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The form of Pawn Broking in Secured Money Lending

Pawn broking is a form of secured money lending by pawnshops in the conventional pawn broking system. It has been a fast source for short-term cash borrowing. In the past generally Muslims all over the world and specifically in Malaysia did not have an alternative to access an interest-free and low cost short-term advance. This situation has improved after the introduction of the shariah based Islamic pawn broking system called Ar-Rahnu which is an interest free source of micro credit. The existence of conventional and Islamic pawn broking service has given clients the choice to choose the best services provider in order to get fast and easy access to cash compared to getting loans from commercial banks or finance companies.

Pawn broking is a means where the lower income group and small scale traders could seek short-term financing to manage their cash flow problems. The word Ar-Rahnu means a pledge or security for a loan. The Holy Quran refers to the idea of a mortgage, as a pledge with possession. Under the Ar-Rahnu concept the borrower (Ar-Rahin) is required to pledge or produce redeemable collateral (Ar-Rahnu) in the form of gold or silver to ensure repayment of the loan. This collateral acts as an instrument of guarantee that the loan will be repaid at the maturity of agreement. If the borrowed sum is not repaid at maturity then the lender (Al-Murtahin) has the right to sell the collateral to recover the loan. Collateral is an important instrument for the security of loan by providing a guarantee to the financial institution as it reduces the lenders risk and increases the borrowers cost of default.

Background of Study

The aim of this study is to know the challenges in the implementation of Islamic pawn broking (Ar-Rahnu). As for this study, the research will focus on the Ar-Rahnu scheme that being used by Bank Rakyat Malaysia.

Pawn broking carries on a tradition with rich history. Pawn broking can be traced back to at least 3,000 years in ancient China. It also has been found in the earliest written histories of Greek and Roman civilizations. In Malaysia, pawn broking was introduced in the 15th century through the diplomatic relationship between the government of China and Malacca. To date, the conventional pawn broking business still controlled by the Hakka clan people of Chinese descent (Shanmugam B, 1991). The conventional pawn broking business is governed by the Pawnbrokers Act 1972 in Malaysia. This Act outlines all the necessary guidelines and principles that have to be adhered by both pawners and pawnbrokers. Briefly, the number of conventional pawn broking licences approved between 1985 and 2006 had increased by 21 percent. In 1985, the number of conventional pawn broking license was 194, while in 2006 the figure has increased to 234.

1.1.1 Concept of Ar-Rahnu

Islamic pawn broking is based on a combination of four concepts.

Qardhul Hasan (Benevolent loan)

A financial institution will grant a benevolent loan (interest-free) to the applicant who wishes to pawn his valuable item. The loan issued under the concept of Qardhul Hasan requires the borrower to pay the same amount borrowed to redeem the valuable item at the maturity of the agreed period.

Wadiah Yad-Amanah (Trustworthiness)

The borrower is required to produce returnable collateral to ensure repayment of the loan. The borrower entrusted the lender to look after the belongings during the loan period. If an unthinkable event happens to the collateral item not due to the lender’s negligence, the lender is not required to replace the item.

Al-Ujrah (Safe Keeping)

Al-Ujrah concept states that the lender is allowed to charge a reasonable fee for the services rendered in keeping the pawned items safe and in good condition. The financial institution accepts custody of the valuable assets on a wadiah concept whereby the bank promises to keep the valuable asset in a safe place and return when the time comes. The lending institution takes the precautionary measure such as providing security and insurance to ensure its safe returns once the customer pays his debt. Under the Wadiah concept, the bank will charge the customer for the services rendered in keeping the valuable asset.

Wadiah Yadhomanah (Safekeeping with guarantee)

The lender will be responsible to replace the missing or stolen items to the owner if the lender fails to keep the agreement due to own negligence.

1.1.2 Modus Operandi of Conventional Pawnshop

The Lending Process

The loan process of pawn broking transaction can be described according to this chronology. First of all, the customer must be 18 years of age and can show a valid identification card. Not like the banking system, the pawnbroker will not make any credit scoring and will not ask the purpose of the loan.

Secondly, when a customer walks in pawnshop with their pawned item, they will be entertained by a clerk or an officer that is expert as a valuer. The task of the valuer is to access the value of the pawn (used as collateral) to make loan.

