Вы находитесь на странице: 1из 9

AR RAHNU: A SHORT TERM FINANCING ALTERNATIVE

Imani Mokhtar
1

Shah Rizal Zambahari
2



ABSTRACT

Islamic pawn broking or ar-rahnu can be considered as the promising business. Ar rahnu is viewed as the
most suitable Iorm oI micro Iinancing particularly to cater Ior the individuals and small businesses who
may have limited access and support via the conventional banking system . This paper undertakes to
explain the concepts and importance oI ar rahnu as a Iorm oI short term Iinancing alternative particularly
to Malaysian customers on a conceptual basis. Moreover this paper also attempts to highlight the
signiIicant or beneIits oI Ar Rahnu and issues Iaced in implementing the Islamic pawn broking (ar rahnu)
in Malaysian context Irom shariah principles. Apart Irom that this paper also explains the diIIerences
between conventional and Islamic pawn broking. This paper concludes ar rahnu is beyond doubt that it is
Iundamentally upholding the shariah principles aiming to achieve its objective (Maqasid al-Shariah). In
this context oI ar rahnu, applying and achieving the objectives oI shariah (Maqasid al-Shariah) become
the main concern. Hence, the introduction oI ar rahnu as a permissible micro Iinancing tool based on the
Maqasid al-Shariah gives Muslims customers an alternative oI getting a Iast and low-cost interest Iree
cash advances. Finally in view oI the Iact that this paper is on conceptual basis, the method employed is
descriptive in nature based on the available existing literatures.

Keyword : Islamic banking product, Islamic pawn broking, shariah principles, micro Iinancing tool




1. INTRODUCTION
Malaysia is considered as the leader oI the introduction oI Islamic Iinance and banking in Southeast Asian
countries (Nakagawa, 2011). Islamic Iinancial system has been promoted in Malaysia since 1983 with
the establishment oI Bank Islam Malaysia by the government. Ten years later, Islamic Banking Scheme
was started which enable banks to introduce Islamic banking and expand it across the country while
creating a more competitive business environment.

In the early years, the basic approach oI Islamic banking implementation was the replication oI the
conventional banking, basically transIorming the sources and application oI Iunds into products and
services which are acceptable in Islam. However, due to some Iactors such as competition,
institutionalization and quest Ior authentic Islamic products and services, the industry has take an
initiative to develop its own products and services which undoubtedly uphold the shariah principles and
guidelines. In this context, Islamic banks play an important role in providing the Islamic based products
and services in order towards the achievement oI maqasid-al-shariah in the economic system (Manan,
2008).

A Senior Lecturer at Centre oI Economic, Finance and Islamic Banking, Faculty oI Business Management, Universiti Teknologi
MARA.

A Senior Lecturer at Centre oI Economic, Finance and Islamic Banking, Faculty oI Business Management, Universiti Teknologi
MARA. Corresponding author : imani895salam.uitm.edu.my
863
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

To date, several Islamic banking products have been developed such as Islamic bonds (sukuk), Islamic
insurance (takaful) and Islamic pawn broking (ar rahnu). Among the Islamic banking products currently
available in the market, ar rahnu can be considered as the promising business. Ar rahnu is viewed as the
most suitable Iorm oI micro Iinancing particularly to cater Ior the individuals and small businesses who
may have limited access and support via the conventional banking system (Aziz, 2006). Ar rahnu was
basically introduced because the existing conventional pawn broking`s practices are inconsistent with the
shariah principles and guidelines. As such, now it can be said that Muslim customers have an alternative
Iorm oI Iinancing Irom the conventional pawn broking towards Islamic pawn broking (ar rahnu).

1.1 Objectives of the study
A review oI the pertinent literatures was carried out in order to identiIy the diIIerences between
conventional and Islamic pawn broking. In addition, this paper undertakes to explain the concepts and
importance oI ar rahnu as a Iorm oI short term Iinancing alternative particularly to Malaysian customers
on a conceptual basis. Moreover this paper also attempts to highlight the issues Iaced in implementing the
Islamic pawn broking (ar rahnu) in Malaysian context. ThereIore, the signiIicance oI this paper is to give
a better understanding on ar rahnu as a permissible Iinancing tool and should be regarded as one oI the
main short term Iinancing alternative currently available in the market. Finally in view oI the Iact that this
paper is on conceptual basis, the method employed is descriptive in nature based on the available existing
literatures.

