Gap Analysis Between the Rahn Exposure Draft by Bank Negara Malaysia and Rahn Practice in Islamic Pawn Broking Institutions

Abstract

This paper aims to analyse the existing structure of rahn-based Islamic microcredit lending facilities by Bank Kerjasama Rakyat and Pos Malaysia, the two institution with the largest number of Rahn branches in Malaysia, in comparison with the Exposure Draft on Shari’ah Requirements and Optional Practices of Rahn issued by Bank Negara Malaysia (BNM). The Exposure Draft delineates the Shari’ah requirements and Optional Practices pertaining to Rahn such that the regulatory body seeks feedbacks and alternative proposals from stakeholders to enhance the current practise of rahn. The main purpose of this paper is to investigate whether the practices of Bank Kerjasama Rakyat and Pos Malaysia comply with the proposed policy document by BNM with regard to the Shari’ah aspects. This paper employs a qualitative research method based on the data gatherred from secondary sources from the literature and other academic materials including the Rahn exposure draft, in order to evaluate the theoretical and practical aspects of rahn in Islamic microcredit financing. The findings show that in general, the current rahn practices by Bank Kerjasama Rakyat and Pos Malaysia are in accordance with the Shari’ah requirement in the Rahn Exposure Draft issued by BNM, based on available information. However, there are a some concerns regarding the current rahn practices related to the precautious measure before accepting the marhun (pledged item) to ensure the marhun is recognized by Shari’ah and the basis of the imposition of safekeeping fee to customers. As such, these issues call for a further examination and appropriate remedy.