Chapter one
Introduction
Generally, the modus operandi for conventional and Islamic pawnshop
transaction
is quite similar. Despite the similarities, the contract (aqad) in the Islamic
pawnshop is different from the conventional pawnshop. The loan granted
is based on four concepts, i.e.al-qardhul hassan (loan without interest), alwadiah
yad dhammanah (keeping valuable goods by guarantee), al-ujrah
(storage fees) and ar-rahn (collateral). The storage fee is based on the
value of gold and not on the amount of the loan, as shown in Table 2. This
fee is charged differently by each Islamic pawnbroker.
In the Islamic-based pawnshop, gold is the only permitted item. Gold have
several
advantages as collateral over other items6. Firstly, gold is easily resold
and so there is potentially auctioning the collateral should the borrower
not redeem the pledge. Secondly, gold’s purity can be easily determined
and so the risk of mispricing the collateral can be minimized. Thirdly, gold
chains and rings typically require only a small flat envelop for storage
and so can be kept securely in the bank safe at little, if any, additional
cost.6 Skully, M. S. (2005). Islamic Pawnbroking: The Malaysian
Experience. Paper presented at the 3rd
International Islamic Banking and Finance Conference 2005.6
Finally, women often receive gold chains and bracelets as wedding gifts
and generally retain personal ownership of these items especially in
Malaysia. This practice is common across income levels and so provides a
rich base of potential customers.
Table 2: The safekeeping fees charge in Islamic pawnshops
Value of pledged Bank
The valuation is based also on the purity of the gold item. For example 85
carat
gold carries a value of RM25 to RM26 per gm. The gold will be valued at
the prevailing market price. The best method of assessing gold jewellery in
Islamic pawnshop is by using acid test. The method is such as the piece of
jewellery will be rubbed on a black stone. The quality of gold will depend
on the friction; the rougher the feel of the gold, the better the quality. The
action of rubbing will be done at corners of the jewellery as these parts
are the easiest to determine if the gold is fake. In addition, a special
density meter is used to value the gold. In order to make the valuation free
from mispricing, the staffs in Islamic pawnshop will be sent to YPEIM
institution for courses that relate to get training in such matters. In terms
of legislation, the Islamic pawnbroking system is subject to certain laws
but no specific acts. For example, ar-rahnu scheme in Bank Kerjasama
Rakyat Malaysia Berhad is subject to three different acts, which are the
Bank Kerjasama Rakyat (M)
Berhad Act 1978, the Co-operative Societies Act (1993) and the
Development Finance Institutions Act 2002. In addition, Bank Kerjasama
Rakyat Malaysia Berhad has introduced separately the ar-rahnu manual
guidelines 7 . Other relevant acts are the Occupational Safety and Health
Act for workers who are exposed to acid for the gold test and the Weight
and Measurement Act, in which the gold weighing device has to be
licensed every year.8
Principally, Islamic pawnbrokers would prefer the customer to redeem
their
collateral within six months. However, if there is no repayment, there is an
extension period of three months after which the client is informed that the
item will be sold by auction within a further of two months period. Based
on the Manual of Islamic Pawnbroking of Bank Kerjasama Rakyat
Malaysia Berhad, any surplus from the sale of 7 Refer Bank Kerjasama
Rakyat (M) Berhad (2000, 2002 dan 2003). Manual Pinjaman Pajakgadai
Islam. Not published. 8 Sehan, M. A. (2004). Isu-isu dalam Perlaksanaan
Pajak Gadai Islam di Negara Serantau. Paper presented at the
“Konvensyen Ar-rahnu Serantau” on 12th – 13th October: Kuala Lumpur.
7 the gold over the amount owed to the pawnbroker, including
accumulated deposit fee and any costs related to the sale, has to be
returned to the customer. In case the customer cannot be located, the
lxxi
surplus will be forwarded to the Baitulmal from which the customer is
entitled to make future claims. As a whole, the mechanism of Islamic
pawnbroking can be illustrated as below.
Figure 3: Ar-rahn Pawnbroking Business.