2. LITERATURE REVIEW
2.1 Development of conventional and Islamic pawn broking in Malaysia
Pawn broking services have been introduced in Malaysia way back in the 15
th
century based on the
Chinese and Malaccan empires` diplomatic relationship. The Iirst pawnbrokers were the Chinese
merchants that stayed in Malacca and providing their services to both locals as well as the other trade
merchants (Cheong & Sinnakkannu, 2012). At that time, the number oI pawn broking licenses shows an
increasing Iigure which is translated into an increasing demand oI pawn broking services.

The conventional pawn broking business in Malaysia has been governed by the Pawnbrokers Act 1972.
This Act basically outlines the basic guidelines and principles Ior both clients and pawnbrokers. Even it is
governed by the Act, it is still unacceptable according to Islamic Law due to its provision that allows Ior
the taking oI interest. Due to this reason, a concerted eIIort has been put in order to set up an interest-Iree
credit Iacility particularly to IulIill the need oI the Muslim community (Ismail & Ahmad, 1997).

As a result, ar rahnu was basically introduced because the existing conventional pawn broking`s practices
are inconsistent with the shariah principles and guidelines. The development oI Islamic pawn broking in
Malaysia started in 1992 with the establishment oI Majlis Agama Islam by the Kelantan state government
and Muassasah Gadaian Islam Terengganu (MGIT) by Terengganu State Government. It is noted that at
that time, the establishment oI this Islamic pawn broking system which adhered to the methods
considered halal under the shariah tenets gives as an alternative to the customers in obtaining short term
Iunds. Then, 'Skim Ar Rahnu (SAR) was announced by the Minister oI Finance in 1993 through the
eIIort oI Bank Negara Malaysia (Malaysia`s central bank), Bank Kerjasama Rakyat Malaysia Berhad and
Malaysian Islamic Economic Development Foundation. Consequently, latter in the same year, several
branches oI Bank Kerjasama Malaysia Berhad had launched this 'Skim Ar Rahnu (SAR) Ior their
customers (Appannan & Doris, 2011).

In 1995, the Kelantan state government has stepped Iorward to impose new ruling on the cessation oI all
riba or interest based conventional pawnshops, thus lead to the termination oI the operation oI the
conventional pawnshops in Kelantan. However, those conventional pawnshops which are primarily
operated and owned by non-Muslims may continue to operate as long as they adhere to the ar rahnu
principles (Shaari & Azlina, 2003).
864
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.


2.2 Conventional versus Islamic pawn broking
There are several diIIerences between conventional and Islamic pawn broking (ar rahnu) Iound Irom the
literatures. The Iollowings discuss about the similarities and diIIerences under both conventional and ar
rahnu.

Traditionally, conventional pawn broking appears to be the Iastest and simplest sources oI short term
secured Iinancing. Primarily its main target customers are those groups oI people with no and little cash,
working Ior themselves and diIIicult to acquire loans Irom banks as well as other Iinancial institutions
(Othman, Hashim, & Abdullah, 2012). It is considered as a quick way to obtain Iinancing as there are no
complex and tight credit evaluation procedures to go through as compared to Iinancing application Irom
conventional Iinancial institutions. It is also regarded as procedurally non-cumbersome type oI Iinancing
as there are no speciIic restrictions set in terms oI how the Iund can to be utilized (Cheong &
Sinnakkannu, 2012).

Pawn broking is generally a contract that involve pledging a security and becomes binding once
possession oI the pledge being done. Conventional pawnshops are regarded as 'poor-man`s bank which
plays a signiIicant role in providing Iinancing in which customers need to pledge certain amount oI
jewellery or other such items oI value (Shaari & Azlina, 2003). In conventional pawn broking, pawned
items can be in various Iorms namely jewellery, electronic assets, diamond or other items that that are
easy to be stored as well as items that do not depreciate in value over certain period oI time (Ismail &
Ahmad, 1997); (Amin, Chong, Dahlan, & Supinah, 2007).

Moreover, this conventional pawn broking also imposes certain amount oI interest rate on the amount
borrowed by the customers regardless oI the value oI the collateral (Appannan & Doris, 2011). This is
also highlighted by Bhatt and Sinnakkannu (2008) where conventional pawn brokers charges a Iixed
twenty Iour percent interest rate per annum on the amount borrowed, which is considered relatively high
Ior those lower income group oI customers.

