Contract of Ar-Rahn – Definition and Conditions

Ar-Rahn, or mortgage or collateral, is defined in the Islamic jurisprudence as “possessions offered as security for a debt so that the debt will be taken from it in case the debtor failed to pay back the due money.”

Ar-Rahn is a permissible contract in Shari’ah. It is known from the Sunnah that when the Prophet of Allah, Muhammad (SAW), passed away, his shield was with a Jewish man in Medina as a collateral.

The conditions of Ar-Rahn

  1. The indebted party cannot be coerced into putting up a collateral;
  2. An orphan’s property cannot be put up as a collateral by the trustee, unless under exceptional circumstances;
  3. The property held as collateral must be liquid;
  4. The property held as collateral must be distinct from other properties;
  5. The ownership does not change, therefore the owner is responsible for the cost of upkeeping the property even when it is pledged as a collateral. Likewise, the owner continues to enjoy any secondary benefits to the property;
  6. There is disagreement among the scholars on whether the property pledged as a collateral can be used. Many of the scholars say that the property cannot be used by either the debtor or the borrower, while many argue that the owner (the borrower in this case) can continue to use the property;
  7. If the property held as collateral is lost or damaged while in possession of the trustee, without any negligence on his part, there is no guarantee by the trustee;
  8. The ownership of the property cannot be transferred until the debt is settled or the debtor allows for such a transaction;
  9. If the borrower cannot pay back at the expiry of the term, the judge will order the property pledged as collateral to be sold in the open market, even if it is the residence of the borrower.

Sources: Abdelhaleem, 14-15 and Kharofa, 154-161.

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28 Comments

Filed under Contracts and Transactions

28 responses to “Contract of Ar-Rahn – Definition and Conditions

  1. talmizie

    good everning.
    i’m want to know where (web site) to know more about ar-rahn.

    tq

  2. Fatima Az-Zahra

    I am doing some research regarding ar-rahn in my country. Can you suggest me any website regarding this topic?

  3. muhamad Khairil

    i am doing research on CONCEPT OF AR RAHN IN SHARIAH FRAMEWORK AND ITS APPLICATION IN ISLAMIC FINANCE . could you please guide me on this by giving following infomation :

    1. Application of ar rahnu in islamic finance

  4. muhamad Khairil

    Please give me some infomation pertaining CONCEPT OF AR RAHN IN SHARIAH FRAMEWORK AND ITS APPLICATION IN ISLAMIC FINANCE

    Thank u

  5. zubaidah

    assalamualaikum
    pls give me more information about the application ar rahnu in islamic finance.

  6. erry

    want to know the website that contain ar rahnu.

  7. nurul ain

    I WANT TO KNOW MORE ABOUT AR RAHN..
    COULD YOU PLZ GIVE ME THE WEBSITE..
    TQ

  8. ng hing liung

    i want to know what is the diferrent about al- rahnu and pawn conventional banking.what is benefit to use al rahnu

  9. So far I am very curious to get more info on Money, Banking and Financial system…
    I’m looking for all of its….

  10. nurul nadia

    I would like to know more specific about al-rahn:theory and practise to my assignment…

  11. Assalamu alaikum

    There have been some questions asked in the comments where people can gain further knowledge on financial issues.

    try visiting al-Qalam’s website, a independent board of scholars specialising in shariah-financial issues. alqalam.org.uk

  12. This article is really helpful for getting a general knowledge about Islamic Economics. However, you can read this one for more information about;

    http://islam-economy.org/islamic-economics/foundations/

  13. yaseer Ahmad

    i thanks u 4ur given ur effort in the spreading of islam especially interms of mu’amalat may god bless u

  14. nur

    Assalamualaikum.
    Is ar rahnu effect towards gold price?

  15. Abdullahi shehu majen-wayya katsina

    Thank u 4 ur work

  16. Pingback: Do Pledges in Saudi Arabia Create Lien Rights?

  17. amir

    salam ,,,,
    i need more information about ar rahnu …please

  18. lateef

    Very good post

  19. Abdi

    for those looking for research papers this is the best i’ve found

  20. Abdi

    r those looking for research papers this is the best i’ve found
    http://www.aensiweb.com/anas/2013/221-231.pdf

  21. Here’s a link for anyone looking for more information regarding Rahn http://www.slideshare.net/emkay84/isb540-rahn

  22. Pingback: Applying Shari’ah Principles – ISLAMIC BANKING AND FINANCE

  23. You are my inhalation, I have few web logs and rarely run out from post dkagecgecdegback

  24. Ilmie

    Assalamualaikum, can you explain more about the application of Ar-Rahn based on the calculation of each bank that provide the concept of Ar-Rahn , please. Thanks you.

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