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EXAMINING THE DIFFERENCES BETWEEN AR RAHNU AND CONVENTIONAL

PAWN BROKING IN COMPATIBILITY TOWARDS MAQASID SHARIAH

Conference Paper · November 2015

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 EXAMINING THE DIFFERENCES BETWEEN AR RAHNU AND
CONVENTIONAL PAWN BROKING IN COMPATIBILITY TOWARDS
MAQASID SHARIAH1

Salbiah Nur Shahrul Azmi2

Nazimah Hussin3
Rohaida Basiruddin4

ABSTRACT

This paper is a theoretical paper that presents the differences between Ar Rahnu and conventional pawn
broking in the intention to highlight why conventional pawn broking is not compatible with maqasid
shariah while at the same time presenting that Ar Rahnu has conceptualized the application of maqasid
syariah. This paper blends the theory of utility, the law of scarcity, information gathered from Quran and
Sunnah with maqasid shariah in defending its arguments. From the blend, it is found that conventional
pawn broking is deviated from the maqasid as opposed to Ar Rahnu. Ar Rahnu is revealed to offer a
better alternative for pawner to have short term cash and property protection. In short, the paper
establishes that although Ar Rahnu and conventional pawn broking serve the same function, the
differences between these schemes highlights that the application of maqasid shariah is realizable in Ar
Rahnu.

Keywords: Ar Rahnu, conventional pawnbroking, maqasid shariah, theory of utility, law of scarcity, gold

1.0 INTRODUCTION

Since ancient times, gold is normally used as a medium of exchange, unit of account and the most relevant to
this paper was the keeper value. As in the Bretton Woods era which involved using various ways to defend the
value of the money, but gold supply points at that time cannot be used to meet short term needs while the dollar
has become the main source to finance the international trade. This phenomena give rise to paper and electronic
money to become the dominant monetary instrument globally after the gold was not functioning effectively as
store value in that era (Meera and Larbani, 2006). In spite of the fact that the gold experienced a sudden
decline, Fan, Fang and Lu (2014) pointed out that the gold have proven to be the main instrument in asset
allocation and a significance device to measure the investors’ risk premium level all the way through 2007
financial crisis. Its main feature as the store value has made the gold be a strong basis which can be applied as
an indicator for currency value.
Long century ago, mankind used commodities as a medium of exchange as it’s created something
rather than nothing. Abu Said al-Khudri reported Muhammad s.a.w. as was said: Gold is to be paid for by gold,
silver by silver, wheat by wheat, barley by barley, dates by dates and salt by salt, like for like, payment being
made on the spot. Riba is held for any gives and asks more (Sahih Muslim). Even on current financial practice,
majorities of financing operations on current pattern are in the form of debt-like instruments. Related to this,
Islamic pawn broking or familiar with the name of Ar Rahnu is created in order to expose the exercise of
collateral as the based for short-term financing in an effort to make Islamic finance more equal and justice
especially to low and medium income people. Yet, Prophet Muhammad s.a.w has involved in pawn broking
activity where the Prophet had mortgaged his armour to a Jew named Abusy Syahmi (Mohd Nor et al. 2012a).