Additionally, under conventional pawn broking scheme, iI the customers deIault in payments or iI the
pawned items are not redeemed within the stipulated period, those pawned items will then be possessed
by the pawnshop owners (Ismail & Ahmad, 1997).

Adversely, the concepts oI conventional pawn broking mentioned above can also be identiIied as the
shortcomings or weaknesses oI this conventional pawn broking system. SpeciIically Abdul-Razak (2011)
mentions that among the weaknesses oI the conventional pawn broking are non systematic or transparent
ways oI valuing the pawned goods, higher interest rate charged by the pawnbrokers and misconduct or
immoral practices done by the pawnbrokers such as auctioning the pawned goods without notiIying the
customer.

As a consequence oI these conventional pawn broking weaknesses, an Islamic shariah based pawn
broking system known as ar rahnu was introduced. In general, the operations oI both conventional and ar
rahnu transactions are somewhat similar. However, there are several underlying principles that govern the
ar rahnu transactions as opposed to the conventional pawn broking. These basic principles governing ar
rahnu are the one that actually diIIerentiate it Irom the conventional one.

Similar to conventional pawn broking, ar rahnu enables the customers to acquire Iast cash Ior any
transaction or emergency purposes. It was designed to oIIer an alternative source oI easing temporary
Iinancial diIIiculties targeted at the low-income conventional pawnshops patrons. It is regarded as one oI
the Islamic based micro-credit and Iinancing tool catered primarily Ior those low-income earners seeking
Ior Iinancial assistance in meeting their working capital needs (Amin, 2011). However, ar rahnu extend
865
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

this Ieature in the sense that one oI its principles governing the scheme is pertaining to the concept oI
Qardhul Hassan (benevolent loan). According to Amin, Rahman, Sondoh Jr, and Hwa (2011), Qardhul
Hassan is reIerred as a beneIicial loan which is a Iorm oI interest Iree type oI Iinancing. Based on
Qardhul Hassan principal, the lender (al murtahin) helps the borrower (ar rahim) by providing them the
Iinancing required without charging any extra money apart Irom the amount borrowed.

Likewise ar rahnu allows its customers to pledge their valuable assets as a Iorm security to obtain
Iinancing. However, it is noted that gold and gold jewellery are the only allowable pledged item in the ar
rahnu transactions and the amount oI borrowing is dependent on the value oI that gold (Appannan &
Doris, 2011); (Ismail & Ahmad, 1997). Here, gold is used as collateral over other items due to its
advantages such as it can be conveniently traded, its purity can be ascertained easily and its value is
relatively stable. Along the same line, another principle governing ar rahnu scheme is related to Wadiah
Yad-Amanah (trustworthiness). In relation to this principle, wadiah is one oI the main concepts in Islamic
banking that agree on the custody oI another person`s valuable assets (Mansor, 2009). In ar rahnu
scheme, the borrower (ar rahim) who has pledged their assets Ior the purpose oI obtaining the loan has
trusted the lender (al murtahin) to take care oI their wealth or assets within the loan period. The lender (al
murtahin) is not bound to be responsible to the collateral in case iI there is anything happens to it
provided that it is not due to the his negligence. At the maturity oI the stipulated period, the borrower (ar
rahim) needs to pay equal amount borrowed in order to redeem the collateral (ar rahn) pledged.

The next point to compare between both schemes is concerning to interest or service charges. As
mentioned above, certain amount oI interest will be charged to the customers under conventional pawn
broking scheme. However in ar rahnu scheme, the cost oI borrowing that is the service charge is imposed
instead oI interest. This service charge is relatively lower iI compared to the conventional pawn broking
scheme (Amin, 2011). Cheong and Sinnakkannu (2012) Iurther supported that the cost oI borrowing
under the Islamic pawn broking is about halI oI the cost charged by the conventional scheme. The cost oI
borrowing is in the Iorm oI storage Iee and it is calculated based on the value oI the assets pledged
(Appannan & Doris, 2011). Thus, this proved that the cost oI borrowing under Islamic pawn broking is
relatively cheaper as compared to the conventional pawn broking. This principle oI storage Iee governing
the ar rahnu scheme is called as Al ufrah (saIekeeping Iee). In explaining this principle, the reasonable
service Iee payable is allowed to be charged by the lender (al murtahin) in saIeguarding the wealth or
assets oI the borrower (ar rahim). This service Iee is given to the lender (al murtahin) may be to
compensate him Ior taking some precautionary measures in looking aIter the wealth or assets.

