Factors influencing acceptance of Ar-Rahnu: comparison between private and state Ar-Rahnu providers in Terengganu

Abstract

Many Muslim customers are hesitant to patronise the conventional pawnbroking shops due to the element of interest which is prohibited in Islam. Amid the demand for a shariah-compliant pawnbroking product, the first Islamic pawnbroking was setup by Maidam in Terengganu. The establishment of Ar-Rahnu provides a convenience form of credit financing which is both shariah-compliant and low cost for public to access financing. Since then, there are currently several private Ar-Rahnu providers offering Ar-Rahnu products such as Ar-Rahnu post office and Ar-Rahnu Bank Rakyat. This paper aims to review factors influencing acceptance of Ar-Rahnu between private and state Ar-Rahnu in Terengganu. This conceptual paper is primarily based on theoretical considerations, framework and models. In the first part, the paper will describe the development of the theories, and then review previous literature that provides on factors affecting customer acceptance on Ar-Rahnu. Meanwhile, the document analysis reviewed private and state Ar-Rahnu providers in Terengganu.

Ar-Rahnu Scheme Among Low-Income Civil Servants in Malaysian Public Universities

“…Based on the research in Al-Rahnu, it is mentioned that shariah view is seen as an important factor by the customers in accepting Ar-Rahnu. So, it is imperative for Ar-Rahnu operators to increase the level of Syariah practices in the scheme in future (Abdul Rahman and Kassim, 2017). According to Rasmin and Markom (2014), there are two basic principles of Islamic banking, which are riba prohibition (interest-free) and the sharing of profit and loss between the bank and its customers (mudharabah and musharakah).…”

“…There are several advantages of gold as the collateral compared to other pawned items such as that gold can be easily resold, gold's purity is easily determined and the mispricing of the collateral can be minimised, gold chains and rings typically require only a small flat envelope for storage, and women often receive gold chains and bracelets as their wedding gift and retain them for personal ownership (Abdul Razak, 2008). Abdul Rahman and Kassim (2017) expressed that pledge asset is significantly associated with acceptance and it is seen as a crucial factor. According to the study conducted by Azman and Kassim (2015), a few respondents proposed to diversify the mortgaged items.…”

“…Pricing System According to Amin et al (2007), pricing system has a weak influence on customer acceptance towards Ar-Rahnu scheme, and it is argued that this factor is the main problem in introducing the Islamic-based pawn shop, but this factor plays an important role in attracting customers. According to Abdul Rahman and Kassim (2017), in terms of pricing, the low storage charges imposed by these Ar-Rahnu providers had attracted customers to choose Ar-Rahnu service rather than the conventional pawnshop.…”

“…Although the price of gold remained stable for long periods and has been free from fluctuating, it is important to have an Ar-Rahnu shop that offers a competitive rate to reflect the average pricing system in the market (Bhatt and Sinnakkannu, 2008) Locality Locality can be defined as the position or site of something that has several opinions. According to Abdul Rahman and Kassim (2017) despite the mounting attention on Ar-Rahnu, the scheme still receives critics as for its limited availability to certain segment of the population. There are cases where people cannot subscribe to the Ar-Rahnu service because of the limited branches, especially those living in rural area and facing difficulties to reach the urban area.…”

Muslim Small Entrepreneurs’ Acceptance Towards Al-Rahn: A Case Study In Kelantan, Malaysia

“…The religious compliance factor is also the main issue that Muslim users often consider when choosing al-rahn, and previous studies have reported 48.2% of respondents chose alrahn because of religious factors when al-rahn were implemented in accordance with Islamic law [15]. Other studies that agree on the importance of religious factors in the implementation of al-rahn are Amin Rahman and Kassim (2017) found that the influence of religion has the lowest correlation value due to the diverse religious backgrounds in Sarawak. This is because awareness of an individual towards al-rahn is different according to religion.…”