ISB 540

ISLAMIC BUSINESS TRANSACTION

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GROUP NO: 09

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NAME STUDENT

ID

GROUP

AFANDI BIN ZUBIR 2009672728 BE05

SHAHRUL NIZAM BIN IDRIS 2113680002 BE05

MUHAMMAD AZLAN BIN ABDULLAH 2009878916 BE05

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PREPARED FOR

EN. MUHAMMAD YUSRI BIN YUSOF @ SALLEH

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SEMESTER 5 SESSION 2011-2012

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Data Otoriti bahasa idea jawapan Ruj Proses kemas masa jum

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BANK KERJASAMA RAKYAT: AN ANALYSIS ON AR-RAHNU

PRODUCT

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NO CONTENTS PAGES

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ACKNOWLEDGEMENTS

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2

PREPARATION PROCESS OF TASK

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3

DECLARATION

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4

HISTORY OF ISLAMIC PAWNSHOP

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5

MALAYSIAN PRACTICE ON AR-RAHNU SCHEME

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6

SYARIAH BANKING CONCEPT

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HISTORY OF BANK KERJASAMA RAKYAT

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8

HISTORY OF AR-RAHNU PRODUCT

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AR-RAHNU PRODUCT

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CONCLUSION

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REFERENCES

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3

ACKNOWLEDGEMENTS

Assalamualaikum w.b.t. First of all, we offer thanks giving to the Almighty for

giving opportunity and sufficient time to complete this task. Appreciation also goes

to Ustaz Muhammad Yusri Bin Yusof @ Salleh as our lecturers and monitoring has

helped us in completing this task from time to time and gave all useful guidance to

us. Not forgetting the head of our group because Afandi Bin Zubir has successfully

led this task with distinction in the division of labor. In addition, a roll thanks to

Muhammad Azlan Bin Abdullah and Shahrul Nizam Bin Idris, that prepares a part of

their particular task. Finally, thanks also to my classmates the other as also assist in

providing additional information and share ideas to our group. Cooperation of all

parties is appreciated.

Thank you.

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PREPARATION PROCESS OF TASK

Task Members

Information search. Afandi Bin Zubir

Shahrul Nizam Bin Idris

Muhammad Azlan Bin Abdullah

Group discussion:

History of Islamic pawnshop.

Ar-Rahnu product of Bank

Kerjasama Rakyat.

Afandi Bin Zubir

Shahrul Nizam Bin Idris

Muhammad Azlan Bin Abdullah

Typing:

Introduction

Muhammad Azlan Bin Abdullah

History of Bank Kerjasama Rakyat

Afandi Bin Zubir

Conclusion Shahrul Nizam Bin Idris

Layouts and Updates Afandi Bin Zubir

Shahrul Nizam Bin Idris

Muhammad Azlan Bin Abdullah

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DECLARATION

We hereby admit that we did not do any form plagiarism. We have used

the available resources at its best.

YOURS FAITHFULLY,

(AFANDI BIN ZUBIR) (SHAHRUL NIZAM BIN IDRIS)

(MUHAMMAD AZLAN BIN ABDULLAH)

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1.0 HISTORY OF ISLAMIC PAWNSHOP

The important of helping the needy especially the poor has long been emphasized in

much of Islamic faith. Therefore, lending to the needy should be the main focus in

Islamic finance. In this context, the Islamic pawnshop (ar-rahnu scheme) is the most

appropriate mechanism as it provides a financial product for the lower-income group

and small businesses which usually have limited capital or have been excluded from

the mainstream financial system. Prior studies have shown the importance of Islamic

pawnshop to the Muslim societies (Azila Abdul Razak, n.d.).

Before the implementation of the Islamic pawnshop system, the conventional

pawnshops had charged high interest rates on the loans given. The conventional

pawnshops were more motivated on making profit from the needy individuals and

this activity was only restricted by the laws in the Pawnbrokers Act 1972. The

conventional pawnshops had indeed oppressed and put a burden on the lower-income

group (Azila Abdul Razak, n.d.).

The purpose of the Pawnbrokers Act 1972 was to guarantee a healthy pawnshop

industry, as well as safeguarding the interests of the consumers. However, it failed to

control the problems of the oppression of the lower income group and the

pawnbrokers‟ malpractices. In fact, it seemed to encourage the practice of usury, with

high interest rates of 2 percent per month, or 24 percent per annum. The high interest

rates make it difficult for the consumers to reclaim their goods or jewellery. As for

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those who need the loan as a business capital, they find that their capital is rapidly

diminishing. The conventional pawnshop system is more likely to put a burden on the

lower-income group and this is against the Shari‟ah practices (Azila Abdul Razak,

n.d.).