Unlike conventional pawn broking, ar rahnu scheme is conducted based on the concept oI Wadiah Yad-
Dhamanah (guaranteed storage). In ar rahnu scheme the lender (al murtahin) at any circumstances is
bound to be responsible in saIeguarding the assets pledged by the borrower (ar rahim). The lender (al
murtahin) is deemed to be responsible in case iI the assets are missing or damaged while it is in his or her
custody. In the same context, iI the borrower (ar rahim) Iails to redeem the collateral within the stipulated
period, a notice auctioning the assets will be given to the borrower (ar rahim). II the lender (al murtahin)
still does not receive any response, the assets will then be auctioned in order to recover the amount oI loan
outstanding. Here, iI there is any surplus derived Irom auctioning the assets, it shall be returned back to
the borrower (ar rahim). However, in case iI the borrower (ar rahim) cannot be detected thereIore it
should be the responsibility oI the Islamic institutions to handle it, such as it should be put in the
Baitulmal account Ior the beneIits oI both borrower (ar rahim) and his or her beneIiciary (Cheong &
Sinnakkannu, 2012).

2.3 Islamic pawn broking from shari`ah perspectives
The Arabic term oI ar rahn means collateral or mortgage which reIers to possessions oIIered as security
Ior loan in case oI deIault payment oI the debt (Jalil & Rahman, 2010). According to the ar rahnu
concept, the borrower (ar rahim) is required to pledge redeemable collateral (ar rahn) normally in the
866
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

Iorm oI gold jewellery as a guarantee oI repayment oI loan. Ar rahn is considered an essential instrument
as a security oI loan as it reduces the lender`s risk and also increases the borrowers` cost in case oI deIault
in payment.

Ar rahn is permissible in Islam where there are prooIs oI its legality mentioned both in the Quran and
Sunnah (Ismail & Sanusi, 2005). For instance based on the Surat al-baqarah verse 283, Allah states:
'And if vou are on a fournev and cannot find a scribe, then a securitv deposit [should be] taken.
And if one of vou entrusts another, then let him who is entrusted discharge his trust [faithfullv]
and let him fear Allah , his Lord. And do not conceal testimonv, for whoever conceals it - his
heart is indeed sinful, and Allah is Knowing of what vou do`

In the above verse, Allah states that in the event oI no scribe available at hand, suIIicing to pledge is
allowed as a mean oI documenting and insuring oI debt. The pledge serves as a deposit and guarantee oI
payment to the creditor but treachery oI this pledge is a great sin. At the end oI the verse Allah also
emphasizes the importance oI protection oI deposits, delivering the rights oI others and at the same time
warned about the concealment oI testimony.

In addition, there are also several evidences on the legality oI ar rahn that can be derived Ior the Sunnah.
For example in one oI the Hadith narrated by Anas (mAbpwh), he states:
'The Prohphet (pbuh) pawned a shield with a Jew in Madinah and he took from him some barlev
for his familv`

Based on the above verse and Hadith, thereIore, it can be concluded that Islam permits the use oI ar rahn
in a pawning transaction. It is noted that among the main objective oI the use oI ar rahn is to guarantee
the repayment oI the loan and in the event oI non-payment, the creditor then has the option to sell it (Nor,
Abdullah, Ali, & Zakaria, 2012). Thus it is also clear that the philosophical Ioundation oI this ar rahnu is
to uphold virtue and justice in its transaction. In this context, any kind oI unjustiIied enrichments by the
creditors or any kind oI oppression on the debtors, such as riba (interest) must be totally avoided.

Literally the Arabic word Riba can be deIined as an expansion, increase or growth (Manan, 2008). From
shariahs perspective, riba is related to the premium charged by the Iund provider on the amount oI loan
granted to the borrower or Ior extending the maturity period oI the loan. It is not doubt that Islam has
strictly prohibited the imposition oI riba on every business activities (Jalil & Rahman, 2010). Allah has
stressed on this prohibition oI riba and the punishment Ior dealing with riba in several versus oI the Holv
Quran. For instance based on the Surat al-baqarah verse 275, Allah states:
'God has allowed trade and forbidden riba (interest)`

In the above verse, it is clear that trade is allowed and encouraged in Islam however it should not involved
any elements oI interest such as any Iorms oI additional returns or premium imposed due to the
postponement oI the repayment oI loan . Hossain (2009) also states that riba is not allowed in Islam
because it serves as a dangerous weapon which may exploit those needy and poor people, thus creating
an imbalance circulation oI wealth among the society. Additionally, the word gharar reIers to all
elements oI uncertainty or ambiguity (Manan, 2008) . It is stated that in Islam, all Iinancing transactions
and activities which are covered under the Iramework oI Islamic business law (fiqh ul muamalat) must
avoid this element oI uncertainty (gharar).


