Examining the Legality of Rahn Contracts in Malaysian Islamic Financial Institutions

This study aims to investigate the legality of rahn contracts in Malaysian Islamic Financial Institutions. Specifically, it attempts to examine how rahn is used in these institutions as well as the Shariah issues related to it so as to ascertain the extent to which it has achieved the objectives for which it was legislated by the Shariah. To achieve these objectives, inductive method is used to gather information on rahn both from classical and modern books of Islamic Jurisprudence. Qualitative approach with interview as the instrument of data collection was also adopted to elicit data from the following Malaysian Islamic Financial Institutions: Bank Rajhi, Maybank, Bank Muamalat and Bank Islam. This research concludes that the rahn used in these Islamic financial institutions has achieved the objectives for which it was legislated. It is also used through several combinations of contracts such as wadiah yad dhamanah (savings with a protection guarantee), ujrah (fee), qard hasan (loan) among others. However, some transactions in which the rahn appears need to be reviewed, and amended to comply with the provisions of Islamic Shariah.