The term Ar Rahnu can be found in advertisement around us which usually offered by banks such as Bank Islam, Bank Rakyat, Bank Muamalat and many more. Although we have encountered this term previously, are we actually aware of how exactly Ar Rahnu operates in Malaysia?
For an in-depth Islamic definition of Ar Rahnu, the Shafies school of laws viewed Ar Rahnu as a non-fungible property which is used as collateral against a fungible debt and that the debt may be extracted from the Rahn property if it is not repaid. Now, let’s see how this Shariah concept of Ar Rahnu applies in Malaysia.
Islamic banks offer Ar Rahnu as an Islamic financing facility practically known as pawn broking. The bank (Murtahin) will grant loan to the customers (Ar Rahin) and the customers in return will provide redeemable collateral (Marhun) usually gold to be pledged as surety on their credit with the bank. This collateral is mandatory as it will act as an assurance to the bank that the customer will fulfil their obligations and liabilities to pay the loan upon the maturity of the facility.
The gold value will be firstly measured in accordance with the current market value as the amount of loan given to the customer and the safekeeping fee charged to the customer’s account depends on the type and value of the gold presented to the bank. Nonetheless, the amount of loan given is normally less than the value of the gold. For example, Bank Islam offered a margin of financing of up to 70% of the gold value. The additional safekeeping fee alongside the repayment of the loan to the bank provides another underlying Shariah concept known as ujrah where apart from the customer’s responsibility to pay off the loan upon the end of the tenure, the customer is obliged to pay the safekeeping fee of the gold.
To further secure the interest of the bank in the event of default by the customer in paying the loan with their outstanding safekeeping fee upon the end of the facility tenure initially agreed by both parties, the gold previously acting as collateral or security will be seized by the bank and the bank also has the right to auction off the gold pledged to recover the losses.
On the other hand, if there is any profit, dividend or bonus accrued from the gold throughout the facility tenure, it belongs to the customer due to the customer still retains their ownership on the collateralised gold.
In the event of complete settlement of the liability of the customer to pay the loan, safekeeping fee and other maintenance or documentation costs, the bank will return the collateral or security to the customer unless they both agreed to enter a new Ar Rahnu using the same collateral.
In conclusion, we can observe that the Islamic banking facility of Ar Rahnu is a replacement of the conventional pawn broking that offers greater protection and assistance to the low-income group compared to the conventional pawn shop that operates more towards gaining interest as Ar Rahnu provides an interest-free facility in compliance with Shariah prerequisites and Rahn guideline issued by Bank Negara Malaysia.