Differences

Ar-Rahnu Conventional pawn broking

1. No interest charge
1. Interest and other fees can reach 24%
per annum
2. Transparent and customer friendly
counter.
2. Counter to conventional pawn shop
designed high for things not seen.
Methods of assessment and
measurement were not disclosed.
3. All transactions are recorded clearly.
3. Handwriting on the pawn ticket are
illegible and incomprehensible
language.
4. Secure storage and insurance coverage
for goods pawn
4. No insurance cover
5. Notice issued to customers.
5. No notice is given to items that are
not claimed / expired.
6. Surplus cash from the auction is given to
the customer.
6. Unclaimed items will be auctioned off
but the excess money deposited to
the broker.
http://www.islam.gov.my/muamalat/sites/default/files/kertas_ilmiah/2011/06/arrahn-ilim.pdf
Risk
Pawnbrokers/pawnshop owner Customer
1. Non-redemption of pledge item 1. The item pawn decreased in value
2. Low resale value of item pawn 2. Fluctuation of customers economy
3. Illegal item sold by customer (redeem) 3. Being cheated (weight)
4. Liquidity risk
5. Interest rate risk (in conventional)
6. Robbery at pawnshop
http://kevindavis.com.au/secondpages/workinprogress/UNDEPAWN.pdf
Weaknesses of conventional
pawnshop
1. Decreasing value of pawned goods
2. Offer a higher interest rate compared to the rate stated in Pawnbrokers
Act 1972
3. Pawnbrokers give the a low value during valuing process
4. Pawnbrokers issue an illegible ticket
5. The pawnbrokers have asked for 50 cent for each replacement of pawn
receipt and extension of the pawning period.
6. Auction pawned good worth more that RM200 without the customers
knowledge.

Introduction to islamic institution (Muhammd Aidhwan ab. Aziz, 2012)
Superiority of Ar-Rahnu
1. The service charges imposed on Ar-Rahnus customers are cheaper than
the conventional which charges rates of more than 24% per annum,
Islamic pawn broking cost less than 20% per cent per annum
2. Jewellery and pawned assets will be kept safely whereby Islamic pawn
broking institutions will give guarantee on safety matters and will be
responsible on the pawned assets
3. in the event of default and if the institution has to sell the jewellery or
pawned items, advance notice on bidding will be given and the jewellery
or pawned items are disposed or sold via open tender system which
reflects the fairness and non- exploitative system of Islamic finance
4. Repayment period is reasonable whereby customers may request to
extend the repayment period


http://www.idosi.org/mejsr/mejsr13(cifwm)13/16.pdf