Ar Rahnu is based on these 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 (like a mortgage housing loan)
- Al-Ujrah – The lender is allowed to charge a fee for safekeeping of the pawned items
Mechanics of Ar Rahnu in Malaysia
In Malaysia, Ar Rahnu is a relatively new micro credit instrument. Only gold and jewelry made of gold can be pawned. It is available to both locals and foreigners, Muslims and Non-Muslims alike, Loan tenures range from 1-6 months. Borrowers have a choice either to repay either via lump sum or by monthly installments. Generally, the margin of finance is from a minimum of RM100 up to 60-70% of the value of the gold.
In the event the borrower cannot repay the loan, it is possible to be granted extensions of up to 3 months. If the borrowers are still unable to repay the loan, the pawned item will be auctioned off and any surplus less outstanding amount and charges would be returned to the borrower.
Ar Rahnu is free from any riba and gharar element. Borrowers only need pay the principal plus a safekeeping fee as agreed in the agreement during the maturity date.
Where to get Ar Rahnu facilities in Malaysia?
In Malaysia, there are two types of agents that offer Ar Rahnu facilities:
|Banks / DFI||Non Banks|
Advantages of Ar Rahnu
Compared against conventional pawn shops and unsecured personal loans, Ar Rahnu has certain advantages:
- No interest (riba) involved
- Interest (riba) is prohibited in Islam.Only safekeeping fees as agreed will be charged on the pledged item.
- Pawned items will be in the same condition as before
- When items are redeemed, there will be no problems such as shorter or lighter gold chains, which can sometimes happen with conventional pawn brokers
- Notice of Auction
- If the borrower is unable to repay the debt, they will be notified of the charges and about the forced sale
- Surplus will be returned
- If the sales price exceeds the remaining debt, the excess will be returned
- Reasonable pawn value
- Although the Pawnbroker Act 1972 did not fix the par value or criteria to appraise the pawned item, one can still expect a reasonable pawn value from institutionalized pawn brokers
If you are looking for short term loans and you have gold jewelry, you can consider Ar-Rahnu as a cheaper alternative to personal loans.
But if you require a longer term loan with no collateral down, a personal loan might be more suitable. You can make use of Loanstreet’s personal loan comparison tool to find the best personal loan for you.