The Attainment of Classical Rulings of al-Rahn within the Contemporary Islamic Pawn Broking in Malaysia

The al-rahn-based Islamic microcredit, commonly known as ar-rahnu, is vigorously promoted by Islamic financial institutions in Malaysia as an optimal alternative for low-income groups unable to access microcredit facilities from commercial entities. This service is perceived as fully compliant with Shariah, devoid of prohibited elements such as riba (interest), gharar (uncertainty), and maysir (gambling). Nevertheless, it faces criticism from Islamic scholars due to the structure that raises Shariah concerns related to ujrah (fee) and wadiah yad damanah (savings with guarantee), employed as hiyal (legal trick) to permit riba. This qualitative research relies on primary and secondary data to examine Shariah issues from the product's structure to pawnbrokers' acts, redemption, and auction, all from the Maqasid al-Shariah (objectives of Shariah) perspective. Interviews with major Islamic pawn broking institutions and external observers from ISRA and Shariah Committee of Bank offer insights into these allegations. The study proposes establishing an Islamic pawn broking act and alternative structures to ensure the product is genuinely free from riba and aligns with Maqasid al-Shariah.