The concern over higher interest rates, usurious and exploitative activities imposed by

the conventional pawnshop makes the customers choose to deal with the Islamic

pawnshop (Azila Abdul Razak, n.d.).

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2.0 MALAYSIAN PRACTICE ON AR-RAHNU SCHEME

2.1 MUASSASAH GADAIAN ISLAM TERENGGANU (MGIT)

Muassasah Gadaian Islam Terengganu (MGIT) is given an honour by Bank Negara

Malaysia as the first Islamic pawnbroking operating in January 1992 under the rule of

the State Council for Religion and Malay Customs. The sole objective is to fulfill the

needs and welfare of the less fortunate (Azila Abdul Razak, n.d.).

The loans offered in the MGIT ar-rahnu scheme are free from interest

(qardhulhassan). However, customers are encouraged to contribute a small sum to

the Muassasah treasury account. A Muslim who has borrowed from his friend is

encouraged to repay a little extra as a symbol of gratitude. This is known in Islamic

banking as „hibah‟ or gift (Azila Abdul Razak, n.d.).

The collateral for the loans may be in the form of gold or diamond jewellery. The

loans given should not be more than 75 percent of the jewellery‟s value. Also, the

customer is only eligible for loans up to RM1, 500 for each item. If the customer fails

to pay in three months, they can apply for an extension for three months. If they fail

to pay after the extension period, the collateral will be auctioned by MGIT to pay off

the loan. If there is any surplus after the loan has been settled, it will be returned to

the customer (Azila Abdul Razak, n.d.).

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This service is available for those 18 years old and above and it gives priority to the

residents of Terengganu only. The customers need to show valid proof of ownership

of the goods. Business of MGIT has been flourished since its first formation, as it

started with 12,732 customers in 1992 which increased to 26,632 customers in 20059.

The value of pawned items has increased from RM9.85 million in 1992 to RM28.9

million in 2005 (Azila Abdul Razak, n.d.).

2.2 PERMODALAN KELANTAN BERHAD

In March 1992, the Kelantan State Economic Development Corporation, through its

subsidiary, Permodalan Kelantan Berhad had set up Ar-Rahn as the second Islamic

pawnshop in Malaysia in order to fulfil the syariah needs. It is part of the Kelantan

government‟s effort to help those in need by giving out interest-free loans. The ar-

rahnu system in Kelantan collects a certain fee for safekeeping of pawned goods

(Azila Abdul Razak, n.d.).

The collateral accepted is only in the form of gold jewellery. The loan given is 60

percent of the value of jewellery and not more than RM5,000. The pawning period is

six months. Those who are unable to pay back may extend the pawning period,

subject to approval of both parties and the customers need to pay the safekeeping fees

of the previous six months. If customers are still unable to pay back after the

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extension period, the ar-rahnu pawnshop will send an auction notice before the

auction is held by licensed auctioneers. The customers are eligible to get any balance

of the auction price after subtracting costs and any debts (Azila Abdul Razak, n.d.).

2.3 BANK PERTANIAN MALAYSIA

Bank Pertanian Malaysia has introduced the ar-rahnu scheme in 12 of its 132

branches nationwide. The bank introduced the scheme to meet short-term financial

needs of the rural people who are mainly farmers and fishermen to improve their

business and modernize their methods. This scheme is open to Malaysian residents of

18 years above. All types of gold, jewelery such as necklace, earring, ring, bangle,

brooch and others are accepted. A loan of not more than 60 percent of the market

value of pawned goods will be issued. Maximum loan is RM50,000 subject to

RM5,000 daily limit, while the pawning period is six months, and can be extended to

three months with the final extension of another two months (Azila Abdul Razak,

n.d.).

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3.0 SYARIAH BANKING CONCEPT

3.1 AL-WADIAH (SAVINGS WITH TRUST/GUARANTEE)

Al-Wadiah refers to agreement where customers deposit money in the Bank, and the

Bank becomes wholly responsible and liable for its safekeeping. As wadiah is a trust,

the depository becomes the guarantor and, therefore guarantees repayment of the

whole amount of the deposits, or any part thereof, outstanding in the account of

depositors, when demanded. The depositors are not entitled to any share of the profits

but the depository may provide returns to the depositors as a token of appreciation

(Overview of Islamic Banking in Malaysia, n.d.).

3.2 AL-MUDHARABAH (PROFIT-SHARING)

Al-Mudharabah refers to an agreement where customers deposit capital in the Bank,

and the Bank becomes wholly responsible and liable in the management and

investment the deposits in halal business ventures. Profits gained will be divided and

distributed accordingly, based on margins agreed upon earlier. In the case of losses,

the losses are borne by the provider of the funds (Overview of Islamic Banking in

Malaysia, n.d.).

