Academic journal article Asian Social Science

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

Academic journal article Asian Social Science

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

Article excerpt

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.

Keywords: improvement, ar-rahn enhanced products, Islamic banking system

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1. Introduction

The legitimacy of ar-rahn has been clearly stated in al-Quran and the prophetic tradition. It is further explained by the Muslim scholars from a various field and background since the salafiperiod until the challenging modern days. Ar-rahn is not only been discussed in the Islamic jurisprudence books but also in other discipline of knowledge such as Islamic theology and Islamic history. In Islamic theology for instance, there is a topic about the acceptance of ar-rahn been discussed by Al-Tamimi (al-Tamimi, 1991). Similarly in Islamic history, al-Sahmi (al-Sahmi, 1989) was also talking about ar-rahn but he presented it in a narrative way during prophet days. Obviously, the concept of ar-rahn is well known not only among jurisprudence scholars but the scholars of other discipline of knowledge as well.

However, the needs of the practicality of ar-rahn in banking industry is more insisting than just a conceptual ruling in a book made previous works were not good enough to cover the shortfall. A modification process on the contracts that have both features of commercial value and shariah compliance are the only concern for the Islamic bank to offer a debt-based contract to the people. Although the existing ar-rahn product has undergone that process, a huge potential still need to be explored and infused by Islamic banks. The ar-rahn product should no longer become the second choice after the financing scheme, but to become an equal alternative in the market today. Thus, some features available to the existing ar-rahn are crucial to be reviewed for the improvement and betterment of its potential.

2. Literature Review

For in-depth research on the law of ar-rahn, the books of Quranic exegesis, hadith and classical text of Islamic jurisprudence specifically should become the priority of references. In Quranic exegesis, Ibn Kathir is one of the scholars that explained very well about ar-rahn regarding surah al-Baqarah verse 283 (al-Qurashi, 1999). Bukhari and Muslim alone have recorded at least ten to eleven text of various degree of hadith about ar-rahn in their respective books, Sahih Bukhari (al-Bukhari, 810-870M/194 - 256H) and Sahih Muslim (al-Naisaburi). …

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