2.4 Significance of Islamic pawn broking
There are many beneIits that can be derived Irom ar rahnu services as opposed to conventional pawn
broking and other Iorms oI Iinancing alternatives.

867
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

The Iirst advantage is related to the transparency oI ar rahnu in its business conducts. Since ar rahnu
Iollows closely the Islamic code oI conduct in their transactions, thereIore it can be said that ar rahnu
scheme does not involve the imposition oI riba and gharar in its dealings. It is clear that every steps
involved in the process is made known to the customers. Every process such as the acceptance oI items
tendered as well as the valuation process is conducted openly in Iront oI the customers (Othman et al.,
2012).

Second, ar rahnu does consider the sensitivity oI its clients, who are mainly the Muslim women who
owned small-scale business. They regularly need Iast money Ior various reasons Ior any transactions or
emergency purposes. Ar rahnu is regarded as one oI the main source oI capital Ior these small-scale
businesses who have no access and capacity to other types oI immediate Iinancing Ior certain period oI
time (Aziz, 2006). In short, ar rahnu services are important as it caters the sensitivity oI the needs and
requirements oI their customers.

Third, the groups oI customers as mentioned above are able to use the ar rahnu services due to its Iast,
Ilexible and easy procedures. The customers will need to bring their valuable goods as collateral and their
applications would normally be processed in a short period oI time. The approvals are prompt as they are
Iully supported by the collaterals. Furthermore the process can be expedited as there are no complex and
tight credit evaluation procedures to go through as compared to Iinancing application Irom conventional
Iinancial institutions (Amin et al., 2007).

Finally, all oI the items tendered will be kept in saIe places which are insured under government
protection. Each customer will also be notiIied on monthly basis related to the items tendered such as the
date to surrender the items to them and giving their excess money Irom selling the items in case they do
not want to claim back those items (Othman et al., 2012).

2.5 Issues in implementing Islamic pawn broking
It is undeniable that there are huge potential oI ar rahnu as a short term Iinancing alternatives however
several issues need to be properly addressed in order to ensure the increase in the usage rate oI ar rahnu
among the public.

Among the prominent issues in implementation oI ar rahnu is to consider the Iactors that inIluence
customers on the use oI ar rahnu services. According to Appannan and Doris (2011), the low cost oI loan
is the most important Iactor inIluencing the public to use ar rahnu. Similarly, Cheong and Sinnakkannu
(2012) mention that customers choose to use ar rahnu services over conventional pawn broking services
because oI its riba-Iree attributes, transparent, quick and hassle-Iree micro-credit Iinancing alternatives.
In addition, Amin (2011) also identiIy three important Iactors that have an impact oI Eastern Malaysia
Muslim women`s usage intention. He explains that religious obligation is one oI the inIluencing Iactors in
determining one`s intention to use ar rahnu Iinancing. Besides that, transaction cost associated with ar
rahnu services is also Iound to be one oI the main contributing Iactors in inIluencing the use oI this
Iinancing alternative. Similarly Amin et al. (2007) mentioned that customers` shariah view on ar rahnu
is one oI the main Iactors aIIecting their acceptance level. The issue oI reasonable Iees charges instead oI
imposing riba is their main concern in using the ar rahnu services provided.

Another critical issue that need to be addressed pertaining to ar rahnu implementation is creating and
enhancing customers awareness. To date, it can be said that the level oI customers` awareness and
acceptability oI this ar rahnu system is relatively low. Sam, Tahir, and LatiI (2010) highlight that most oI
the customers are not aware oI the service currently provided by the Islamic pawnshop. They also
mentioned that most oI the customers do not Iavour to use it as a Iinancing tool as compared to the other
types oI short term Iinancing alternatives available. Similarly Appannan and Doris (2011) also report that
majority oI Indian customers are not aware oI ar rahnu as compared to Malay and Chinese customers.
868
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.