Detailded account of the pledge assets, the ratio of borrowed amount and maturity are provided in Table 1.

Table 1: Types of pledge assets, amount and maturity in pawnshop

Types of pawnshop

Pledge Assets

Maximum borrowed amount (RM)

Maturity (Months)

Conventional

Jewelry, watch, hand phone and electronic instruments

50% of the value of pledge assets/negotiation

6

Thirdly, the customer will receive the loan immediately in cash. The pawn broker will give a receipt to the person as a proof of transaction in the pawn broker’s book. The receipt states the customer’s name and address, a description of the collateral, amount lent, maturity date and the amount that must repay the loan with interest, usually 2-2.5 percent of the loan per month. The entire transaction seldom takes more than a couple of minutes.

The Redeeming Process

In most transaction, pawn brokers make loans with maturities up to six months. Every pawnbroker within this period from the pawning transaction date must deliver up the pledge to any person who present the pawn-ticket issued by him.

However, if a customer is not able to repay the loan with interest within a predetermined of period, the loan can be extended within which the pledge maybe redeemed for a further period of not less than three months by paying the interest that have built up over time. A note of every such extension shall be made in the pawn broker’s book and an endorsement made on the pawn-ticket.

If the pledge shall not be redeemed within the six months period or the extension period agreed by both parties, there will be two possible outcomes:

If pawn for a sum nor exceeding two hundred ringgit, the pawn item shall become the property of pawn broker, and

If pawned for a sum exceeding two hundred ringgit, the pawn broker can dispose the pledge by auction.

The Auctioning Process

The auction of the unredeemed pledge must be conducted by a licensed auctioneer. The pawn broker can bid for and purchase at a sale by auction and they shall be deemed the absolute owner of th pledge purchased. If the pawned item is sold with surplus in the auction, the customer is entitled to that surplus within the period of four months. O the other hand, if no claim for the surplus is made, the pawn broker shall pay the surplus to the Account General within fourteen days after expiration of the period of four months. The Account General shall pay the amount paid to the Consolidated Trust Account.

1.1.3 Modus Operandi of Islamic Pawnshop

Generally, the modus operandi for conventional and Islamic pawnshop transaction is quite similar. Despite the similarities, the contract (aqad) in the Islamic pawnshop is different from the conventional pawnshop. The loan granted is based on four principles, i.e. al-qardhul Hassan (loan without interest), al-wadiah yad dhamanah (keeping valuable goods by guarantee), al-ujrah (storage fees) and ar-rahn (collateral). The storage fee is based on the value of gold and not on the amount of loan, as shown in the Table 2. Thus fee is charged differently by each Islamic pawn broker.

In the Islamic-based pawnshop, gold is the only permitted item. Gold have several advantages as collateral over other items. Firstly, gold is easily resold and so there is potentially auctioning the collateral should be borrower not redeem the pledge. Secondly, gold’s purity can be easily determined and so the risk of mispricing the collateral can be minimized. Thirdly, gold chains and rings typically require only a small flat envelop for storage and so can be kept securely in the bank safe a little, if any, additional cost.

Table 2: The Safekeeping Fees Charge in Islamic Pawnshops

Value of pledged asset

Bank Kerjasama Rakyat Malaysia Berhad

(RM per month)

Permodalan Kelantan Berhad

(RM per month)

MGIT

(RM per month)

RM1-RM400

RM1-RM1,000

RM401-RM2,000

RM1,001-RM5,000

RM5,001-RM50,000

0.65

0.75

0.75

0.60

-

0.85

0.95*

-

No charge

No charge

No charge

No charge**

-

*Range of financing is from RM2,001 to RM5,000.

**Maximum financing is RM1,500.

The valuation is based also on the purity of the gold item. For example 85 carat gold carries a value of RM25 to RM26 per gram. The gold will be valued at the prevailing market price. The best method of assessing gold jewelry in Islamic pawnshop is by using acid test. The method is such as the piece of jewelry will be rubbed on a black stone. The quality of gold will depend on the friction; the rougher the feel of the gold, the better the quality. The action of rubbing will be done at corners of the jewelry as these parts are the easiest to determine if the gold is fake. In addition, a special density meter is used to value the gold. In order to make the valuation free from mispricing, the staff in Islamic pawnshop will be sent to YPEIM institution for courses that relate to get training in such matters.

