Islamic pawn broking system

1. Assignment 1 MPP 3043 Research Methodology
The growing Islamic pawn broking system (ar-rahn) in Malaysia, and acceptance of muslim
community to this service.
1.Al-Rahn (Collateral) : An Islamic View
Al-Rahn means a pledge or a security related to a loan. Under the Shariah, al-rahn is by
definition, possessing a guarantee. The Quran refers to the idea of mortgage as ‘mortgage with
possession’ (rihanun maqbudha). Quran also supports the idea of furnishing a pledge against a debt
(Hasabuzzaman, S.M., 1995).
According to Quranic verses, every soul is in pledge or rahina for its deeds. (Quran, 74:38) and in
the saying of the Prophet, ‘the soul of a believer is marhuma or pledged for the debt until it is paid off
(Al-Jaziri, Abd Al-Rahman).
It is a contract of pledging a security that becomes binding when possession of the pledge has
taken place. Ownership of the security is not transferres to the pledges. The transfer occurs only under
certain conditions (Haron, Sudin Shanmugam, Bala, 1997).
Al-Rahn also refers to an arrangement whereby a valuable asset is placed as a collateral for a
debt. The collateral may be disposed off in the events of default. Al-Rahn is the agreement to deliver
the customer’s asset for a collateral to the bank (Javed Ahmed Khan, Shariq Nisar, 2004)
2.The Broad Problem Area
Pawn broking services had started since the 15th century which was introduced by the Chinese
traders during the Malacca Sultanate. This business continued to flourish especially after the discovery
of tin mining in Larut in the 19 century (Mohamad Shukri, Nur Azura, Mohamed Ishak , 2008). Before
1800’s, pawnshop was establish in Asia. Definite owned by the Chinese merchents around the Asia. In
Malaysia, pawn shops began before 1811 and its dominating by Chinese merchents and the licensed was
controlled by the private sector. Others ethnics (e.g. Malay, Indian etc) rarely owned the pawnshop. In
1871, the licensed was introduced by the British colonial of Pawn Shops Ordinance 1871.
Inclusion of syariah regulation in 1983 in the finance sector in Malaysia (e.g insurances, trust
units, Isalmic pawn broking (ar-rahn) ) created a new atmosphere pawn broking system. As an effect,
there was emergence of two pawn broking services, namely conventional pawn broking system and
Islamic pawn broking system.
A few Islamic pawn broking system was established in early 1990’s. It was lead by Terengganu
Islamic Pawn Shop corporation (MGIT) which was formed by the Terengganu Religious and Malay
Custom Council (MAIDAM) on the 23rd of January 1992. This service was attracted interested for
Permodalan Kelantan Berhad (PKB) to generate a Islamic Pawn shop system namely “ar-rahnu shop”
which started in March 1992. After a year, Bank Rakyat Malaysia Berhad co-operated with Bank Negara
Malaysia (BNM) and the Malaysian Islamic Economic Development Foundation (YPEIM) introduced
Islamic Collateral (ar-rahn) to the community, especially to the muslim community to avoid from riba’
(illegal interest from Islamic perspective) and gharar’ (unclear thing).

2. Assignment 1 MPP 3043 Research Methodology
3. Problem Statement
What is the rate of acceptance muslim’s community about this services?
Bibliography:
Al Jaziri, Abd al-Rahman, (1986), Kitab al-Fiqh ala ‘l-Madhahib al Arba’ah, Beirut, Dar Ihya al-Turath al-
Arabi, Vol. 2.
Haron, Sudin and Shanmugam, Bala, (1997), Islamic Banking System- Concepts and Applications,
Selangor Darul Ehsan, Malaysia, Pleanduk Publications (M) Sdn. Bhd., First Edition.
Hasanuzzaman, S.M., (1995), ‘Islamic Law and Finance’, in Encyclopedia of Islamic Banking and
Insurance, Institute of Islamic Banking and Insurance, London.
Javed Ahmed Khan, Shariq Nisar (2004), Collateral (Al-Rahn) as Practised by Muslim Funds of North
India”, Journal of King Abdul Aziz University: Islamic Economics, Jeddah, Saudi Arabia, Vol 17.
Selamah binti Maamor, Abdul Ghafar Ismail (2006) Micro-Credit Program: Pawnshop vs Ar-Rahn .
Working Paper in Islamic Economics and Finance No. 0609.