1
Paper presented at 1st International Islamic Heritage Conference 2015organized by Universiti Teknologi Mara
(Melaka) on 11 & 12 November 2015 at Mahkota Hotel, Melaka.
2
PhD Candidate at International Business School, Universiti Teknologi Malaysia, and a Lecturer at Faculty of
Business Innovation and Accountancy, Kolej Universiti Islam Melaka, salbiahnur@kuim.edu.my,
salbel2069@yahoo.com.
3
Senior Lecturer at International Business School, Universiti Teknologi Malaysia, nazimah@ibs.utm.my.
4
Senior Lecturer at International Business School, Universiti Teknologi Malaysia, rohaida@ibs.utm.my.
A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
 In Malaysia, pawn broking is a traditional business handled by the Hakka kinship of Chinese lineage
(Shanmugam, 1991, Bhatt and Sinnakkannu, 2008a). Pawn broking industry continuously flourishes with Ar
Rahnu scheme launched through Islamic financial institutions which provide Malaysia with another alternative
to access an interest free and short term cash advance. Islamic pawn broking officially began in Malaysia
through the establishment of Muassasah Gadaian Islam Terengganu (MGIT) on January 23, 1992 and thereafter
followed by Ar Rahnu Shops opened in March 1992 by Permodalan Kelantan Berhad (PKB). Then on October
27, 1993, the Ar Rahnu scheme was introduced through Bank Rakyat in collaboration with Yayasan
Pembangunan Ekonomi Islam Malaysia (YaPEIM) and Bank Negara Malaysia (BNM) and the business was
expanded at Bank Islam Malaysia Berhad (BIMB) in November 1997. In view of the success of the scheme
launch through the bank as infrastructure providers, YaPEIM offer the scheme through Koperasi YaPEIM
Berhad commenced on September 15, 2002 and the scheme has been extended to Bank Pertanian Malaysia
(Agro Bank) in the same year because customers who subscribed the scheme mainly were Agro Bank account
holder (Ismail and Ahmad, 1997a, Mohamad and Salleh, 2008, Mokhtar and Zambahari, 2013a). Moreover,
Ministry of Urban Wellbeing, Housing and Local Government reveal that until 2013, Malaysia have 259
conventional pawn broking institutions and 464 Islamic pawn broking institutions.
Although both schemes serve the same function which provides quick cash for pawner, there are many
differences between Islamic and conventional pawn broking as highlighted in works by Mokhtar and Zambahari
(2013b), and Sulaiman et al. (2014a). Thus, in a conceptual basis, this paper argues why conventional pawn
broking is impossible to match with maqasid shariah and highlight on the application of maqasid shariah in Ar
Rahnu scheme. Therefore, this paper attempts to focus on the current practice applied by conventional pawn
broking and Islamic banking institutions that offered an Ar Rahnu scheme in their services. The method
employed is descriptive in nature based on the available existing literatures that also uses the utility theory, law
of scarcity and valid sources from the Quran and Sunnah as a basis for logical deductions. With this in the
background, the next section discusses the comparison of concept, charges and transparency in Ar Rahnu and
conventional pawn broking practices and thereafter explicate why conventional pawn broking is unattainable
towards maqasid shariah as compared to Ar Rahnu.

2. COMPARISON OF CONCEPT USED IN AR RAHNU AND CONVENTIONAL PAWN BROKING

CONTRACTS

Pawn broking is basically a loan contract involving the deposit of the pawn item to the pawn broking institution
as a pledge by individuals who need quick money. Pawn broking services are relevant because it is suitable for
those who want to borrow in small amount, those who are not preferred to go through the formal procedure and
for those who are might not qualify to apply for a bank loan. As mentioned before, the function of conventional
pawn broking is basically similar with Islamic pawn broking as it provides fast liquidity to individuals in need
by converting their jewellery or gold as collateral to get the finance amount (Othman, Hashim and Abdullah,
2012). However, Ismail and Ahmad, (1997b), Amin et al., (2007) and, Appanan and Doris, (2011a) argued that
in conventional pawn broking, the collateral item can be in diverse forms like jewellery, electronic tools,
diamond, hand phone and other items that are easy to be stored unlike Ar Rahnu which only gold and gold
jewellery are permitted to serve as collateral. Notwithstanding, the difference in the allowable pledge item is
not a big problem from an Islamic perspective because Ar Rahnu which comes from the word Rahana literally
means constancy and continuity or holding and binding. Technically, Ar Rahnu defined as taking a property as
a security against a debt whereby a secured property can be utilised to repay the debt in the case of non-
payment. Abdul Razak et al. (2014a) also only stated that Ar Rahnu refer to the valuable item which secures the
debt. In addition, the majority of scholars regard sighah (offer and acceptance), rahin (pawn broker) and
murtahin (pawner), marhun (the pawned object) and marhun bih (the financed amount) as the essential elements
of Rahn.
Nowadays, Ar Rahnu has been widely used in Islamic mortgage and financing through either a form of
papers like property documents, vehicle papers, sukuk, shares or objects like ornaments, jewelleries and so on.
In order to get the financing from the institution, the pawner will pawns his or her jewellery as collateral for the
financed amount. Pawner then has to pay the financed amount within the given period as the common practice
is within 6 months. If the pawner failed to pay within the given period, the extended period will be given and
this extended period may vary among institutions. After the maximum extended period, the unredeemed pledge
will be disposed by the Ar Rahnu operator on behalf of the pawner through an open auction. Despite this basic
structure, Ar Rahnu relies on various shariah concepts, namely Qardh Hassan, Ujrah and Wadiah Yad
Dhamanah. Ismail and Sanusi (2005), Mohammed et al. (2005a), and Islami (2010) believes that Wadiah Yad
Dhamanah, Qardh Hassan and Ujrah concepts are necessary to be applied in the Ar Rahnu scheme because each

