FIQH MUAMALAT 

📖 Chapter ▼
Chapter 5: Concept Of Contract Chapter 6: Sale-Based Transactions 1 Chapter 7: Sale-based Transactions 2 Chapter 8: Mudarabah Chapter 9: Musharakah Chapter 10a: Ijarah Chapter 10b: Rhan Contract Chapter 11a: Kafalah Chapter 11b: Wakalah Chapter 12: Bay al-Dayn Chapter 13a: Wadi'ah Contract Chapter 13b: Contract of Sarf

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Definition of Rahn



Literal Definition
  • Rahn comes from the Arabic root word Rahana.
  • It literally means Continuity or Holding and Binding.

Technical Definition
  • It refers to taking a property as Security against a Debt.
  • The Secured Property is held so it can be Utilized to repay the debt in the event of Non-payment.

Nature of the Contract
  • Rahn is classified as a Charitable Contract.

It involves two key parties:
  • Murtahin (the Creditor).
  • Rahin (the Debtor).

There is no financial obligation on the Murtahin (creditor) when the Rahin (debtor) hands over the Pawned Object.

Authority of Rahn



Quranic Evidence
  • Allah (SWT) commands that if you are on a Journey and cannot find a Scribe (to write the debt), then you should use the Receipt of Pawn Objects.

Sunnah Evidence
  • Example of the Prophet: The Prophet (SAW) bought food on Credit from a Jew and Pawned his Iron Shield to him as security.

Rules on Usage:
  • Pawned Riding Animals may be mounted in exchange for covering their Expenses.
  • The Milk of Pawned Dairy Animals may be consumed in exchange for covering their Expenses.
  • The person who Rides or Drinks is held Responsible for the animal's Expenses.

Conditions of Rahn



1. The Contracting Parties

  • Both parties must satisfy the Qualifications of Sale Contracts.
  • Hanafi and Maliki Schools: Anyone who is permitted to Sell is permitted to Pawn.
  • Shafi and Hanbali Schools: Parties must satisfy the Qualifications of both Sale and Charitable Contracts.

2. The Pawned Object
  • The object must fulfil the Conditions of a Sale Object so that it can be Sold to repay the debt.
  • Legal Maxim: "Properties Ineligible for Sale are Ineligible for Pawning".

3. The Underlying Debt
  • The debt must be Established, Binding, and Enforceable (arising from a Loan or Sale).
  • The debt must be Known and Defined to both contracting parties.
  • The debt must be Matured (due) or about to be Matured.
  • The debt must be liable to be Paid Off
  • Hanafi and Maliki Rule: Rahn is Invalid if the Liability is based on Usufruct.

4. Possession
  • The Pawned Object must be in the Receipt or Possession of the Creditor.


Application of Rahn in Islamic Finance (IF)



1. Contemporary Forms of Rahn

In modern application, Rahn often takes the form of valuable papers rather than physical objects.

Examples include:
  • Property Documents 
  • Vehicle Papers 
  • Sukuk 
  • Shares 

The relationship is typically between a Bank (as the Creditor) and a Customer (as the Debtor).

2. Procedure in Event of Default
  • If Default occurs, the asset can be Liquidated to settle the debt.
  • Crucial Rule: The Creditor cannot Sell Off the asset without the Consent of the Debtor.
  • Steps to enforce payment:
    • The Creditor sues the Debtor for the Outstanding Amount.
    • If the debt is still not settled, the Court orders the Pawned Property to be sold at the Best Market Price.

3. Settlement of Proceeds
  • Scenario A (Surplus): If the Proceeds from the sale exceed the debt, the Balance must be Returned to the Debtor.
  • Scenario B (Deficit): If the Proceeds are less than the Outstanding Amount, the remaining amount remains a Debt owed to the Creditor.
  • The Court will decide the final Mode of Settling any remaining debt.