Issues of Ar Rahnu.

1) Debtor fails to repay his debt at maturity

There are critical issues of Ar-Rahnu in Islamic jurisprudence. The first issue is that the
debtor fails to repay his debt at maturity. Under normal circumstances, the pledged property
would be sold by the debtor or his agent, since the debtor is the owner. Nevertheless, the
creditor’s permission is necessary. This is related to the creditor’s claim to the financial value
of the pledged property. On the other hand, if the creditor does not give permission to the
debtor to sell the pledged property, the debtor can institute a suit in a court of law. The judge
should direct the creditor to allow the debtor to sell the pledged property. If the debtor dies
before the underlying obligation matures, the debtor may default on the debt. If the debtor has
no other choices of property with which to settle his obligation and dies with his property
pledged in lieu of his debt, his plenipotentiary or heir becomes eligible to sell the property
with the creditor's approval in this circumstance.

2) Benefiting from pledged property

The second concern is the use of pledged property for personal gain. When it comes to the
debtor profiting from the pledged property, jurists have differing perspectives. The debtor is
allowed to use the pledged property as long as it does not harm the creditor, according to the
Shafi'i jurists. The debtor is not entitled to gain from the pledged property during the
pledging period, according to Hanafi, Hanbali, and Maliki jurists. With the permission of the
creditor, Hanafi jurists allow the debtor to benefit from the pledged property. The Hanbali
jurists agreed with the Hanafi jurists that the debtor can only use the pledged property with
permission from the creditor.

3
Furthermore, the Maliki verdicts were stricter than the Hanafi and Hanbali rulings in this
regard. It is important to note that the Rahn contract does not imply that the creditor owns or
has the right to use (benefit) the pledged property, as the debtor retains possession. As a
result, the creditor, in the majority's opinion, cannot use the pledged property in any way.

3) Lack of Legal Framework and Jurisdiction on Governance of Ar-Rahnu

Next, there is a lack of legislative framework and judicial jurisdiction over Ar-Rahnu
governance in Malaysia. In comparison to a traditional pawnshop, Skim Ar-Rahnu can attract
more customers. This is due to the fact that this scheme provides customers with a usury-free
service as well as the lowest safekeeping fees. Nonetheless, there are numerous gold fraud
cases surfacing in the marketplace nowadays, causing concern among both chargees and
chargors. Based on an interview with MGIT, it was discovered that MGIT has received
numerous reports of gold fraud at their institution.

Because of fraudulent gold is useless to auction, MGIT has suffered a turnover loss as a result
of these issues. Traditional pawnshop institutions in Malaysia have no problems with their
pawn shop business. Because of the Pawnshop Act of 1972, traditional pawnbroking is
preserved. It contrasts with the Ar-Rahnu plan, which is protected by no legislation or act. As
previously stated, the Ar-Rahnu programme is not governed by the Pawnshop Act of 1972.
It's because the Act has various sections that go against Syariah beliefs. Some Ar-Rahnu
institutions, such as SKM and MGIT, have taken the lead by establishing Ar-Rahnu executive
guidelines to govern Ar-Rahnu activities at their respective institutions. However, the
question of whether this guideline and procedure are sufficient to protect parties in the event
of a conflict arose.

4
4) Lack of Shariah Monitoring on Ar-Rahnu Transaction

The development of Islamic banking products through a window in a conventional banking

institution is permitted under Bank Negara policy. Nonetheless, Bank Negara stipulated that
any conventional bank that wishes to produce or offer an Islamic banking product must set up
a syariah advisory board in its respective institution. This is due to the role of syariah
advisory in controlling and monitoring Islamic financial product activity to ensure that it
always complies with syariah requirements. Today, in the Ar-Rahnu context, there is a
dispute and issue about safekeeping costs that are imposed on customers, and whether they
comply with syariah or not.

According to an interview with Ar-Rahnu Malaysian Post Office, the institution has not
established its own syariah advisor board, as required by the state bank (Bank Negara). Aside
from that, Malaysia Post requires a 3% deduction from the value of the property for the
purpose of property auctioning costs. This is in contrast to Islamic law, which states that if a
property balance from an auction is not claimed within a certain amount of time, it must be
restored to the owner or Baitulmal.
5) Lack of Monitoring on the Original Ownership of Marhun.

According to the syariah, pledge property utilised in Ar-Rahnu transactions must be chargor
to or with the owner's agreement before it may be used as a pledge property. In today's
commercial world, a purchase receipt will serve as proof of property ownership. However, if
a chargor is unable to provide a purchase receipt for some reason, they may apply for a
mortgage pledge under Prosiding Persidangan Kebangsaan Ekonomi Malaysia Ke-9
2014 without one.

Some Ar-Rahnu institutions, such as Post Malaysia, MGIT, Bank Rakyat, and others, require
the original security estate purchase receipt to be submitted during the mortgage procedure,
but this is not a requirement. Ar-Rahnu contrasts with MGIT and Post Malaysia. If chargor
want to mortgage with Bank Rakyat, chargor must bring the pledge property purchase
receipt. The transaction will be void if you do not produce your purchase receipt. This
purchase receipt is required by Bank Rakyat in order to prevent fraudulent gold property and
to avoid receiving gold from robberies, which are common these days.

6) Lack of Guideline on determining the Originality of Marhun

Every Ar-Rahnu institution requires the development of gold purity test equipment. This is
due to the fact that there is a lot of fake gold on the market currently. Many fraud incidents
with gold coating or lead gold, for example, have been documented. One sort of liquid that
can be used to imitate gold is lead. Lead has been commonly employed in gold cheating
today to increase gold weight. Some gold equipment cannot detect lead that has been
incorporated into pure gold structures.

Because of these issues, many ArRahnu only receive a few types of gold in order to avoid
obtaining golf that has been tampered with with lead. Some Ar-Rahnu institutions, such as
Post Malaysia, received bullion with the requirement that it be split in order to determine the
quality of the gold.
Lack of Ar-Rahnu Bussiness in Rural Area

Ar-Rahnu has gained a lot of traction in Malaysia and is attracting a lot of attention.
However, there are a few areas where the Ar-Rahnu institution does not exist. According to
the study, chargor prefers to perform mortgage transactions at the nearest pawnshop. Because
of this issue, chargor has turned to a traditional pawnshop rather than the Ar-Rahnu
institution. To keep this from happening again, those Ar-Rahnu institutions should be
encouraged to open more Ar-Rahnu pawnshops throughout Malaysia, particularly in rural
areas.