As a whole, the mechanism of Islamic pawn broking can be illustrated as below.

Qardhul Hassan

Borrower (Rahin)

Wadiah Yad Dhamanah

Rahnu

Islamic Pawnbroking (Murtahin)

Figure 1: Ar-Rahnu Pawn Broking Business

Problem Statement

The establishment of Islamic pawnshop had been introduced by Terengganu State Government, known as Muassasah scheme in 1994 and its objective was to help poor people to get short term fund by pawning gold as collateral. Then it followed by Kelantan. Only one Muassasah scheme is practiced in Terengganu and its disbursement in year 2000 was RM28 million.

Bank Rakyat with the cooperation of YPEIM then introduced the scheme in 1995 and followed by Bank Islam also with the cooperation of YPEIM in 1999. The recent news by Bernama November 14, Bank Rakyat will open another two or three Ar-Rahnu outlets nest year. Its chairman Tan Sri Syed Jalaludin Syed Salim, said that Bank Rakyat would enhance its effort to promote its service in rural areas. In implementing e-commerce Bank Rakyat has its own web for the product but it is not interactive until April 2001, the accumulated disbursements in Bank Rakyat were RM577 million and the NPL rate for the scheme is very low. Basicaly the profit margin of the scheme is as shown as below:

Gross profit Ar-Rahnu 10.5 15 43%

Cost Operation 2.5 3.5 40%

Net Profit 8.0 11.5 43%

This study is conducted to provide a conceptual understanding about the concept of Islamic pawn broking that had been widely used in our country. Thus it is also important to know the barrier or the conflict that been faced by the Islamic pawn broking institutions.

Research Objectives

To identify the differences between the conventional pawn broking and Islamic pawn broking system.

To study the level of knowledge and preferences of Islamic pawn broking system in Malaysia.

To determine the challenges faced by Islamic pawn broking system.

Significance of the Study

This study conducted is to gain as much as knowledge and information as possible to understand how far that this Islamic pawn broking service had been acknowledged and being implement in our financial institution. This research is important to the researcher is important to the researcher, public citizens as well as to the banking industry.

It is important for the company in the Islamic banking industry and the whole banking industry to use the result of the research as a guideline and reference in order to cater the challenges that being faced by them in the way of developing the Ar-Rahnu system.

Hypothesis

Awareness

H0: The more recognition being done by the Islamic pawn shop will not make the customer aware of the Islamic pawn broking system.

H1: The more recognition being done by the Islamic pawn shop, will make the customer aware of the Islamic pawn broking system.

Knowledge

H0: The more knowledge about the Islamic pawn broking service by the customer will not make the recognition about this system.

H1: The more knowledge about the Islamic pawn broking service by the customer will make the recognition about this system.

Linking

H0: The more link of the Islamic pawn system by the customer, will not make the customer to deal with the system.

H1: The more link of the Islamic pawn system by the customer, will make the customer to deal with the system.

Preference

H0: The more Islamic pawn broking institution promote the service quality, value, performance and other features, will not make the customer preference over this instrument.

H1: The more Islamic pawn broking institution promote the service quality, value, performance and other features, will make the customer preference over this instrument.

Conventional/“Ah Long” Pawn Broking

H0: The more conventional or “Ah Long” pawn broking established will not affect the choice of customer in applying the Islamic pawn broking system.

H1: the more conventional or “Ah Long” pawn broking established will affect the choice of customer in applying the Islamic pawn broking system.

Limitation of the Study

Time constraint is the main factor or problem in doing the research. This is because the researcher needs to balance the time between the daily routine jobs as a practical student in the office Ministry of Finance Sabah.

In conducting the research, the data need to be collected from the financial institutions or other respondent person. However, there is a time when the meeting with several people becomes hard because of the time and situation factors.

There is lack of information in doing research as there are only several banks that provide their data because it is confidential and could not be exposed to the public.

Definition of Term

Ar-Rahnu

Ar-Rahnu, or mortgage or collateral, is definded 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”

Qardhul Hassan

Known as benevolent loan.

Wadiah Yad-Amanah

Trustworthiness between the lender and borrower.