A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
concept have its own distinctive role in ensuring the Ar Rahnu contract is protected from the prohibited
elements. The summary of shariah concepts applied in Islamic pawn broking is as follows;

Table 1: Shariah Concepts Applied in Islamic Pawn Broking (Ar Rahnu Scheme)

Shariah Definition Legality Function

concept
Ar Rahnu Collateral serve as surety
that creditor can claim in the
case of default payment
(Jalil and Rahman, 2010a,
Mohd Nor et al., 2012b,
Muhammad Ridhwan, 2012,
Mokhtar and Zambahari,
2013c, Abdul Razak et al.,
2014b,)
Wadiah Keeping valuable item with
Yad a guarantee (Abdul Razak et
Dhamanah al., 2014c)
Ujrah Wages for services provided
(Jalil and Rahman, 2010b,
Abdul Razak et al., 2014d)
Qardh Interest free loan (Jalil and
Hassan Rahman, 2010c, Amin et al.
2011, Abdul Razak et al.,
2014e)
If you are on a journey and cannot Safeguards the right of the
find a scribe, a pledge with borrower and lender if the
possession (may serve the loan cannot be settled at the
purpose). (Quran, 2:283) time appointed. The
collateral will be used as the
redeemer to the loan amount.
And if one of you deposits a thing Serve the collateral deposit
on trust with another. Let the to guarantee which involve
trustee (faithfully) discharge his assurance over the damage
trust and let him fear his Lord. and loss caused by service
Conceal not evidence for whoever provider.
conceals it. His heart is tainted
with sin and Allah knows all you
do. (Quran, 2:283)
Let the women live (in iddah) in The custodian fee will be
the same style as you live used by service providers to
according to your means: annoy cover the takaful funding and
them not so as to restrict them. operating costs in order to
And if they carry (life in their ensure the collateral safety.
wombs) then spend (your
substance) on them until they
deliver their burden: and if they
suckle your (offspring), give them
recompense: and take mutual
counsel together according to
what is just and reasonable. And if
you find yourselves in difficulties,
let another woman suckle (the
child) on the (father’s) behalf.
(Quran, 65:6)
Who is he that will loan to Allah a Provide free interest loan for
beautiful loan, which Allah will the needy as it is used as a
double unto his credit and fast cash alternative.
multiply many times? It is Allah
that give you Want or plenty and
to Him shall be your return.
(Quran, 2:245)

