Rahn

Definition
literally means constancy, or holding and binding

The Shafi’is - a non-fungible property which is used as insurance against a fungible debt, whereby the debt may be extracted from the held property if it is not repaid

The Malikis - the act of taking a valued property from its owner, as a means of insuring a loan that has matured or is about to mature.”

Nature Of Rahn Contract
•The contract of rahn is a voluntary charitable contract (tabarru’).
•not considered totally binding until the object of contract is delivered. (gifts (hibah), simple loans (ariyah), deposits (wadiah), and loans (qard hasan).

Forms Of Al-Rahn
•Rahn Originating from Debt-generating Contract
•Rahn Originating after Establishment of Debt
•Rahn Originating Prior to Establishment of Debt (according to the Malikis and Hanafis)

Conditions of Pawned Object (Mal
Marhun)

Muslim jurists have agreed that the pawned object must satisfy the conditions as required for the object of sale.

Being valued property
Being known
Being able to be delivered
Being in the nature that the creditor is able to receive it
Being in ownership and possession of the debtor
Being attached to a non-pawned item
Being separate from other properties
Being distinguished from other properties

Procedures in the
case of failure of the debtor to pay his debt
If the pawned object is of the same genus as the underlying debt/liability, the creditor may extract his credit from the pawned object.

If the underlying liability is monetary, and the pawned object is a non-fungible property of a different genus, then the pawned object may be sold, and the debt may be repaid from the proceeds of the sale price.

If the underlying debt is commodities (not monetary), e.g. wheat, while the pawned object is another commodity of different genus, then repayment may be effected through exchange of these two counter values.