Al-Ujrah

Safe keeping fee.

Wadiah Yadhomanah

Safe keeping with quarantee.

Conclusion

This study will seek the challenges faced by Islamic pawn broking institution. Thus, the research will find the suitable solution as a way to cater the problems.

CHAPTER 2

LITERATURE REVIEW

2.0 Introduction

Ar-Rahnu scheme fund is a short term fund that never involved usury element and it is allowed unless if there are illegal activities such as usury fraud and it is prohibited in Islam. Although Islam encourages businessmen to expand their capital through trade, it explicitly prohibits them from capital expansion through lending on interest. While the level of rate of interest charged is inconsequential. There is no opportunity cost of lending money in Islam. The lender is likely to be wealthy and the borrower poor, usury simply increases the gap between the have and have-nots (Fazli, 2010).

The important of helping the needy especially the poor has long been emphasized in much of Islamic faith. Therefore, lending to the needy should be the main focus in Islamic finance. Thus, in this context the Islamic pawnshop (Ar-Rahnu scheme) is the mist appropriate mechanism as it provides a financial product for the lower-income group and small business which usually have limited capital or have been excluded from the financial system (Azila, 2008).

Before the implementation of the Islamic pawnshop system in Malaysia, the conventional pawnshop had charged high interest rates on the loans given. The conventional pawnshop had charged high interest rates on the loans given. They were also more motivated on making profit from the needy individuals and this activity was only restricted by the laws in the Pawnbrokers Act 1972. The conventional pawnshops has indeed oppressed and put a burden on the lower-income group.

The purpose of the Pawnbrokers Act 1972 was to guarantee a healthy pawnshop industry, as well as safeguarding the interests of the consumers. But, it failed to control the problems of the oppression of the lower income group and the pawnbrokers’ malpractices.

Pawn broking is actually a form of secured money lending by pawnshops in the conventional pawn broking system. It has been a fast source for short-term cash borrowing. In the past generally Muslim all over the world and specifically in Malaysia did not have an alternative to access an interest-free and low cost short-term cash advance (Bhatt, 2008).

The situation has improved after the introduction of the shariah based Islamic pawn broking system (Ar-Rahnu) which is an interest free source of micro credit. The existence of the conventional and Islamic pawn broking services has given clients the choice to choose the best service provider in order to get fast and easy access to cash compared to getting loans from commercial banks or other finance company.

The limited numbers of literature available on Islamic pawn broking in Malaysia had shown a few studies which have researched on the existence and the operational system of the Ar-Rahnu concept. Previous studies have documented on the importance of pawn broking in our society (Sanusi and Johari, 2006; Mohammed et al., 2005; Lao, 2005; Ismail and Ahmad, 1997; Rugayah, 1986). The authors of these studies have explored the issue of shariah view in terms of the pricing system, assets pledged, customer service and the locality of Islamic pawn broking activity.

Ismail and Sanusi (2005) studied on the important of shariah rules in the implementation of Islamic pawn broking system. They argued that the Islamic principles such as wadiah, qardhul Hassan and ujra must be given a careful consideration in establishing Islamic pawn broking. According to Muhammed et al. (2005) argued that wadiah, qardhul hassan and ujra makes Ar-Rahnu clearly different from the conventional pawnshop. The element of riba and gharar are eliminated in Ar-Rahnu system.

Studies by (Mohammed et al., 2005; and Ismail and Ahmad, 1997) have examined the important of the pricing associated with the pawn broking transactions. Specifically, Mohammed et. al. (2005) documented that the service charge imposed by Ar-Rahnu is relatively cheaper than the conventional pawn broking system (imposed 2 percent). His would mean that the cost of borrowing cash in Islamic pawn broking system is lower than the conventional pawn broking. The evidence shown is consistent with evidences documented by Ismail and Ahmad (1997). On the basis of these findings, it is important to have Ar-Rahnu shop which offered competitive rate, to reflect the average pricing system in the market.