The list of shariah concept used in the Ar Rahnu scheme as display in Table 1 proved that the Ar
Rahnu contract is parallel with its main functions offered to help people in need without taking advantage of the
customer asset value. Furthermore, proofs of its legality cite in Quran and Hadith indicate that Islam allows the
application of these shariah concepts in the Ar Rahnu scheme. Dissimilar with the conventional system, the
pawnbroker will own the pledge item if the customer failed to pay back the loan during the specified period.
Acquisition of property rights occurs in two conditions, whereas if the default happens, for the pawn item value
below RM100, the pawnbroker will take the item while for value above RM100, there will be an auction, but the
balance will not be returned to the customer (Ismail and Ahmad, 1997c, Mohamed Naim, 2002, Sulaiman et al.,
2014b). So, Ar Rahnu is the right alternative to solve this case because as highlighted that the concept of Ar
A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
Rahnu itself is used in order to protect the right of parties involved in that contract and the balance from the
auction will be given back to the customer if any after deducting all costs. Additionally, the purpose of Ar
Rahnu is generally to pledge the valuable asset to get financing. It is also matched with the nature of Wadiah
Yad Dhamanah which the customer will have a guarantee that their pledge will be returned if there have any
balance of the auction. The statement is supported by Hisham et al. (2013a) who reviews on Ar rahnu concepts
and found that the contract guaranteed the assets pawned to be kept safely until the contract end. Comparison
concerning custodian fee and interest charge will be discussed in the next section.

3. COMPARISON OF CHARGES IMPOSED BY AR RAHNU AND CONVENTIONAL PAWN

BROKING

Ismail and Ahmad (1997d), Mohammed et al. (2005b), and Dinsman (2014) found that the cost of borrowing
cash in the Ar Rahnu system is much lower than the conventional as it imposed 2% interest charge to the
customer. In addition, Appannan and Doris (2011b) mentioned that the conventional pawn broker charge
interest rate on the loan amount, but not on the pawn value and this is also supported by Bhatt and Sinnakkannu
(2008b), and Sulaiman et al. (2014c) that 24% interest per annum is incompatible and incapable for lower
income customers. Therefore, the Ar Rahnu scheme incurred no interest charge but only a permissible
minimum fee for the purpose of safekeeping (Hisham et al., 2013b). Thus, the details of custodian fees imposed
by Ar Rahnu and interest charges by conventional pawn broking are as follows;

Table 2: Comparison of the Custodian Fees at Ar Rahnu and Interest Charge by Conventional Pawn Broking

Pawn Bank Agro Bank Bank CIMB RHB Conventional

value Rakyat Bank Muamalat Islam
(RM) (RM) (RM) (RM) (RM) (RM) (RM) (%)
Up to 500 - - - 0.60 - - 2
100-1000 0.65 - - - 0.65 - 2
100-2000 - 0.5 - - - 0.60 2
320-1000 - - 0.65 - - - 2
500-2500 - - - 0.70 - - 2
1000-5000 0.75 - 0.75 - - - 2
2000-5000 - 0.6 - - - 0.70 2
2500 & - - - 0.80 - - 2
above
5000 & 0.75 0.75 0.85 - - 0.80 2
above
Source: Institutions Website 2015

Research conducted by Abdul Razak et al. (2014f) on the sustainability and competitiveness of Ar
Rahnu in Malaysia have proved that the custodian fee imposed on the Ar Rahnu scheme is relevant and
reasonable because the minimum fees can help the service provider to solve the capital problem to be provided
to another customer and conversely. The 78th Muzakarah of the Fatwa Committee of the National Council for
Islamic Religious Affairs, Malaysia held on 12th June 2007 accepted the fee charge by Ar Rahnu as long as there
is no exploitation element. Basically, custodian fee applied in the Ar Rahnu scheme specifically used to bear
the operation cost and takaful fee while interest charge by the conventional is to gain an additional profit from
services provided. The fixed interest charge by the conventional pawn broker will cause the load to the
customer as it is just a short term loan. Loan provided by pawn broker is categories as a capital provided to
another customer which considers as one of the production factors. Formally, based on the law of scarcity, there
is only part of demand can be met and it will lead to the opportunity cost in view of the fact that the factors of
production unable to produce all the goods and services required to man. Ayub (2010) says that if capital is
taken as a loan, the customer has to pay the same amount of loan without any excess. Thus, interest rate loan
will be the opportunity cost and interest free loan (Qardh Hassan) as applied in Ar Rahnu scheme is the right
choice since the loan is provided for the needy people. To describe the cost of borrowing that customer has to
pay, the researchers calculated and make a comparison on custodian fee offered by Ar Rahnu and interest
charges by conventional pawn broking range from RM1000 up to RM8000. Hence, the calculations are as
below;