3.3 BAI-BITHAMAN AJIL (DEFERRED PAYMENT SALE)

Bai-Bithaman Ajil refers to the sale of goods on a deferred payment basis at a price

which includes a profit margin agreed by both parties. In fact, it can be

implicated in any sale contract, including sale contract, including musawamah,

and murabahah (Khairuddin Zakaria, 2011).

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3.4 BAI-AL'INAH (IMMEDIATE CASH)

Bai-Al'Inah refers to the selling of an asset by the Bank to the customer through

deferred payments. At a later date, the Bank will repurchase the asset and pay the

customer in cash terms at a discount. It can also be applied when a seller sells an asset

to a buyer on a deferred basis. A seller will later buy back the same asset on a cash

basis at a price, which is lower than the deferred price (Sharia UMEX, 2010).

3.5 AL-MUSYARAKAH (JOINT VENTURE)

Al-Musyarakah refers to a partnership or joint venture for a specific business

purposes with a profit motive, whereby the distribution of profits/losses will be

apportioned according to the capital contributed. In the event of losses, both parties

will share the losses on the basis of their equity participation (Overview of Islamic

Banking in Malaysia, n.d.).

3.6 QARDHUL HASSAN (BENEVOLENT LOAN)

Qardhul Hassan refers to an interest-free loan. The borrower is only required to repay

the principal amount borrowed, but he may pay an additional amount at his absolute

discretion, as a token of appreciation. It is however legitimate for a borrower to pay

more than the amount borrowed as long as it is not stated or agreed at the point of

contract (Sharia UMEX, 2010).

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3.7 AL-IJARAH THUMMA AL-BAI' (HIRE AND PURCHASE)

Refers to two contracts undertaken separately and subsequent as follows:

a) Al-Ijarah contract (hire)

b) Al-Bai' contract (purchase)

Under the first contract, the customer hires the goods from the Bank at an agreed

rental amount over a specified period. Upon expiry of the hiring period, the customer

enters into a second contract to purchase the goods from the Bank at an agreed price.

(Bank Rakyat, 2011).During the period of the agreement, the bank owns the goods

(Affin Bank, 2010)

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4.0 HISTORY OF BANK KERJASAMA RAKYAT

4.1 BACKGROUND OF BANK RAKYAT

Bank Rakyat was established in September 1954 under the Cooperative Ordinance

1948, following an expansion of the cooperative movement in Peninsular Malaysia.

To facilitate the expansion of the cooperative movement, the co-operatives set up

their respective union banks provide financial needs to their members. On 28

September 1954, 11 of these union banks decided to merge and form Bank Agong

(Apex Bank).

In 1967, Bank Kerjasama Malaysia Berhad replaced Bank Agong with its

membership opened not only to the cooperatives, but also to individuals. Subsequent

changes in the by-laws also resulted in the creation of its subsidiary companies and

opening of branches to serve customers as well as members. On 6 January 1973, the

name was changed to Bank Kerjsama Rakyat Malaysia Berhad or better known as

Bank Rakyat. Bank Rakyat is governed by it‟s laws and Bank Kerjasama Rakyat (M)

Berhad Act 1978 (Special Provision 202), which allows Bank Rakyat to provide

financing to non-members (Bank Kerjasama Rakyat, 2011).

In 1989, Bank Rakyat was placed under the Ministry of Land and Co-operative

Development and the Ministry of Finance. In 1993, the Cooperative Act was

reviewed which allows the Bank to operate in Sabah and Sarawak. On 8 May 1993,

Bank Rakyat took a giant step towards becoming a syariah co-operative bank by

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introducing Islamic banking products at four of its branches. Bank Rakyat became a

full-fledged Islamic cooperative bank in 2002. Hence, with this major decision, Bank

Rakyat marked another milestone in history where it became the third bank to offer

total Islamic banking products in Malaysia (Bank Kerjasama Rakyat, 2011).

On 15 February 2002, Bank Rakyat together with six other financial and development

institutions was placed directly under the supervision of Bank Negara Malaysia

(Central Bank of Malaysia) under the Development of Financial Institution Act

(DFIA). On 27 March 2004, Bank Rakyat was placed under the supervision of

the Ministry of Entrepreneur and Cooperative Development. On 15 April 2009, after

the cabinet restructuring, Bank Rakyat was absorbed under the Ministry of

Finance and was later placed under the Ministry of Domestic Trade, Co-operatives

and Consumerism. To date, Bank Rakyat has a total of 127 branches offering Islamic

banking facilities to its customers (Bank Kerjasama Rakyat, 2011).

