Al-Rahnu VS

Conventional Pawn Broking

Group 12 Maybank Islamic Bank

-Al-rahnu means pledge or collateral.

Definition Al-Rahnu(Islamic Pawn Broking)

-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-rahnuFor 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. 

The term and condition pawn banking are shown in ten aspects:

Condition of Conventional Pawn Banking

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

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.

7) the parties hereby agree that this ticket shall be surrendered at maturity date upon payment of the loan.

The similarity between al-Rahnuand

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 Conventional Pawn Banking

The items to be accepted

only use gold as the pawned item and other items were silent at the moment.

the gold and jewelry including Rolex watch and diamond and also pledge asset.

the contract/ aqad

based on four concepts, which is al-qardhul Hassan or loan without interest, al-wadiah yad dhammanah

-not make any credit scoring and will not ask the purpose of the loan.-easily get the loan

The fee based on the value of gold based on the value of an amount

Repayment accumulated deposit fee and any costs related to the loan

customer must repay the loan with interest, usually two percent to two point five percent of the loan per month.

TERM AL-RAHNU CONVENTIONAL PAWN BANKING

Extension period if there is no payment after redeem period

-extension period for three month after which the client is in informed that item will be sold by auction within further of two month period.

-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.

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

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 four months and the General Accountant will pay the amount paid to the Consolidated Trust Account.

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. 　　　　　　　　　

Conclusion