The banking institutions play an important role in ensuring efficient financial system and thus contribute to economic stability. The households, firms and governments are reliant on banking institutions to obtain financial resources to meet the capital requirements and necessities fulfilment. As a result, there is variety of contracts especially a debt-based has been introduced. There are many products that are introduced into the needs of the unit shortfall in the financial system, whether in the form of loan or financial short or long term. There are also many financial institutions exist on this highly demand.
Islamic banks are relatively new to compared to conventional commercial banks. The…show more content… Therefore, the introduction of Ar-Rahnu as micro credit instrument is the most appropriate mechanism to meet the demands of lower and middle income group to meet their urgent need and daily needs. In additional, it also provides capital to small and medium businesses to finance their rolling capital. Abd. Ghafar and Nur Azura (2005) stated that the importance of pawnshop as a credit resource in Malaysia financial market is difficult to estimate because Bank Negara Malaysia does not take into consideration the credit given by the pawnshop in the domestic statistic on the…show more content… The Islamic pawn broking (Ar-Rahnu) schemes is one of the Islamic financial instruments which are good alternative to obtaining financing especially for the low-income and middle-income when they were in urgent in need of quick capital businesses and daily used. It provides for transparency, privacy and security. Many financial institutions such as Bank Islam Malaysia (BIMB), Agro Bank, Bank Kerjasama Rakyat Malaysia Berhad, Bank Muamalat Malaysia Berhad Malaysia Berhad and Affin Islamic Bank offer this scheme to customers. Other than these institutions, the other that offer the Ar-Rahnu scheme are Malaysia Islamic Economic Development Foundation (YPEIM), Ar-Rahnu Express, Perkasa Ar-Rahnu, Koperasi Permodalan Melayu Johor, MAIDAM, KOKITAB, Koperasi Dagang Emas, Ar-Rahnu PKB – permodalan Kelantan, Ar-Rahnu @ Pos Malaysia and Koperasi Angkatan Tentera. All of these institutions are offering different margin loan, a minimum safekeeping fee, high mortgages value and flexible duration of pawn financing.
In this research, the researcher would like to evaluate the efficiency of Ar-Rahnu as a new micro credit instrument that can contribute benefit to the society to upgrade the social economic status and potential for micro-enterprises development. This is due to important role played by Ar-Rahnu scheme as one of the financing