Ar Rahnu

In: Business and Management

Submitted By shim007
Words 7930
Pages 32
1.0 Introduction

Islamic commercial contracts play an important role in Islamic finance since they provide viable alternatives to interest-bearing instrument. These contracts can find ready applications and would not hinder the growth of corporate business in this country. Asset purchases can be made possible via murabahah and ai bai bithaman ajil financing.[1] For business expansion and start up, the al- ijarah, mudarabah and musyarakah products have good potential. But if someone needs cash to pay debts or settle a down payment, buy shares, house renovation or even to go on a vacation. The above instruments may not help us get the cash we want. A pawn broking operation is relatively straightforward. The borrower simply needs to place a pledge or security for the amount of debt needed.

Rahnu is a means of providing short term financing to the public by pawning his/her jewellery to banks or pawnshops as a security. It is one of the microcredit and financial instruments for low income earners seeking financial assistance to meet their fast working capital needs. [2]

The inclusion of syariah regulation in the banking system in 1983 has encouraged its implementation in other finance institutions such as insurance, trust unit and Islamic pawn broking (ar-rahnu). The main reason is to eliminate interest which was imposed by pawn brokers as payment from the cash being loaned. The effect can be seen by the emergence of two pawn broking systems in Malaysia, namely the conventional pawn broking system and the Islamic pawn broking system.

Rahnu principle is mainly used for Islamic pawn broking services in Malaysia. Under rahnu, valuable item is collateralized to a debt which may be utilized as payment if the debt is not repaid within the agreed period. In the event the debtor is not able to repay the debt, the pawned asset will be sold off to…...