Ar-Rahnu (Pawn-broking) in Al-Qamari Bank Berhad

Abstract

Subjectarea

The case is suitable for use in the topics related to the functions and roles of Islamic pawn-broking and the Islamic risk management framework.

Studylevel/applicability

The case is designed for undergraduate and postgraduate students taking courses in Islamic Banking, Islamic Finance and Risk Management for Islamic Banking Institutions.

Case overview

This case is meant to explain the mechanics of pawn-broking (Ar-Rahnu) in Islam as well as to understand the risk management of Ar-Rahnu in the bank. Ar-Rahnu is discussed, in general, from the perspective of muamalat and then is related to the financing service offered through Ar-Rahnu scheme at Al-Qamari Bank Berhad (a disguised bank). Ar-Rahnu means making an asset as a security or collateral for a debt. The collateral will be used to settle the debt when the debtor is in default. It may also be known as borrowing with either collateral or pawn-broking. In Al-Qamari Bank Berhad, gold and jewellery are the subject of collateral for Ar-Rahnu. In return, customers will get the cash based on the margin of loan with regards to the current market value of gold/jewellery as determined by the bank. The operation of Ar-Rahnu is discussed in Exhibit 1, while the risk management of Ar-Rahnu is discussed in Exhibit 2.

Expectedlearning outcomes

The learning outcomes include: to identify a problem and issue related to Ar-Rahnu; to evaluate the modus operandi of Ar-Rahnu; to analyze the risk management practices of Ar-Rahnu; and to develop decision criteria on whether Ar-Rahnu in Al-Qamari bank is Shariah-compliant or not.

Supplementarymaterials

Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Citation

Abdul-Rahman, A. and Hafizi, A.M. (2015), "Ar-Rahnu (Pawn-broking) in Al-Qamari Bank Berhad", , Vol. 5 No. 5. https://doi.org/10.1108/EEMCS-09-2014-0218