There are also studies on Islamic pawn broking system that have researched on the types of items accepted as a pledge (Sanusi and Johari, 2006; Mohammed et al., 2005 and Ismail and Ahmad, 1997). Sanusi and Johari (2006) claimed that the Islamic pawn broking system only accepts gold and jewelry made of gold. Compare to the conventional pawnshops accepts items beyond the gold jewelry that includes Rolex watches, diamond and other valuable electronic items. In Islamic banking institutions which offer Ar-Rahnu schemes as Bank Rakyat, customer can only use gold as a pawn item.

There is no evidence that these institutions have accepted any other valuable items as a pledge for short term loans. This finding is similar with the studies conducted by Mohammed et al., (2005) mentioned that pawned items including gold and platinum while Ismail and Ahmad (1997) mentioned that the normal pawned items include jewelry and electronic assets. According to Ismail and Ahmad (1997), the gold items maintain their value over a reasonable period of time and have high liquidity.

The study on Ar-Rahnu also had been done by Fazli et al., 2010. The studies had researched about the challenges being faced by Islamic pawn broking in Malaysia. The challenges are focus on the customers of Ar-Rahn pawn broking itself.

2.1 Awareness

Since most of customers are unaware of the object (Islamic pawnshop service) the communicator’s task is to build awareness, perhaps just name recognition. This can be accomplished with simply message repeating the name. Even then, building awareness take time.

2.2 Knowledge

The study had identify that the target customers are aware of certain product in AgroBank Malaysia such as deposits or loan but have no idea about the pawnshop service.

2.3 Linking

Based on the study, most of the respondents know the Islamic Pawnshop organize by other organization that had been recognized their feel about it whereby most of them are very shy to deal with service. Most of the respondents looked unfavorable of pawnshop service whereby it is much better for short term loan.

2.4 Preference

According to the study that being conducted by Fazli et. al., 2010 shown that the target market might like the services but has not preferred it to others. In this case, AgroBank Malaysia must try to build customer preference. They must be able to promote the services quality, value, performance and other features.

2.5 “Ah Long” Pawn Broking

Other challenge is shown in the literature review which is by the conventional pawn broking itself. According to Bhatt and Sinnakkannu, (2008) the “Ah Long” activity has become another challenge for Islamic pawn broking. The “Ah Long” activity is carrying out as an illegal (hidden economy) activity widely in Malaysia. This type of money lenders provide ready cash advance to small income individuals and also for small scale businessmen. They provide instant money lending service with very high interest (as high as 20 per cent month) and other unfair charges. Some borrowers with gold still prefer to borrow from illegal money lenders as the latter can provide higher margin to value of collateral and unlimited time to redeem.

CHAPTER 3

RESEARCH METHODOLOGY

3.0 Introduction

Research methodology is a basis guideline that guides the data collection and analysis phases of the research process. It is a framework or blueprint that specifies the details for conducting the research. This chapter will explain further about the data collection method, sampling techniques, variables and hypothesis.

3.1 Data Collection Method

To conduct this study, there are two types of data which consists of:-

3.1.1 Primary Data

Primary data is used to get all the information directly from the knowledgeable person in the specific area.

3.1.1.1 Questionnaire

The questionnaire will be distributed to the customer of Bank Rakyat. Part of the questionnaire asked about respondent demographic, services awareness, knowledge about the service, preferences towards the service, and their opinion about the conventional pawn broking system, their linking to the services. The questionnaire also provides list of challenges in the implementation of Islamic pawn broking in Malaysia.

3.1.1.2 Interview

The interview will be done to the staff of the company of Bank Rakyat Malaysia. This is to find on how many customer had already used this service. Information s useful to find answers what is the common problem and challenges that being faced by their company.

3.2 Variables

Variable can be defined as anything that can take on differing or verifying values. There are two types of variables in this study and known as independent variables and dependent variables.

3.2.1 Independent Variables

These are the variables that manipulated by researcher and whose effects are measured and compared. The independent variables involved in this study are the challenges in the implementation of Ar-Rahnu scheme.

3.2.1.1 The Awareness Component

The first independent variable are the awareness of the Islamic pawn broking system since that most customer are unaware of the object (Islamic pawnshop service) the study will follow the customer awareness about this Islamic product.

3.2.1.2 The Knowledge Component

The second independent variable will be the customers own knowledge about this services. It will help the study to find their level of knowledge on the product features itself.

