HALAL PAWNING ISLAMIC PAWNSHOP

HALAL PAWNBROKER HALAL PAWNSHOP MUSLIM PAWNING AR-RAHN HALAL OR HARAM ?

Halal pawning is by definition the use of a collateral to borrow money from an Islamic pawnshop by getting cash in exchange of the deposit of goods what a borrower can buy it back later in compliance with Sharia principles.

Halal pawning within Islamic finance is called Ar-Rahn which is a permissible contract in Islam under precise conditions where assets deposited as security for a debt in order to repay it in case the debtor failed to pay back to the Muslim pawnbroker.

An Islamic pawnshop or halal pawnbroker lends money on items of value ranging from gold and jewelry, electronics, or mobiles with the pawnbroker keeping the item until the repayment of the halal loan has taken place.

A Halal pawnbroker is facing a challenge is terms of charging interests (Riba) which is haram (not permissible) during the pawning period, as this the way pawnshops are making money, this financial operation can only become halal without charging any interest.

A Halal pawnshop to be compliant with sharia, in addition of not charging interest should only accept goods that have an economic value, be on private ownership and make sure that such goods that are not haram (forbidden), the assets can consist of a plot of land, a vehicle or a house.

Islamic pawning protects a Muslim borrower in case he fails to repay the debt, given that the Muslim pawnbroker will have to sell the goods in an auction to compensate the debt, in case the achieved sale price exceeds the loan amount, the profit will have to either shared with the depositor or fully transferred to him.

WHAT ARE THE CONDITIONS TO MAKE PAWNING HALAL ?

Halal pawning is in conclusion permissible under the following conditions:

• The loan should be equal to the value of the collateral.
• The pawnbroker should not exploit the financial precarity of a Muslim borrower by charging interests (Riba) but probably asks the depositor to share his profits out of the borrowed money where he made himself money if the transaction has been Sharia compliant. -
• The assets initial owner is responsible for the cost of maintenance.
• Change of ownership takes place only if the borrower is not able to repay the debt.
• The pawnbroker in case he doesn’t get his money back should share with the initial owner the eventual profits made out of the sale of the assets but not the losses.
• It is open if it is halal or not as to whether a collateral can be used by the lender or the borrower during the loan time (can a borrower still drive his car while it is pledged in favor of an Islamic pawnshop?).

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