Finally, today`s market segments pertaining to the pawn broking customers are diIIerent compared to
beIore. Shaari and Azlina (2003) demonstrate that ar rahnu basically serves diIIerent groups oI market
segment. They conclude that ar rahnu seems to attract relatively higher income group oI the society
irrespective oI their gender. It is also Iound that ar rahnu seems more appealing to the relatively younger
segments oI the society. Additionally, customers with signiIicantly diIIerent liIestyles who are more
sociable and outdoor in nature regards ar rahnu as more attractive compare to the conventional
pawnshop.

3. DISCUSSION
Based on the review oI the literatures, ar rahnu is allowed in Islam where it is a Iorm oI short term
Iinancing that does not involved the elements oI riba. It is also noted that a clear set oI guidelines has
been outlined in ar rahnu scheme. It is no doubt that all the guidelines governing ar rahnu transactions
are made clear Ior the sake oI saIeguarding the welIare oI both parties, the borrower (ar rahim) and the
lender (al murtahin). Thus, in view the similarities and diIIerences between conventional and ar rahnu
mentioned above, it can be said that ar rahnu transaction is somewhat similar to conventional pawn
broking. However several general principles underlying ar rahnu scheme namely Qardhul Hassan,
Wadiah Yad-Amanah, Al-Ufrah and Wadiah Yad-dhomanah diIIerentiate it Irom the conventional one
(Appannan & Doris, 2011). These Islamic principles governing ar rahnu scheme has proved that ar rahnu
is a Iorm oI short term Iinancing which adhere to the shariah guidelines. Customers nowadays have an
alternative in deciding on their short term Iinancing. Ar rahnu serves as an alternative source oI Iinancing
which is in line with the shariah guidelines are expected to drive away particularly the Muslim
customers Irom involving in the interest-based Iinancing instruments which are available in the market
nowadays (Sam et al., 2010).

Based on the above issues in implementing ar rahnu scheme highlighted, it is crucial Ior ar rahnu
providers to careIully evaluate those issues in order to attract new customers thus increasing its usage
rate. These Iactors that inIluence the customers demand on ar rahnu includes shariah based and low Iee
charge are strong key points oI ar rahnu over the conventional pawn broking that should be highlighted in
order to increase the awareness and usage by the customers. Besides that, additional inIormation about
this ar rahnu services are also crucial and should be disseminated in order to expose potential customers
to Iamiliarize and understand the concepts behind ar rahnu system.

Moreover, since the awareness and level oI acceptance among Malaysians are relatively low, necessary
actions should be taken to promote ar rahnu services as the Iorm oI micro Iinancing alternatives.
ThereIore, creating awareness oI ar rahnu products through several promotional tools such as advertising
could be considered as appropriate approach in order to inculcate public`s awareness. Such approach will
assist in creating good perceptions among the public with regards to ar rahnu product. Among others, the
Islamic pawn brokers also need to clearly identiIy their target market in order to promote its products. To
summarize, it is undeniable that Islamic pawnshops institution in Malaysia have the potential to expand in
the Iuture as there is still big market yet to be tapped. It is hoped that one day, Muslim customers
especially, could regard ar rahnu as their main priority in deciding on their short term Iinancing
alternative.




4. CONCLUSION
In conclusion, ar rahnu is beyond doubt that it is Iundamentally upholding the shariah principles aiming
to achieve its objective (Maqasid al-Shariah). In this context oI ar rahnu, applying and achieving the
objectives oI shariah (Maqasid al-Shariah) become the main concern. Hence, the introduction oI ar
869
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

rahnu as a permissible micro Iinancing tool based on the Maqasid al-Shariah gives Muslims customers
an alternative oI getting a Iast and low-cost interest Iree cash advances.

The introduction oI the Islamic pawn broking (ar rahnu) should not considered as a competition to the
conventional pawn broking but it is aimed to compensate the rising demand oI Islamic-based Iinancial
products oI today`s society. Ar rahnu was basically introduced to IulIill the social responsibilities which
are inconsistent with the shariah principles and guidelines. In order to achieve this maqasid-al-shariah,
all business activities conducted and products used in the economy must uphold the basic shariah
principles particularly in relation to the prohibition oI riba and gharar. II all Muslim customers choose
those products which are permissible by shariah such as ar rahnu, as a result the Maqasid al-Shariah
will be achieved that is to saIeguard the interest oI the mankind and at the same time to prevent them Irom
harm, both in this world and hereaIter. Once Muslim customers have a choice that would later rival the
conventional ways oI obtaining short term Iinancing which involved the elements riba or gharar, there
would not be any question oI Muslims not IulIilling their obligations to uphold Islam in their daily lives.




