Ar-rahnu

Ar-rahn

- Providing short-term financing to the public by pawning jewellery to banks as a security. 

Objective of Ar-Rahn

a. Provide a fast, hassle-free and riba-free financing facilities.
b. Alternative sources of financing different from conventional.
c. To allow individuals fulfill financial needs without using loan sharks
d. To develops the socio-economics

Concepts of Ar-rahn

• Qardhul Hassan

• Al-Rahn

• Wadiah

Mechanism of Ar-rahnu in Malaysia

- New micro credit instrument.
-Only gold and jewelry made of gold can be pawned.
- Available for both locals and foreigners.
- Loan tenures from 1 to 6 months.
- Can repay lump sum or installment basis.
- Minimum margin from RM100 up to 60% of value gold.

Formula applicable for Ar-rahnu

1. Financing amount
2. Payback amount
3. Safekeeping fee

Financing amount

= Value of item x margin of financing
Example: Ahmed approaches a bank to pawn his gold ring worth RM10,000. The bank offers him a margin of 50% and the safe keeping charges for 6 months. 
= 10,000 x 50%
= RM5,000

Safe keeping amount

= Safe keeping rate x value of asset x month
Example: Rates for value above RM1,000 is 2.05%, value of asset is RM10,000 and period is 6 months.
= 2.05% x 10,000 x 6
= RM1,230

Payback amount

= Financing amount + Safe keeping amount
= RM 5,000 + RM 1,230
= RM 6,230