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REZKINOMIK | A Quick Glance - Gold, Ar-Rahnu Islamic Pawnshop, Digital Currency Electronic Payment, HalalKoin and the Future Islamic Economy

Gold, Ar-Rahnu Islamic Pawnshop and Digital Currency Electronic Payment

Today, most gold businesses and trading models in Malaysia revolve around investments where buying gold is just an activities to be stored and sold when the price of gold rises, or to be leased to a pawnshop when the buyer needs cash immediately. 

Thus we can see an encouraging increase for the Islamic pawn trading sector or called Ar-Rahnu which was first introduced its operation in Malaysia in 1992 which mostly only accepts mortgages in the form of gold. 

According to the report, it is estimated that in 2019, the gold trading industry in Malaysia will continue to grow with transactions estimated to be worth RM15.8 billion. This is compared to RM12.4 billion in 2016 and RM10.7 billion in 2017. According to the Malaysian Gold Sellers Association (FGJAM) as well, it expects the value of this precious metal trade to continue to increase to RM25.6 billion in 2021.
(Source: https://www.bharian.com.my/bisnes/korporat/2019/07/585379/industri-dagangan-emas-malaysia-terus-kukuh)

For countries such as the USA, Europe, Russia, China, Turkey and others, gold reserves are an indication of the value of national wealth, yet the currency underlying economic activity is not clearly linked to the value of gold.

Now the world's use of gold has grown, not only used to indicate the wealth of an individual or a country, as well as jewellery and luxury goods and cosmetics, but has now been used as a chip material in computers, mobile phones, gadgets, nuclear industry, satellites and GPS.

Ar-Rahnu vs. e-Yuan, China's Digital Currency Electronic Payment

Digital technology has changed the view of many to demand change to the world economic system centered on capitalism. The echoes of the voices are also now louder and more convincing. This confidence also stems from the efforts of China which since 2017 began to accelerate the process of creating a ‘China Digital Currencies e -Yuan’.

In the year 2021, e-Yuan has been launched in the form of a ‘trial’ in the scale of consumption in several areas of China and it is not impossible that it will be a new landmark for a new financial system for the whole world.

Although there are several Digital Payments, Mobile Wallet and Cryptocurrencies products that have been created and used before, e-Yuan who was founded by Yuan Pay Group in collaboration with the Chinese Central Bank, which uses the 'Digital Currency Electronic Payment' (DCEP) system, first in the world of its kind. 

What is clear, majority of Ar-Rahnu’s products are gold related. Although gold has a long history as a currency in Islam, but its use as a commodity is now less convincing. Malaysia once organized a proposal for the use of the gold dinar which was initiated by Tun Dr. Mahathir in 2002, but it was not well received by the majority of member countries of ‘The Organization of Islamic Cooperation’ (OIC) at that time. At that time there was no references of technology to change the world financial system and pressure on the parties to organize a different form of currency from what has been practiced.

Therefore, the idea of HalalKoin which was inspired by Rezkinomik Center PLT, a research group established by the Selangor Halal Economic Cooperative Berhad (Koperasi Majlis Ekonomi Halal Selangor Berhad or KOPMEH) was created to initiate  the research and studies to make Ar-Rahnu trade activities as platform base for the use of gold -backed digital currency. It will also make a new landmark for Islamic Fintech if all efforts can be mobilized towards creating it. 

Why Ar-Rahnu?

Malaysia pioneered Ar-Rahnu, and awaiting for what next? 

  • The initiative to establish an Islamic pawnshop was discussed at a meeting of the National Council of the Malaysian Islamic Affairs Division in April 1983. The meeting proposed that the State Islamic Religious Council or Bank Islam Berhad implement Islamic pawning. But just after 9 years before the Majlis Agama Islam and Adat Melayu Terengganu (MAIDAM) has taken proactive steps to establish Islamic Mortgage Muassasah Terengganu (MGIT) on January 23, 1992, which established the first Islamic pawnshop in Malaysia.
  • Ar-Rahnu as practiced by Islamic financial institutions in Malaysia is a hybrid product of Islamic Muamalah (a combination of several contract mechanisms) involving several Islamic contract mechanisms namely Al-qard Al-hasan (interest-free loan), Al-rahnu (collateral), Al -wadiah (savings) and Al-ujrah (savings wages).
  • Ar-Rahnu was introduced to protect the community, especially the Muslim community, from usurious transactions. Before the existence of Ar-Rahnu indestructible, the community had to rely on pawn shops as an institution that can help when they need money. Mortgages are very significant to the low -income group and those with low and middle education. Therefore, it is the responsibility of the Muslim community to explore this field of study to find a solution by referring to the source of revelation in addition to other Islamic sources and methods.
  • Ar-Rahnu is also a better alternative to Islamic Micro financing. It has been proven Ar-Rahnu has helped many micro entrepreneurs to diversify and improve their business. For documentation purposes, Ar-Rahnu appears to be dominated by non-banking Islamic financial institutions (NBFIs) such as YaPEIM and Islamic micro-finance on the other hand, almost dominated by Islamic commercial banking institutions in Malaysia.
  • Currently, there are many Ar -Rahnu schemes operating in Malaysia which are either owned by State Government Subsidiaries, Cooperatives, Banks and the private sector, among them are: -
    1. Ar-Rahnu MAIDAM
    2. Ar-Rahnu Bank Rakyat
    3. Ar-Rahnu X'Change
    4. Ar-Rahnu YaPEIM
    5. Ar-Rahnu AgroBank
    6. Ar-Rahnu Bank Islam
    7. ArRahnu Bank Muamalat
    8. Ar-Rahnu Express
    9. Ar-Rahnu KT Koperasi Tentera
    10. Ar-Rahnu KPF
    11. Ar-Rahnu POS
    12. Ar-Rahnu Bangi KOOP Sahabat
    13. Ar-Rahnu Cahaya ( Ampang)
    14. Ar-Rahnu Tekun
    15. Ar-Rahnu Coopbank
Ar-Rahnu has grown in the Malaysian market for nearly 30 years, with tremendous growths!