A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
 Table 3: Comparison of Cost of Borrowing between Ar Rahnu and Conventional Pawn Broking

Ar Rahnu pawn broking Conventional pawn broking

RM1000 x 0.65 / 100 x 6 months ; RM 39.00 RM1000 x 2% x 6 months; RM120
RM5000 x 0.75 / 100 x 6 months ; RM 225 RM5000 x 2% x 6 months; RM 600
RM8000 x 0.85 / 100 x 6 months ; RM 408 RM8000 x 2% x 6 months; RM 960
Source: The Calculation Method is retrieved from Pawn Broking Institution Website

4. COMPARISON OF TRANSPARENCY IN AR RAHNU AND CONVENTIONAL PAWN BROKING

CONTRACTS

Transparency is also very crucial in the context of the sanctity of a contract. Abdul Razak (2011) stated that the
conventional pawn broking is weak in term of evaluating the pawn item and conducting the auction in a
transparent manner. It is also pointed out by Mokhtar and Zambahari (2013d) that Ar Rahnu scheme outlined a
clear set of guidelines in regulating its operation compared to the conventional which is unclear in term of
documentation. Regarding this issue, Hisham et al. (2013c) explained that the conventional pawn broking often
concealing the auction matters where the pawner is not informed about the auction while Ar Rahnu in different,
will notify the customer prior to the auction process and the process will only be made with the consent of the
parties involved. Also the balance of the auction proceeds will normally be taken by the conventional pawn
broking as described in section 2 above and in term of documentation, most of the documents are not issued a
formal contract containing such information. In fact, the pawn items are also not weighted properly (Sulaiman
et al., 2014d).

5. WHY CONVENTIONAL PAWN BROKING IS UNATTAINABLE TOWARDS MAQASID

SHARIAH AS COMPARED TO AR RAHNU?

Al Qurtubi defined Shariah as ‘canon law of Islam’ which all the different commandments of Allah to mankind.
Some scholars defined Shariah as the sum of Islamic teaching and system which was revealed to Prophet
Muhammad as cited in the Quran (Al-Anbiya’: 107) that Allah sent Prophet Muhammad as a mercy for
mankind, jinns and all the exists. It shows that the primary objectives of Shariah, or maqasid Shariah is the
realization of people welfare, concerning to their affairs both in this world and the hereafter. Shariah is applied
in Islamic Finance in order to ensure its products and services are free from the prohibited element. The origin
sources of Shariah which is utilized as valid sources are Quran, Sunnah, Ijma’ and Qiyas. Thus, Quran and
Sunnah which categories as the primary sources in Shariah are used purposely in defending the argument of
maqasid Shariah compatibility in Ar Rahnu and conventional pawn broking schemes.
Chapra (1998, p.7) identify maqasid shariah as centralized on well-being, fulfilling life and faith which
puts human relations on a proper foundation, provides a moral filter for resource allocation and distribution in
the purpose to minimize economic instability, to overcome crime, strife, stress and the different lack of moral
standard symptoms of a society. Ibn Ashur (2001) defined maqasid shariah as the deeper meanings of wisdom
considered by the lawgiver in all or most of the areas and circumstances of legislation. In addition, according to
Imam Al-Shatibi, the understanding of maqasid shariah is an important fundamental factor in determining a
particular ruling. Maqasid shariah aims to gain benefit or maslahah from the application of the shariah ruling to
mankind for their life in this world and the hereafter. Similarly, Imam Al-Ghazali stated that the objective of the
shariah is to promote the well-being of all mankind, which lies in safeguarding their faith, human self, intellect,
posterity and their wealth. Whatever ensures the safeguard of these five serves the public interest and is
desirable (Al-Ghazali, 1937).
Maqasid shariah can be divided into three categories including Dharuriyyat (necessities or essentials),
Hajiyyat (need or complementary) and Tahsiniyyat (embellishment). Dharuriyyat refers to matters which are
undoubtedly necessary with no exception on which the religious and worldly affairs of the people depend upon
and the absence of which will lead to disorder. It must be protected and all measures for the purpose of
safeguarding them must be taken. Imam al Shatibi stated that Dharuriyyat involve protection of five
fundamental essentials known as protection of religion, life, lineage, intellect and property. In his terms,
Dharuriyyat are the minimal requirements of barely sustainable human livelihood, even though hardships can be
suffered in their satisfaction. Hajiyyat seek to promote and protect Dharuriyyat so that it is prevented from the
difficulty and hardship (Kamal, Fahmy and Kashoogie, 2009). While unlike Dharuriyyat and Hajiyyat,
Tahsiniyyat is the condition that brings comfort, beauty, and moreover, Abu Ishaq al-Shatibi set Dharuriyyat as
fundamental to Hajiyyat and Tahsiniyyat.

