Al-Rahnu

VS
Conventional Pawn Broking
Group 12 Maybank Islamic Bank
Definition Al-Rahnu(Islamic Pawn Broking)
-Al-rahnu means pledge or collateral.

-Al-rahnu is a source of short-term financing

-Used by the lower income group to alleviate their

cash flow problems
-Al-Rahnu is an activity whereby a valuable item or
asset is used as collateral for a debt which may be
utilized as payment should the debt is not repaid
within the agreed period.
-A combination of three concepts is applied for the short term
financing under Islamic pawn-broking are Qardhul Hasan
(benevolent loan), Al-Rahnu and Al-Wadiah (custodian).

-Qardhul Hasan mean benevolent loan. Qardhul Hasan is a

contract between two parties on the basis of social welfare or to
fulfill a short-term financial need of the borrower. The amount of
repayment must be equivalent to the amount borrowed.

-Al-rahnu is a prior to disbursment of cash to the applicant, the

applicant is required to place a valuable asset as collateral for the
loan extended by the bank

-Al-Wadiah means savings for safekeeping. Al-Wadiah refers to

goos or deposits, which have been deposited with another
person, who is not the owner, for safekeeping
Definition of Conventional Pawn Broking
-Conventional pawn-broking is a source of short-term financing
generally used by the lower income group to alleviate their cash
flow problems

-Conventional pawn broking is a business that offers

monetary loans in exchange for an item of value that is given to
the pawn broker.

-If an item is pawned for a loan, within a certain contractual

period of time the pawner may purchase it back for the
amount of the loan plus some agreed-upon amount for
interest. The amount of time, and rate of interest, is governed
by law or by the pawnbroker's policies. If the loan is not paid
within the time period, the pawned item will be offered for sale
by the pawnbroker/secondhand dealer.
The condition of al-rahnu
For those who want to enter into Ar-Rahnu business, it is
advisable to take into account the following conditions:
•Always comply with its mission and objective, that is, to perform
“Social obligation” for needy people.
•The financing amount disbursed to customers shall be based on
Qardhul Hassan at all times and the safekeeping fee cannot be
related to Qardhul Hasan amount.
•The safekeeping fees shall be much lower than Conventional
pawn broking fees. Therefore, it is not advisable for Islamic Pawn
Broking entrepreneurs to impose high safekeeping fees. It must
be understood that by linking the safekeeping fee to the marhun
value by percentage, typically the fee would be higher. In the end,
it will not be suitable for micro-credit financing.
•In case of failure to return the Murtahin Bih (financing amount) in
which the Rahin (customer) cannot be contacted, the Marhun can be
sold and if there is any surplus, it shall be placed in a separate account
should any claims be made by the owner or his heir. It is very
important that the Ar-Rahn company does not use that balance amount
for any purpose.
•If the customer (rahin) requests for the extension of maturity period, it
must be negotiable and the Ar-Rahn company must not impose any
extra charge except for the storage fee. 
Condition of Conventional Pawn Banking
The term and condition pawn banking are shown in ten aspects:

1) the pawner hereby accepts the pawnshop’s appraisal as proper.

2) the interest rate stipulated herein is in accordance with the existing

policy of the Monetary Board. The pawnshop hereby agrees not to collect
in advance interest for a period of more than one (1) year.
3) the service charge is equivalent to one percent (1%) of the principal
loan, but not exceeding five persons. No other charges shall be collected

4) this loan is renewable for such amount and period as may be agreed
upon between the pawnshop and the pawner subject to the requirements
for a new loan

5) Upon maturity of this loan, as indicated on the face of this ticket, the
pawner still has ninety (90) days from maturity date within which to
redeem the pawn by paying the principal loan plus the interest that shall
have accrued thereon.
6) the pawnshop shall send a written reminder to pawner, before the
expiration of the ninety (90) day grace period, that the pawn shall be sold
or disposed of in the event the pawner fails to redeem the pawn within the
ninety (90) day grace period

7) the parties hereby agree that this ticket shall be surrendered at

maturity date upon payment of the loan.

8) the pawner hereby agrees not to assign, sell or in any other way
alienate the pawn securing this loan as evidenced by the pawn ticket
without prior written consent of the pawnshop and subject to the terms
and conditions of this contract.

9) In case of pre-payment of this loan by pawner, the interest collected in

advance shall accrue in full to the pawnshop.

10) the pawner shall not be entitled to the excess of the public auction
sale price over the amount oAf principal, interest and service fee; neither
shall the pawnshop be entitled to recover the deficiency from the pawner.
The similarity between al-Rahnu
and
Conventional Pawn- Broking
 Generally, the modus operandi for conventional and Islamic
pawnshop transaction is quite similar. The pawning process
begins when a customer brings an item into a pawnshop or
pawn shop. The loan process of pawn broking transaction can
be described according to this chronology
 First of all, the customer must be 18 year olds and can show a
valid identification card.
 Secondly, when a customer walk in a pawnshop with their
pawned item, they will be entertained by a clerk or an officer
that is expert as a valuer. The valuer decides on the size of the
 loan
Thirdly, the customer will receive the loan immediately in
cash. The pawnbroker will give a receipt to the person as a
proof of transaction and record the particulars transaction in
the pawnbroker’s book. The receipt states the customer’s
name and address, a description of the collateral, amount
lent, maturity date and the amount that must be paid to
redeem the assets.
 conventional and Islamic pawn broking normally make loans
with maturities up to six months.
 The different between
al-Rahnu
and
Conventional Pawn- Broking
 TERM Al-Rahnu
The items to be only use gold as the pawned
accepted item and other items were
silent at the moment.
the contract/ based on four concepts,
aqad which is al-qardhul Hassan or
loan without interest, al-
wadiah yad dhammanah
The fee based on the value of gold
Repayment accumulated deposit fee and
any costs related to the loan
Conventional Pawn
Banking
the gold and jewelry
including Rolex watch
and diamond and also
pledge asset.
-not make any credit
scoring and will not
ask the purpose of the
loan.
-easily get the loan
based on the value of
an amount
customer must repay
the loan with interest,
usually two percent to
two point five percent
 TERM AL-RAHNU
Extension -extension period for three month
period if after which the client is in informed
there is no that item will be sold by auction within
payment after further of two month period.
redeem
period
Default the lender retains the right to seize
and auction off the collateral to cover
the financing and the remaining
balance to be returned to the
borrowers.
-In case the customer cannot be
located, the surplus will be forwarded
to the Baitulmal
CONVENTIONAL PAWN
BANKING
-the loan can extended
which the pledge may be
redeemed for further
period not less than three
month, but the interest
have build up over time to
be paid.
the lender retains the
right to seize and auction
off the collateral to cover
the financing and the
remaining balance to be
returned to the borrowers.
-In case the customer
cannot be located, the
surplus will be forwarded
the General Accountant
within fourteen days after
expiration of the period of
 Conclusion
 Pawn broking is a collateral loan system and
known as the oldest system used by men.
The pawn broking system was fully utilized
by the lower income group for fast cash
following simple procedures. The Al-Rahnu
scheme is one of the instruments used by the
small traders especially in the east coast.