Can Malaysia be the Global Hub of Ar-Rahnu Digital Currency?

Malaysia is the dominant national context in most of the studies and implementations of the Ar-Rahnu Islamic pawn shop. Ar-Rahnu conducted in Malaysia is the first pawn system in the world and until now there is no such system in the world.

But now, Ar-Rahnu is seen as static and un-evolved. Moreover, when the age of digital and satellite technology began to become a necessity for life, Ar-Rahnu did not seem to be able to keep pace with technology.

Therefore, it is proposed that all Ar-Rahnu service centres make HalalKoin-Ar-Rahnu e-wallet as a uniform system to speed up the digitalization process of Ar-Rahnu business along with making HalalKoin as a shortcut to build the use of digital currency and electronic payment system, not only in Malaysia, even globally.

This proposal will be refined by making a more detailed study and research not only from a shariah-compliant point of view, but also using blockchain technology and Artificial Intelligence system for contracts and transaction verification in Ar-Rahnu. Aspects from the consumer point of view and Ar-Rahnu’s business prospects should also be the basis for this subsequent digitization.

Ar-Rahnu Worldwide Potential 

In Indonesia, Perum Pegadaian introduced Ar-Rahnu Islamic pawning scheme in 1999 and sent its staff to Malaysia to find out about the Ar-Rahnu scheme in Malaysia.

In Brunei, the Ar-Rahnu scheme was introduced by Bank Islam Brunei Berhad (BIBD) in 1996 with the aim of helping the community to receive financial assistance more quickly and Shariah-compliant.

Meanwhile in Thailand, Koperasi Simpanan Islam Pattani Limited which was formed in 1987 has implemented Shariah-compliant financial principles. The warm response of the community there indicates that the financing scheme (Ar-Rahnu) has been welcomed by the locals.

This is the basis of potential expansion to HalalKoin -Ar-Rahnu Wallet if introduced in countries with large demand for gold such as in Arab countries, India, Pakistan as well as China, Japan and Europe and the USA.

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How might we digitize Ar-Rahnu business transactions and subsequently turn it into a gold backup trading platform using digital currency electronic payment?

What is HalalKoin?

HalalKoin is a project study to DIGITALIZING AR -RAHNU SERVICES. HalalKoin intends to innovate on the Ar-Rahnu trade to make the investment and purchase of gold and its pawning easier for gold owners and can be used for daily use and for other purposes, among the microfinance sectors.

HalalKoin is a brand that was triggered in Rezkinomik's research centre to explore the idea of ​​the creating the new Islamic Economy concept base on halal industries which will be branded as REZKINOMIK. HalalKoin is the main component for REZKINOMIK!

This proposal will also be the basis for creating a digital currency electronic payment (e-wallet) based on the gold commodity that can be used to buy and sell anything, whether buying daily necessities at grocery stores, supermarkets either online or offline for consumers, or accepting payments for entrepreneurs and sellers, both at home and abroad.

To be specific, the idea is to transform and re-defined the Ar-Rahnu current business model from a conventional Islamic Pawnshop to a digital currency electronic payment or e-wallet. It's a one-stop AR-RAHNU MANAGEMENT SOLUTIONS platform that will help Ar-Rahnu customers in this modern technology world. It also will change the Islamic financing products for the future.

Whether to buy daily necessities at the groceries stores and supermarkets, to buy properties, cars, school fees, or purchase or sell anything, HalalKoin is a new re-set digital currency that will change how we use the gold investment to shape the ummah lifestyles.

Why Gold?