A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
 The differences between Ar Rahnu and conventional pawn broking can be used to seek for its
compatibility towards maqasid shariah. Hence, the differences may be matched with the maqasid shariah
categories as summarized in Table 4 and the elaboration will be divided into maqasid shariah categories.

Table 4: Differences and Compatibility of Pawn Broking Services towards Maqasid Shariah

Differences Maqasid Shariah

Concept Ar Rahnu Scheme Conventional Pawn Broking
Dharuriyyat Religion / Dharuriyyat Religion -
Life / Life -
Lineage / Lineage -
Intellect / Intellect -
Property / Property -
Hajiyyat / Hajiyyat -
Tahsiniyyat - Tahsiniyyat -
Charge Dharuriyyat Religion / Dharuriyyat Religion -
Life / Life -
Lineage / Lineage -
Intellect / Intellect -
Property / Property -
Hajiyyat / Hajiyyat -
Tahsiniyyat - Tahsiniyyat -
Transparency Dharuriyyat Religion / Dharuriyyat Religion -
Life / Life -
Lineage / Lineage -
Intellect / Intellect -
Property / Property -
Hajiyyat / Hajiyyat -
Tahsiniyyat - Tahsiniyyat -
Guidance: ( / ) = compatible ( - ) = not compatible

5.1 Dharuriyyat
5.1.1 Religion
Safeguarding of religion is significant as it is an obligatory for each and every Muslim in order to avoid sin or
involve in any action against religion. It is mentioned in the Quran: “prayer restrains from shameful and unjust
deeds” 29:45 and it proved that abide to religion will protect Islamic faith even at a personal level. Thus, in this
case, the conventional pawn broking at the very basic reason did not protect religion because the concept
applied, interest charge and operation misconduct led to a rise of the prohibited elements which at the same time
cause the parties involved in the contract have been doing something that can destroy the society. None of the
Islamic values are applied in the conventional contract as a contact is a secular based contract. In Ar Rahnu
context, the application of shariah concepts such as Yad Dhamanah, Qardh Hassan and Ujrah which based on
Quran and Sunnah is fundamentally prevents the parties to be involved in any action against religion.

