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DEFINITION
EVIDENCES
BENEFITS
CONDITIONS
COMPARISON
APPLICATION
DEFINITION EVIDENCE PILLARS OF AL-RAHN BENEFITS OF RAHN CONDITIONS OF RAHN APPLICATION OF AL-RAHN
CONTENT
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DEFINITION
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BENEFITS
CONDITIONS
COMPARISON
APPLICATION
Literally constancy, or holding and binding.
Technically To make an object with economic values in Islamic law
perspective as a trust for the payment of debts, so that enabling mortgagee (murtahin) to get all or a part of the debts from the object
Rahn literally means to detain a thing. Legally, it is the detention of a corporeal property on account of a claim such as a debt which may be satisfied out of that property.
DEFINITION
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DEFINITION
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Pledge is a security for the payment of a debt that will enable the lender to reclaim the debt or to satisfy it out of the pledged property.
Al-rahn in Arabic means al-tsubut wa al-dawam (fixed and eternal).
Rahn is classified as a contract under category contract of security or contract pertaining to authentication
The purpose of rahn is to convince the creditor that the debt will not simply disappear or vanish in case of default payment on part of the debtor
This is because, in case of non-payment, the pledged property will be sold or auctioned and the proceeds will be taken by the creditor to compensate for the losses as a result of the bad debt
However the creditor is only entitled to the total amount owed to him by the debtor and the balance will be returned back to the owner of the pledged property ( the debtor)
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Quran
The Quran refers to the idea of pawning as ‘mortgage with possession’ (rihanun maqbudha). Quran also supports the idea of furnishing a pledge against a debt.
According to Quranic verses, every soul is in pledge or rahina for its deeds. {Quran, 74:38}
EVIDENCE
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DEFINITION
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APPLICATION
Hadith The issue of mortgage is not only an issue for
“modern society”. In Islam, the history of mortgage has been being since the time of Prophet Muhammad.
From Aishah that Allah's Apostle bought some foodstuff from a Jew and mortgaged his armor to him.”
From Anas that Allah’s Apostle mortgaged his armor to a Jew in Madinah and bought barley bread from the Jew for his family.”
and in the saying of the Prophet, “the soul of a believer is marhuna or pledged for the debt until it is paid off”.
Ijma Muslim jurist unanimously agreed on the legitimacy of
the rahn contract
EVIDENCE
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APPLICATION
Rahin Pledgor – a person who gives rahn/ the debtor
Murtahin Pledgee – a person who takes rahn/ the creditor
Marhoun Pledged asset – a property to be pledged
Marhoun Bih The liability of rahn/ the debt
Sighah Ijab (Offer) Qabul (Acceptance)
PILLARS OF RAHN
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DEFINITION
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COMPARISON
APPLICATION
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FLOWS OF A-RAHN
Marhoun (Pledged Asset)
Murtahin (Pledgee/ Creditor)
Rahin(Pledgor/ Debtor)
Marhoun Bih (Liability of Rahn/Debt)
Deliver debt
Financing contract
Debt + Mark Up
Custody/ Pledged
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The pledge is considered a trust in the hands of the pledgee. He is responsible for its safety and preservation. However, he is liable if the pledged property is damaged or destroyed as a result of his negligence.
Pledge is intended to be a security for the payment of debt. It is not meant for investment and profitable use. As such a pledgee is not allowed to exploit or use the pledged property even with the permission of the pledger.
Exploitation of the pledged property is prohibited based on the principle that “all loans that generate profit are usurious”.
Thus, exploitation and profitable use of the pledge is considered usury.
However, if the pledge is an animal that can be used for riding or milk, the pledgee may make use of it in return for its maintenance.
THE USE OF PLEDGE BY THE PLDGEE
DEFINITION
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APPLICATION
Al-rahn - very useful contract; multi purpose tool that is beneficial and advantageous to both parties especially to the creditor
Creditor Compared to the contract of kafalah, documentation of
debt or providing witnesses, all these measures can never match security that Rahn provide for benefit of creditor
Rahn is form of authentication of debt, which is under the custody of the creditor in return for his right claiming back his money from the debtor
In case of default payment, the creditor could secure the loan repayment can retrieve back his money by selling off the pledged property with the consent from either the court or the debtor himself
The creditor can also be assured that the debtor will not forget or take for granted to settle the loan since his valuable assets are still under the custody of the creditor/pledge.
BENEFITS OF AL-RAHN
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APPLICATION
Debtor Could get some fast cash by temporarily pledging his
valuable items to the creditor Can convince the pledgee/creditor to lend him the
money since he has something to offer in return as a guarantee of payment.
BENEFITS OF AL-RAHN
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APPLICATION
1. Any object that can be sold can be pledged; and what cannot be sold cannot be pledged
2. A person can borrow something which he can pledge with whom he should specify to the lender
3. If the mortgagor and mortgagee agree to place the pledge with 3rd person, they cannot change this agreement as long as the 3rd person remain honest
4. If the mortgagor pay back the debt, the mortgage does not terminate; it will stay until the whole sum is paid back
5. The mortgagor cannot dispose the object by selling, granting, or endowing it
6. A pledge is a trust in the hands of mortgagee
CONDITIONS OF AL-RAHN
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DEFINITION
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APPLICATION
AL-RAHN PRINCIPLES CONVENTIONAL PAWNING
• Institution based eg: banks, co-operatives, YAPEIM, state government agencies etc
OPERATOR • Sole proprietor based• Individual based
• Monthly safekeping charges• No interest charges• Cheaper
CHARGES • Interest is charged• More expensive rate
• Takaful coverage INSURANCE • Not covered• If the pedged items are
lost, only a 25% compensation is offered
• Only pure gold accepted• Ornamented gemstones on
gold items will not be valued• Gold plated items are not
acceptable• Pound gold and white gold
(platinum) not accepted
ITEMS • Any valuable items
COMPARISON
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DEFINITION
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APPLICATION
AL-RAHN PRINCIPLES
CONVENTIONAL PAWNING
• Must provide proof of ownership either through the letter of purchase/ receipt or letter of undertaking
• If it belongs to someone else, a letter of consent/ approval from the owner is required
OWNERSHIP
• Not required to provide proof of ownership
• Up to 60%-70% of the value of pawned gold
• Valuation based on the current market value
PAWNING VALUE
• Valuation is much lower than the market value
• Average 30.5%
• Pledged items will be auction publicly
• Transparent and notice will be sent
DEFAULT • Not transparent
• The balance after the auction wil, be returned back by the company to the pledgor
BALANCE AFTER
AUCTION
• The balance after the auction will not be retuned back by the company to the pledgor
COMPARISON
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DEFINITION
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COMPARISON
APPLICATION
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APPLICATION
DEFINITION
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APPLICATION
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