The Improvement of Ar-Rahn (Islamic Pawn Broking) Enhanced Product in Islamic Banking System

Abstract

In a modern economy, there is no doubt that banks play a major role in generating the economic and financial growth. The individuals, the communities and the organizations are reliant on banks as their financial resources and necessities fulfillment. Their dependence to the banks has led them to engage a variety of contracts especially a debt-based contract. This contract required them to bond with the banks in the long period. Therefore, the various innovation products are designed to ensure the debtors are able to engage in an Islamic way and the banks are able to attain their income generation at the same time. While the debt contract is almost impossible to be implemented in Islamic banking system nowadays as it will lead to an interest, a modification process on the innovating sale contracts that have a commercial value for the bank is the only way for them to offer a debt-based contract to the people. Thus this paper attempts to explore the potential of ar-rahn product to solve the current problem. It tries to propose the enhancement of ar-rahn existing product offered by the bank and pawnshop as a good alternative to the financing products. The explored features of the potential of ar-rahn consist of the suitability of concepts adopted in the product, the possibility of longer repayment’s period, the minimization of the shariah and economic issue of ujrah fee, the possibility of offering more than RM10, 000 borrowing money and the expansion of receivable pledge item. While the exploration of those features is discussed in a foundational and ideal basis, it is hoped to stimulate further investigation in the future.

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