5.1.2 Life
Life is essential to everyone and saving of one’s life is required as recorded in Quran, 2:178, “but if any
remission is made by the brother of the slain, then grant any reasonable demand and compensate him with
handsome gratitude, this is a concession and a mercy from your Lord”. The interest charge imposed by the
conventional pawn broking incurred Riba, which eventually discriminate the customer and might cause them to
commit in crimes because desperately need money to pay the interest rate charge since the rate will increase if
the loan period extended. As remark in Quran, 4:161, “that they took usury, though they were forbidden, and
that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a
grievous punishment” is reprimand for anyone who takes another man’s treasure, they are committed to a
serious crimes. Zuhaily (2005) defined Riba as an excess in return without counter value. On the other hand,
the meaning described the suitability of Qardh Hassan as an alternative to interest based loan as supported by
Jalil and Rahman (2010d) that the fixed interest rate cannot be apply for the loan given to needy people and
Qardh Hassan is suited substitute. Hence, the Ar Rahnu scheme protects customer from things that are harmful
A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
to safety as the scheme provides interest-free loan which only impose a minimum custodian fee to cover the cost
of expenses and Takaful protection.

5.1.3 Lineage
Protection of lineage helps to ensure the preservation of generation continuity through the transfer of moral
responsibility to new generations as highlight in Quran, 65:7, “let the man of means spend according to his
means: and the man whose resources are restricted, let him spend according to what Allah has given him. Allah
puts no burden on any person beyond what He has given him. After a difficulty Allah will soon grant relief”.
Thus, Riba incurred in the conventional business prevent them to ensure the generation continuity since the
customer will have to bear the commitments beyond their means and it enables them to become good human
beings that can bring peace to the society. Since the interest rate charge causes harm to the society as a whole, it
is considered as an opportunity cost as it cannot achieve the objective of shariah (Meera, 2002). It is parallel to
the statement made before that the interest rate might raise the issue of capital to be provided to the customer.
In Islam, it is known that all resources belong to Allah and human are holding these resources in trust.
Moreover, verse from Quran, 57:7 proved that human greed could harm the society and retard the economy.

5.1.4 Intellect
Intellect is a great gift from Allah which demonstrates human capacities that differentiate man from animals.
Quran, 95:1-5 cited, “read in the name of your Lord who created, created man from a clinging substance. Read
and your Lord is the most Generous, Who taught man by the pen. Taught man that which he knew not”. This
verse expresses that Islam encourages human to utilize their knowledge for benefit and avoid anything that
might lead to harm. So, in terms of this also, the conventional activity did not preserve intellect because as a
contract, interest charge and unethical in doing business makes people think that the conventional contract did
not help even oppress them. Bad perception will arise among customer who are aware of Ar Rahnu is the best
alternative for customer who are wise will make the comparison of product and services. So here, Ar Rahnu can
embed a just and transparent facility in the customer's mind with enabling them to differentiate between good
and bad since Ar Rahnu fundamentally is a contract that helps the socioeconomic growth.

5.1.5 Property
It is mentioned in the Quran 2:188 “and eat up not one another’s property unjustly, nor give bribery to the rulers
that you may knowingly eat up a part of the property of others sinfully” that Allah prohibits acquisition of
wealth through destructive action. Preservation of property is significant because wealth has to be circulated for
the community benefit. Similar as above, protection of wealth is realizable through the riddance of Riba and
Gharar, hoarding prevention and transparent. Nevertheless, the conventional business cannot protect the
customer property since they will take the customer pledge items if the customer failed to pay their debt. This is
totally against the objective of shariah as it does not protect the customer property ownership. Moreover, the
conventional activity does not have any insurance plan to cover the wealth from risks which can give harm to it
and prevent wealth from damage. Unlike Ar Rahnu, the application of Wadiah Yad Dhamanah guarantees the
safety of customer pledge item. Unethical conduct in business encourages vast gap between the rich and poor
which might make the customer have a problem to meet their basic needs. The presence of Gharar may lead to
unknown results as it is referred to ambiguous in its contract substance (Saleem, 2009) thus makes the
conventional business unable to circulate the wealth wisely. Ar rahnu provide a solution as its emphasis Halal
earning and discourage a concentration on wealth hoarding which cause unjust distribution.