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5.0 HISTORY OF AR-RAHNU PRODUCT

The Bank Kerjasama Rakyat Malaysia Berhad ar-rahnu scheme was introduced in

1993. It was first introduced in six branches but now there are 112 branches

(including Kedai Ar-Rahnu) operating throughout Malaysia. Interestingly, the bank

had also opened the first stand alone Kedai Ar-Rahnu in Kota Bharu, Kelantan in

June 2000. These schemes are more of a social oriented to customers. It is not for

profit and thus, the customers will benefit from it. A fee for safekeeping the goods is

collected based on the value and the pawning period (Azila Abdul Razak, Malaysia

Practices of Ar-Rahnu Scheme: Trends & Development, n.d.).

The scheme is open to Malaysian residents aged 18 and above and not more than 65

years old. Only gold jewellery is accepted as collateral. Loans for the pawned goods

will not be more than 50 percent of the goods value. Maximum loan is RM5,000 for

each time or a cumulative worth of RM25,000 for each customer. Pawning period is

only six months, which may be extended for another three months. If the customer

fails to claim the goods, the bank will send a notice to auction off the goods. The

bank will subtract the loan amount, fees for safekeeping and other costs involved in

the auction process from the auction profits. Then the balance will be given to the

customer. A week before the six month period, the bank will send the first reminder.

After six months, a second reminder will be issued. After the third reminder, if the

customer is unable to claim the goods, the pawnbroker will disposed the goods by

auction to the licensed auctioneer. Suppose the value of the item pawned is worth

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RM1,666.00 and the bank will only release a maximum loan of RM1,000.00 with

repayment period of six month. If the fee for safekeeping is 65 cent for every RM100,

then the fees will be RM10.68 per month or RM64.08 for six months (Not

surprisingly, with the same amount of loan, customer of conventional pawnshops will

have to pay almost double which cost RM20). If the goods are auctioned at

RM1,666.00, the bank will subtract RM1,000.00 for the loan, RM96.12 for

safekeeping fees (9 months) and administration fees for the auction RM50, then the

balance of RM519.88 will be returned to the customer (Azila Abdul Razak, Malaysia

Practices of Ar-Rahnu Scheme: Trends & Development, n.d.).

To date, the Managing Director of Bank Rakyat, Datuk Kamaruzaman Che Mat

points that through its fully owned subsidiary, Rakyat Management Services Sdn

Bhd, is aiming to open 15 branches of the Islamic based pawn franchise outlets,

which is called Ar-Rahnu X-Change, in the next three years. In future, Bank Rakyat

planned to expand the Ar-Rahnu outlets to various locations such as Medan Tuanku,

Kuala Lumpur (managed by Koperasi Pendidikan Islam Malaysia Bhd), Pokok Sena,

Kedah (managed by Koperasi Kementerian Kesihatan Negeri Kedah Bhd), and Sri

Gombak (managed by Koperasi Serbaguna Iman Malaysia Bhd) (Azila Abdul Razak,

Malaysia Practices of Ar-Rahnu Scheme: Trends & Development, n.d.).

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6.0 AR-RAHNU PRODUCT

6.1 OBJECTIVE

The objective is to introduce a scheme for the following:

1. Provide alternative to the community especially for the lower

income group in fulfilling their immediate cash flow needs.

2. Abolish element of “interest” in pawn broking management.

3. Emancipate the group of borrowers especially Muslims from being

abuse by conventional pawnbroker.

(Bank Kerjasama Rakyat, 2011).

6.2 CLARIFICATION

The procedure begins from the workflow of supply logistics to safekeeping to

workflow of acidtesting, sell-off and steps to undertake in the event of emergency and

crisis management.

1. Term and condition for applicant eligibility

i. Malaysian citizen of age 18 years old and above

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ii. For applicants age 65 and above, the shop outlet must ensure and

check authenticityand purity of gold valuables to guarantee value and

quality.

iii. N o t a b an kr up t and m en t a l l y i n cap ac i t a t ed o r r e t a rd ed

( no t i n eb r i a t ed , d r u gge d o r under hallucinatory state or drunk

while conducting transaction)

iv. The applicant should recide in the vicinity of the operating outlet and is

readily contacted

v. Staff of Ar-Rahnu X‟change inclusive of spouses, parents and children

are not allowed to apply for pawning facilities

(Bank Kerjasama Rakyat, 2011).