Abdul-Razak, A. (2011). Economic and Religious Significance of the Islamic and Conventional
Pawnbroking in Malavsia. Behavioural and Perception Analvsis. Durham University.

Amin, H. (2011). Modelling Ar-Rahnu Use in Eastern Malaysia: Perspectives oI Muslimah. Journal of
Islamic Economics, Banking and Finance, 7(3), 63-76.

Amin, H., Chong, R., Dahlan, H., & Supinah, R. (2007). An Ar-Rahnu shop acceptance model
(ARSAM). Labuan e-Journal of Muamalat and Societv, 1, 82-94.

Amin, H., Rahman, A. R. A., Sondoh Jr, S. L., & Hwa, A. M. C. (2011). Determinants oI customers'
intention to use Islamic personal Iinancing: The case oI Malaysian Islamic banks. Journal of
Islamic Accounting and Business Research, 2(1), 22-42.

Appannan, S., & Doris, G. (2011). A Studv on Islamic Pawn Broking Awareness and Factors Influencing
The Scheme in Sungai Petani, Kedah. Paper presented at the 2nd International ConIerence on
Business and Economic Research (2nd ICBER) Proceeding.

Aziz, Z. A. (2006). Islamic Banking and Finance Progress and Prospects Collected Speeches. 2000-
2006: Bank Negara Malaysia.

Bhatt, P., & Sinnakkannu, J. (2008). Ar-Rahnu (Islamic pawning broking) opportunities and challenges in
Malavsia. Paper presented at the 6th International Islamic Finance ConIerence.

Cheong, C., & Sinnakkannu, J. (2012). Ar-Rahnu: Opportunities and Challenges in Malaysia. Available
at SSRN 2112809.

Hossain, M. Z. (2009). Why is interest prohibited in Islam? A statistical justiIication. Humanomics, 25(4),
241-253.

Ismail, A. G., & Ahmad, N. Z. (1997). Pawnshop as an instrument oI microenterprise credit in Malaysia.
International Journal of Social Economics, 24(11), 1343-1352.

870
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.

Ismail, A. G., & Sanusi, N. A. (2005). A Framework for Regulating Pawnshops. Whv Do, What Area and
Svariah Jiew. Paper presented at the Proceedings oI Malaysian Finance Association (MFA)'s 7th
Annual ConIerence, 9-10 May, Kuala Terengganu, Terengganu.

Jalil, M. A., & Rahman, M. K. (2010). Financial transactions in Islamic banking are viable alternatives to
the conventional banking transactions. International Journal of Business and Social Science, 1(3),
220-234.

Manan, S. K. A. (2008). Islamic Banks and the Development of Halal-manufacturings SMEs in Malavsia.
Paper presented at the Persidangan Kebangsaan Ekonomi Malaysia ke III (PERKEM III), Port
Dickson, Negeri Sembilan.

Mansor, M. N. (2009). Islamic Banking and Financial Institutions in Malaysia: Current Developments.
Journal of International Studies, 5, 109-123.

Nakagawa, R. (2011). The Evolution OI Islamic Finance In Southeast Asia: The Case OI Malaysia.
Journal of Applied Business Research (JABR), 25(1), 111-126.

Nor, M. R. M., Abdullah, A. T., Ali, A. K., & Zakaria, M. F. (2012). Historical development oI Islamic
institutions: A case oI Malaysian government. African Journal of Business Management, 6(8),
2766-2772.

Othman, A., Hashim, N., & Abdullah, S. (2012). Customer satisfaction levels of service qualitv at ar-
Rahnu, Kelantan. Paper presented at the 3rd International ConIerence on Business and Economic
Research (3rd ICBER).

Sam, M. F. M., Tahir, M. N. H., & LatiI, N. K. A. (2010). The awareness and the acceptance oI Islamic
pawnshops. International Journal, 2(2), 117-125.

Shaari, A. H., & Azlina, A. A. (2003). Development of Islamic Pawn-Broking services. differentiating
profile of their respectice patrons. A paper presented at the International Islamic Banking
ConIerence.


871
Paper Proceeding of the 5th Islamic Economics System Conference (iECONS 2013), "Sustainable Development Through The Islamic Economics System",
Organized By Faculty Economics And Muamalat, Universiti Sains Islam Malaysia, Berjaya Times Square Hotel, Kuala Lumpur, 4-5th September 2013.