5.2 Hajiyyat and Tahsiniyyat

On Hajiyyat stage, shariah concepts applied in Ar Rahnu scheme is able to give the protection for the needy in
order to prevent hardship, it’s reasonable and lower custodian fee is able to prevent the customer difficulty and
clear documentation and operation make it easier for customers to borrow without anxiety. While the reason
why the conventional pawn broking is incompatible towards maqasid shariah on Hajiyyat stage are its secular
concept used is unable to protect customers from the hardship, high interest rate gives burden to the customer,
thus can cause the difficulty for the customer and this will be a troublesome customer at the end of the contract.
Result gained by Abdul Razak et al. (2014g) support that Ar Rahnu is able to prevent the difficulty and hardship
of society as respondents agree that with the application of transparent concept and minimum fees imposed, it’s
eventually increase the number of customers. In Tahsiniyyat stage, by referring to the results described and
found by S.Hisham et al. (2013d), Abdul Razak et al. (2014h) and Sulaiman et al. (2014e), researchers agreed
that Ar Rahnu need to be improved to ensure the smooth growth of the scheme in the future. Improvements are
necessary to ensure the continued growth of product and services in the time ahead.

A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.
6. DISCUSSION AND CONCLUSION

On the comparison that have been made, it can be proved that Ar Rahnu can aid reduce the customer distress.
Ar Rahnu is compatible towards maqasid shariah at the stage of Dharuriyyat and Hajiyyat while the
conventional pawn broking is incompatible towards maqasid shariah because it is fundamentally incurred Riba
and Gharar. The combination of Riba and Gharar would make contract executed turn to a scathe contract and
this is why Islam has created the shariah concept as in this case called Ar Rahnu, Wadiah Yad Dhamanah,
Qardh Hassan and Ujrah. Then, when the soil is strong, the house built on the land would become strong and
stable. It is then shown that interest based loan can be considered as opportunity cost in order to cater the
capital scarcity which will be given to the customer and Gharar has changed the perception and the number of
customers using the conventional service. Apart from that, as mentioned that pawn broking is a source of
capital and Ar Rahnu is the most substantial instrument that assists wealth to circulate equitably compared to
conventional system. Likewise, Ar Rahnu demonstrate its ability to be the main source for agricultural and
small industries specifically as evidenced by Ismail and Ahmad (1997e), Mohamad and Salleh (2008b),
Mokhtar and Zambahari (2013e), (Hisham (2013e) and Debnath and Mahmud (2014a). The existence of Ar
Rahnu at the same time serve the right tool to fulfil the customer wants as set in Islamic economics concept that
all resources on this earth belongs to Allah and it must be distributed and circulated fairly as expressed in the
Quran 59:7, “wealth should not be left circulate only among the rich of you”. Therefore, Ar Rahnu is able to act
as a means of increasing the level of customer utility. Utility means the ability or the power of goods or services
to satisfy the wants of a consumer (Vengedasalam and Madhavan, 2013). Utility approach is used to look at
how the consumer chooses to spend his or her limited income to purchase available goods in the market. Based
on the utility theory, the utility maximization increased due to increase in income thus makes the budget
increase then leads to increase in purchase (Debnath and Mahmud, 2014b). Then, by combining and adapting
Ar Rahnu function with utility approach, researchers believe that the Ar Rahnu scheme is able to increase the
customer income, budget and purchase which eventually maximize their utility. This has been tested by
Debnath and Mahmud (2014c) as the result showed that providing microcredit which eventful for the needy
would satisfy the poor by raising their income. However, this is a limited study which based on the secondary
sources observation and hence, further study is required to confirm in valid frame regarding the adaptation
theory. In brief, from socioeconomic development viewpoint, the conventional pawn broking is obviously not
compatible with maqasid shariah due to its embedded Riba and Gharar which is not existed in Ar Rahnu

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A paper presented at the 1st International Islamic Heritage Conference 2015 (1st IsHeC 2015), 11-12 November
2015, Mahkota Hotel, Melaka.

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