According to World Gold Council, the gold market is larger and more liquid than major Islamic asset classes whereas: -
  • Gold has a market capitalization of $7 trillion, 24 times larger than the outstanding volume of Sukuk;
  • The average daily turnover on the London OTC market is $240 billion, making it more liquid than both the German and UK sovereign bond markets;
  • New gold products have improved investor access to gold, boosting the size and liquidity of the global gold market.
(Source: World Gold Council/IFSB 2018)

Problem Statements

Although Ar-Rahnu is the right choice to be the policy of HalalKoin, several challenges and problems have been identified as obstacles in the process of digitizing and creating the Ar-Rahnu e-wallet system of HalalKoin. Among the challenges and problems are: -

  • During the 29 years (1992-2021) Ar-Rahnu flourished in Malaysia, various coordination efforts through guideline mechanisms were implemented by various Ar-Rahnu regulatory agencies in Malaysia. However, such efforts did not achieve the goal of standardizing governance and regulation of Ar-Rahnu due to the absence of referenced legal documents for all Ar-Rahnu industries. Although it seems that several legal mechanisms are being proposed to the government through the Ministry of Finance, Cooperatives Commission and the Ministry of Housing and Local Government, industry players, customers and academia are not yet clear whether it is in the form of acts, guidelines, amendments to the existing Act 81 or related to Akta Perihal Dagangan 1972, or even the enactment of an act specific only to Ar-Rahnu;
  • The lack of standardization of Ar-Rahnu's governance makes it difficult for Ar-Rahnu to grow into a sophisticated and viable financial platform and provide convenience to customers. Clearly, each Ar-Rahnu’s policy varies, according to the Service Provider including the varying value of gold as a result of promotions and promises, what documents are required, how much loan is given, how long the loan period is, storage fee costs (or loan charges ) is indeed different between each Ar-Rahnu;
  • When there are various forms of reference documents and the Ar-Rahnu regulatory body, the rights and guarantees of the parties involved in a contract give the impact of uncertainty to all parties to get justice in the contract.
  • These aspects above are the key to Ar-Rahnu's readiness towards the digitization process and further towards the preparation to use MelakaKoin as a digital currency or ‘Digital Currency Electronic Payment’ (DCEP);
  • The desire of the government and the Ministry of Finance through Bank Negara Malaysia which seems to drive Ar-Rahnu in the mold of a commercial Bank that is likely to eventually be dominated by the conventional banking system such as adopting the rules of governance, habits and attitudes of conventional banks that will surely make it difficult for customers of Ar-Rahnu in the future. A notable example is where a banking Institution owning Ar-Rahnu premises continues to deny customers rights by labeling smears in CCRIS records for each sheet of lease letter received. Next the customer is denied the right to get optimal financing (either Maximum Financing or Profit Rate) because the Banking Institution ‘assumes’ that those who often lease in Ar-Rahnu are ‘Zero Financial Value’ despite the fact that they own Gold assets. This is like a penalty on how often the customer deals with Ar-Rahnu;
  • Since its introduction, Ar-Rahnu has only offered gold pawn products and has not been able to develop some commercial-shaped forms of marhun such as debt notes, sukuk and shares. Prospects for receiving these marhun include land grants, houses, inventory deposit receipts, blue chip shares, intellectual property, gold investment receipts in banks and sales invoices to government bodies and government link-companies (GLCs);
  • Published empirical research on trends or developments in Ar-Rahnu (ARR) research is very limited. The lack of such studies limits our understanding of the current situation, problems, and future directions of ARR;
  • Competition among conventional and ‘ah long’ pawnshops that take margin value and give higher loan value. The recent program to legalize unlicensed lenders or ‘ah long’ is an indication of the increasingly fierce competition challenges;
  • The challenge of the ‘typical mindset’ to provide education to a society that still considers these mortgage institutions espicially Ar-Rahnu is only needed by the poor and the needy or desperate;
  • The challenge is also pressing on the literacy needs of consumers to online, digital, eWallet financial transactions, although the pandemic due to Covid19 hastened this process, but the skills are still at a basic level. This low level of literacy not only happens to consumers or citizens, but is also detected to government officials and staff;
  • Capital constraints can affect lending operations to mortgagors. This includes high overhead costs being a major challenge to Ar-Rahnu service providers when compared to operating in conventional pawnshops which are mostly opened in private shops and only involve family members as staff. Significant costs for the management of Ar-Rahnu include the cost of shariah consultants, takaful insurance and others, which are not charged to conventional pawnshops;
  • Delays in implementing technological requirements (digital transformation) to safeguard valuable mortgaged items as well as improve management efficiency in the transaction record system as well as speed in settling transactions;
  • Many are still not very clear about the shariah compliance law of buying and selling gold as well as online pawning and handing over in the buyer's/investor's account.

What Should we do? 

We, as believers has to do something to revamp the system of economy to be aligned with Al Quran and Al Hadith. This effort can't be done by only talks, meetingor hoping that someone will do the move. It should be our own desire and passion!

There is limited of published empirical research on trend or development in Ar-Rahnu Research (ARR). The lack of such study limits our understanding of the current state, issues, and future direction of ARR. 

Further research and study will conclude what will HALALKOIN can enhance from gold collateral (Rahn) for transactions and uses of gold covered by the Syariah, with another concept of instruments including but not limited to: -
  • gold as capital (Salam)
  • gold leasing (Ijarah),
  • gold security deposits (Hamish Jiddiyyah),
  • gold unilateral promises (Wa’d)
There are also possibilities to use SUKUK, WAQF, ZAKAT, INFAQ, and SADAQAH as the modules to transact including various untouched market drives such as HIWALAH, WAKALAH, etc. 


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