a
sinful heart, and God is fully aware of everything you do.
The Use of Pledge By the Pledgee
• The pledge is considered a trust in the hands of the pledgee. The
pledgee is responsible for its safety and preservation. The pledgee is
liable if the pledge property is damaged or destroyed as a result of
the pledgee negligence.
• Pledge is intended to be a security for the payment of debt.
Flow of Ar-rahnu
Comparison between ar-Rahn and
conventional Pawning
Ar-Rahn Principle Conventional Pawning
Institution based eg: banks, co- Operator Sole proprietor based , Individual
operatives, YAPEIM, state based
government agencies etc
Day/monthly safekeeping Charges Interest is charge
charges More expensive rate
No interest charges
Have coverage (Takaful) Insurance Not covered, if the pledged item are
lost, only a 25% compensation is
offered
Only pure gold accepted, Items Any valuable items
ornamented gemstones on
gold items will not be valued
Comparison between ar-Rahn and conventional Pawning
Al-Rahn principles Conventional Pawning
Must provide proof of ownership Ownership Not required to provide proof of
either through the latter of ownership.
purchase or latter of undertaking.
If it belongs to someone else, a
latter of consent/approval from
the owner is required.
Up to 60%-70% of the value of Pawning Valuation is much lower than the
pawned gold. value market value
Valuation based on the current Average 30.5%
market value.
Pledged items will be auction Default Not transparent
publicly
Transparent and notice will be
sent
The balance after the auction will Balance after Not be returned to the pledgor
be returned back by the company auction
to the pledgor
What is Shariah Concept used for Ar-Rahnu?
• The Shariah concepts used for the previous Ar-Rahnu products are
Qard, Rahn, Wadiah Yad Dhamanah and Ujrah.
• Since year 2020, ar-rahnu product apply the Shariah concepts of
Murabahah (Tawarruq) and Rahn.
• The previous Ar-Rahnu product charged a safekeeping fees for the
value of the the pledge assets which will also change according to the
current increase and decrease in the price of gold.
• The new ar-rahnu financing charges a profit rate that is not tied to the
current gold price.
Illustration of Ar Rahnu product structure (Tawarruq)
A tawarruq consists of two sale and purchase
TAWARRUQ contracts.
• The first involves the sale of an asset by a seller
to a purchaser on a deferred basis.
• The purchaser of the first sale will sell the same
asset to a third party on a cash and spot basis.