6.3 TYPES OF AR-RAHNU PRODUCT

6.3.1 Ar-Rahnu

This scheme provides a source of immediate financing to assist individuals inn

overcoming cash-flow needs.

Quantum of Financing:

Financing up to 70% of the pawned gold value (Marhun value)

Each pawned item not exceeding RM10,000.00 per day and a cumulative

amount not exceeding RM50,000.00.

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Repayment Period:

Financing tenure : 6 months only

Extension period : 6 months (mutiple extensions) subject to settlement of safe

keeping fee for the past 6 months

Pawn Products:

Gold jewellery 18K - 24K

Fees:

A minimum fee is charged for the safekeeping of the valuables.

Type of

Scheme

Financing Amount

Safekeeping fee for every

RM100.00 of gold value per

month

Ar-Rahnu

RM100.00 - RM1,000.00

RM1,001.00 - RM10,000,00

RM0.65

RM0.75

(Bank Kerjasama Rakyat, 2011).

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6.3.2 Az-Zahab

An extension of the Ar-Rahnu scheme, Az-Zahab also offers instant cash to overcome

financial needs. This facility offers a higher facility amount and a longer repayment

period.

Quantum of Financing:

Financing up to 70% of the pawned gold value (Marhun value)

Each pawned item exceeding RM10,001.00 and a cumulative amount not

exceeding RM100,000.00

Repayment Period:

Maximum 36 monthly installments or

Lump sum payments for a 6 months period

Acceptable Items:

Gold jewellery 18K - 24K

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Fees:

A minimum fee is charged for the safekeeping of the valuables.

Type of

Scheme

Financing Amount

Safekeeping fee for every

RM100.00 of gold value per

month

Az-Zahab RM10,001.00 - RM100,000.00 RM0.75

(Bank Kerjasama Rakyat, 2011).

6.4 CALCULATION

Under the Islamic system, Islamic pawnbroking business (murtahin) does not charge

interest (riba). Profit is derived from fees to keep the pledged assets.

If the collateral value is RM 3,000 or less.

Value of loans provided = 60% x RM 3000 = RM 1800

Wages store = (RM 1000 / 100) x 0.65 cents = RM 6.50 per month

= (RM 2000/100) x 0.75 cents = RM 15 per month

Total wages store 6 month = RM 6.50 x 6 per month

= RM 39

= RM 15.00x 6 per month

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= RM 90

= RM 90 + RM 39

= RM 129

Consequently, to redeem the borrower (Rahin) have to pay murtahin RM 1929.

(Muhammad Yusri Yusof, 2010)

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7.0 CONCLUSION

Ar-Rahn is an alternative to conventional mortgage system for Malaysian. Islamic

mortgage system is important to middle class and lower of the Malaysian society.

Without ar-Rahn they will be pushed to engage with interest that practiced by

Pawnbroker shops and “Along” in fulfilling their needs. Ar-Rahnu can be the main

source of business capital and widely accepted and used by the society in their day to

day business. Ar-Rahnu can be an economic tool to improve the socio-economic

development of the lower and middle income society, and it is truly in line with the

co-operative principle. After we study about Ar-Rahnu product of Bank Kerjasama

Rakyat, we can found that there are several advantages of using this concept.There

are some advantages of Ar-Rahnu:

i. Interest free.

ii. Transparent and customer friendly counters.

iii. All transactions are recorded clearly.

iv. Secured safekeeping with insurance coverage for the pawned items.

v. Issuance of notices to customers.

vi. Excess from the auction will be returned to the customer.

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8.0 REFERENCES

Internet reference: Universiti Kebangsaan Malaysia. (2004). Overview of Islamic

Banking in Malaysia. Retrieve from

http://pkukmweb.ukm.my/~hairun/EX3613/Overview%20of%20Islamic%20Banking

%20in%20Malaysia.pdf

Internet reference: Bank Kerjasama Rakyat Malaysia Berhad. (2011). Retrieve from

http://www.bankrakyat.com.my/web/guest/syariahbankingconcept

Internet reference: Sharia Ummah Securities Information Exchange Ltd. (2010).

Retrieve from

http://www.shariaumex.com/glossary.php

Internet reference: Affin Bank Berhad. (2010). Retrieve from

http://www.affinbank.com.my/banking/hirepurchase/hpaitab.htm

Journal reference: Azila Abdul Razak. (2008). Malaysian Practice of Ar-Rahnu

Scheme: Trends and Development.

Blog reference: Muhammad Yusri Yusof (2010, March 30). Sistem Gadaian di

Malaysia: Analisis Perbandingan. Retrive from

http://lebaiyusri.blogspot.com/2010/03/sistem-gadaian-di-malaysia-analisis.html