3.2.1.3 The Linking Component

The third independent variable is the linking component. It will show how the customer feel about the Islamic pawn broking if be compared to the conventional pawn broking.

3.2.1.4 The Preference Component

Through the fourth independent variables, it will show the preferences that should be get by Bank Rakyat to be able to build customer preferences towards their services.

3.2.1.5 The “Ah Long” Pawn Broking Component

The last but not least is the comparison between “Ah Long” pawn broking and Islamic pawn broking. This will give the information about customer point of view on the transaction included in both systems.

3.2.2 Dependent Variable

Dependent variables are the variables that measure the effect of the independent variables on the test unit. The dependent variable for this study is the challenges or problems being faced by the Islamic pawn broking system (Ar-Rahnu).

DEPENDENT VARIABLE

INDEPENDENT VARIABLES

“Ah Long” Pawn Broking

Preference

Linking

Awareness

Knowledge

Challenges in Implementation of Ar-Rahnu

Figure 3.1: The Research Framework

3.3 The Sampling Design

The sampling involves the procedure that using the small number of items or parts of the whole population to make conclusions regarding the whole population.

3.3.1 Sample Population

Population refers to the entire group of people in the research project. The target populations of this study are the customer of Ar-Rahnu service in the Bank Rakyat franchise, Ar-Rahnu X’change Kota Kinabalu Sabah.

3.3.2 Sampling Frame

Sampling frame is a representation of the elements of the target population. In this study, researcher will conducted the research to the customer of Ar-Rahnu X’change, Kota Kinabalu. The total number of respondent in this frame is 50 respondents.

3.3.3 Sampling Size

Sampling size refers to the number of elements to be included in the study. From the sampling unit researcher determine the customers who use to apply this Islamic pawn broking system in Ar-Rahnu X’change Kota Kinabalu. The total number of this sample size is 50 respondents.

3.3.4 Sampling Method

In this study, the non-probability sampling for the sampling for the sampling technique had been used. It is because the elements in the population do not have any probabilities attached to them being chosen as sample subjects. Convenient will be used because it refers to the collection of information from the members of the population who are conveniently available to provide it. From the total sample size the researcher found that 50 respondents responded to the research activities

3.4 Procedure on Data Analysis

Based on the sampling, 50 respondents had been selected. The statistical package will be used to tabulate the data gathered from the research questionnaires. The frequencies, Paired Sample t-test, and Chi Square analysis are used to determine the relative importance of the correlations between dependent and independent variables.

3.5 Hypothesis Testing

Hypothesis testing is the process to determine whether to accept or to reject the hypothesis. The decision can be made through Pearson Correlation and frequency analysis. In this study the decision rule for the hypothesis that will be rejected is null hypothesis (H0) and the alternative hypothesis is to accept hypothesis if the observation value is greater than the critical value.

CHAPTER 4

FINDING AND ANALYSIS

4.0 Introduction

This chapter represents the finding and analysis on the study of The Challenges in the Implementation of Islamic Pawn Broking (Ar-Rahnu) in Ar-Rahnu X’change Kota Kinabalu.

Fifty (50) respondent have been responded to the research activities that being conduct at Ar-Rahnu X’change Kota Kinabalu.

Researcher had used the Statistical Package for Social Sciences (SPSS) system version 13.0 in order to analyze the dependent and the independent variables. The Paired Sample t-test, Chi Square analysis and Frequency method represented in tables and graph will be used to interpret and analyzed data.

4.1 Demographic Profile of Respondents

Table 4.1: Demographic Profile of Respondents

CHARACTERISTIC

Frequency

Percent

Cumulative Percent

Gender

Female

Male

29

21

58

42

58

100

Total

50

100

Age

18-25

26-30

31-35

36-40

41-55

19

9

12

5

5

38

18

24

10

10

38

56

80

90

100

Total

50

100

Marital Status

Married

Widowed

Divorced

Separated

Never married

30

0

0

0

20

60

0

0

0

40

60

60

60

60

100

Total

50

100

Religion

Muslim

Non-Muslim

42

8

84

16

84

100

Total

50

100

Education

SPM

Diploma/STPM

Bachelor/Degree

Master

PhD

10

12

23

2

3

20

24

46

4

6

20

44

90

94

100

Total

50

100

Monthly Income

Less than RM1,000

RM1,000-RM2,500

RM2,500-RM4,000

RM4,000-RM5,500

RM5,500-Above

5

21

16

5

3

10

42

32

10

6

10

52

84

94

100

Total

50

100

From the above Table 4.1 analysis, the findings can be interpreted as follows:

4.1.1 Gender

Female respondents are the majority group that used to apply this Islamic pawn broking system showing that 29 respondents (or equivalent to 58%) are female and 21 respondents (or equivalent to 42%) are male from the total of 50 respondents involved.

