Analysing ar-rahnu in the context of informal credit market theory

Abstract

Purpose This study aims to offer a new area of discourse by investigating the factors determining the usage of the Islamic non-bank financing product ar-rahnu (Islamic pawnbroking) among women micro-entrepreneurs in Malaysia within the framework of the informal credit market theory. Design/methodology/approach The study is based on primary data obtained by using self-administered questionnaires distributed in three states in Malaysia: Kedah, Kelantan and Terengganu. The questionnaires were distributed to a total of 750 participants, with each state contributing 250 respondents. Total number of respondents valid for data analysis was however 600. Findings Based on descriptive and inferential statistics by using the IBM statistical package for the social sciences and structural equation modelling analysis of moment structures, the results show that the main factor influencing women micro-entrepreneurs to use ar-rahnu is the service charge. Research limitations/implications This study only covers three states in Malaysia and is limited to examining the use of ar-rahnu by women micro-entrepreneurs in those states. Practical implications As micro-entrepreneur s often face constraints to obtaining financial access in the formal credit market, ar-rahnu provides an alternative mode of obtaining business financing to female micro-entrepreneurs, so they can sustain their operations and even expand their businesses. The significance of such factors like service fee, as revealed in this study, indicates that managers should focus on this element when offering Islamic financial products, especially to women micro-entrepreneurs. Originality/value The informal credit market theory is frequently used in conventional studies. This paper adds Sharīʿah compliance in the context of this theory as a new area to be considered when discussing Islamic financial products.

Unleashing the Ar-Rahnu as a Micro-Financing Instrument for Micro-Entrepreneurs in Malaysia

“…On paper, Ar-Rahnu seems to be a better alternative to that of Islamic Micro-financing. As mentioned by Azman and Kassim (2018), Ar-Rahnu assists micro-entrepreneurs to diversify and enhance their businesses. In fact, it can be ensuring by offering the shari'ah compliancy product, the lowest service charges, near to potential customers, lenient on collateral and treat customer regardless their races or religious.…”

In Search of Technology Interruption on the Acceptance and Financial Performance of Ar-rahnu Cooperative in Malaysia

“…Mohamad et al (2014) found that customers look for attractive safekeeping fees as another reason for them patronising the service. Due to that, ar-rahnu is becoming customers options which indirectly contribute towards financial performance of ar-rahnu (Abdul Razak, 2011;Azman et al, 2018;Mohammed et al, 2005;. The third element of acceptance that is positively correlated with financial performance is margin value.…”

“…Therefore, ar-rahnu must give a competitive margin value. According to Nik Azman et al (2018), Agrobank ar-rahnu currently offers the highest margin value (80%), followed by both Pos Malaysia and Muassasah Gadaian Islam Terengganu at 75 per cent each. This indicates that, the higher the margin value given to customers, the better financial performance of arrahnu.…”

“…As the latter compete for customers, there are always differences in margin values between arrahnu outlets. Agrobank ar-rahnu outlets are currently offering the highest margin value, which is equivalent to 80% of the marhun value (Azman et al, 2018). Pos Malaysia Berhad and Muassasah Gadaian Islam Terengganu are next, both at 75% of the marhun value.…”

“…So did (Suhana et al, 2016;Hisham et al, 2013;Mohammed et al, 2005;. Moreover, Nik Azman et al (2018) believed the lower safekeeping fees and the difficulty of obtaining loan from other sources made ar-rahnu popular. Thus, this study hypothesise that safekeeping fee is significantly correlated with arrahnu's financial performance.…”