Before the COVID-19 outbreak, Zahir ran a stall selling food on a busy street in Kuala Lumpur. Over the last few months, his business has been terribly affected and he had used up most of his savings. Zahir is looking at a couple of options to get a loan to kickstart his business. That was when he stumbled upon Ar-Rahnu. Here’s the information on Ar-Rahnu that Zahir needs to know.

What is Ar-Rahnu?

Ar-Rahnu is basically islamic pawnbroking which means it follows Shariah principles. Like conventional pawnbroking you are given a loan in exchange for something valuable of yours in case you can’t pay back the loan. With Ar Rahnu you can only pawn gold or jewellery, unlike conventional pawnshops that accept handphones and other electronics.

There are three main islamic concepts that Ar Rahnu follows:

Qardhul Hasan – You only pay the amount you borrowed. This means you won’t be charged interest on your loan.
Ar Rahnu and Al-Wadi’ah – You have to leave a valuable item behind as collateral in order to get a loan.
Al-Ujrah – You can be charged a fee for your valuables for them to keep your valuables. The fee will be in the form of a safekeeping fee or a profit rate.

So how does it work?
When you give the pawnbroker your valuable item, he will value it, normally at a discount to the actual value of your item just like a conventional pawnbroker. Like conventional pawnbroking you have to give in a valuable item in order to get a loan which will be less than the actual value of your item. But instead of charging you an interest rate on the loan, Ar-Rahnu will charge either a safekeeping fee or a profit rate.If you are unable to pay back your loan, your valuable item will be auctioned off. From the amount it’s sold for at the auction, the pawnbroker will keep the amount you owe them and return the balance to you.

Amir has a gold chain that he wishes to pawn to take a loan. His gold chain was valued at RM1,000 and he is considering taking a loan of either, RM250, RM500, or RM800 for 6 months.

Conditions	Example 1	Example 2	Example 3
Conditions	50%, RM500.	80%, RM800.	25%, RM250.
Profit Rate of 10% per annum based on loan amount	RM500 x 10%/12= RM4.17 per month	RM800 x 10%/12= RM6.67 per month	RM250 x 10%/12= RM2.08 per month
Safe keeping fee of RM0.65 per RM100 based on value of gold	RM1000/100*RM0.65= RM6.50 per month	RM1000/100*RM0.65= RM6.50 per month	RM1000/100*RM0.65= RM6.50 per month
Conventional pawnbroker at 2% monthly	RM500 x 2%= RM10 per month	RM800 x 2%= RM16 per month	RM250 x 2%= RM3 per month

When compared to regular pawnbroking, Ar-Rahnu may seem cheaper, but that is not always the case. Depending on the valuation of your gold the safekeeping fee and profit rate can become expensive.So do look out for these rates before deciding where to go.

Where can you go to take an Ar- Rahnu loan?
Some Islamic Banks in Malaysia have Ar-Rahnu Facilities. There are also other non-bank companies such as Pos Malaysia that offer Ar-Rahnu facilities.

Remember, you should only turn to pawnbroking if you urgently need cash but have a bad credit score and can’t get a loan. Otherwise, consider getting a personal loan, if you have a long term financial situation that you aren’t sure when you’ll recover from. You could also use your credit card if you’re having a short term financial problem that you’re sure you can get out of.