4.1.2 Age

Ageing range of 18 to 25 years old are the majority ageing range group that used to be a customer or Ar-Rahnu X’change by having highest frequency at 19 (or equivalent to 38%) from the total of 50 respondents involved.

4.1.3 Marital Status

The highest marital status is married with the highest frequency showing that 30 (or equivalent to 60%) from the total of 50 respondents involved.

4.1.4 Religion

Muslim customers are the majority group that applies this Islamic pawn broking system by having highest frequency at 42 (or equivalent to 84%) from the total of 50 respondents involved.

4.1.5 Level of Education

Bachelor/Degree level of education respondents are the majority group using this system by having highest frequency at 23 (or equivalent to 46%) from the total of 50 respondents involved.

4.1.6 Monthly Income

The highest monthly income of the majority respondent that using this system are from the group with their monthly income from RM1,000 to RM2,500 with the highest frequency recorded at 21 (or equivalent to 42%) from the total of 50 respondents involved.

4.2 Awareness of the Islamic Pawn System (Ar-Rahnu)

Table 4.2: Awareness of the Islamic Pawn System (Ar-Rahnu)

Frequency

Percent

Cumulative Percent

Know about the Implementation of Ar-Rahnu

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Aware of the Ar-Rahnu news

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Had experience in using the system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Willing to support the Islamic pawn broking system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Willing to get more information on this system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

From the table 4.2 presented above, the findings can be interpreted as follows:

4.2.1

4.3 Knowledge about the Islamic Pawn System (Ar-Rahnu)

Table 4.3: Knowledge about the Islamic Pawn System (Ar-Rahnu)

Frequency

Percent

Cumulative Percent

Know about the development of Ar-Rahnu

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Fully understood about the product features

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The marketing for the service is wide and clear

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Was a first time user for this system

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Had developed a good knowledge about the services

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

4.4 Preference of the Islamic Pawn System (Ar-Rahnu)

Table 4.4: Preference of the Islamic Pawn System (Ar-Rahnu)

Frequency

Percent

Cumulative Percent

The bank manages to promote the service quality, value, performance and other features

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The bank offers attractive campaign for the service

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The condition apply is easy to understand

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The trust between customer and pawn broker is very close

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The pawn broker manages to know their customer situation

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Table 4.5: Linking of the Islamic Pawn System (Ar-Rahnu)

Frequency

Percent

Cumulative Percent

Having problem in using this system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Feel shy to deal with this kind of system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The system is favorable in the short time

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Any favorable feeling by using this system

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

4.6 Awareness about Conventional/ “Ah-Long” Pawn Broker

Table 4.6: Awareness about Conventional/ “Ah-Long” Pawn Broker

Frequency

Percent

Cumulative Percent

The pawn brokers offer a higher interest rate

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The pawn brokers give a low collateral value during the valuation process

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Unscrupulous pawn brokers would often issue an illegible pawn ticket

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Immoral pawn brokers will auction pawned goods without customer knowledge

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Many customer do not know when their collateral will be auctioned off

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

4.7 Challenges that most affect the Islamic Pawn Broking System

Table 4.7: Challenges that most affect the Islamic Pawn Broking System

Frequency

Percent

Cumulative Percent

The lack of support/acceptance and awareness from the public itself

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The lack of knowledge about the product features

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The lack of linkages to this system

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

Most of people prefer to use the conventional pawn broking

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

The lack of advertisement about the product

Strongly agree

Agree

Neutral

Disagree

Strongly Disagree

Total

50

100

CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.0 Introduction

The researched aimed to identify the challenges that being faced by the Islamic pawn broking system that being develops to help the needy to get fast cash in the short time.

This conclusion will try to clarify the study the importance to know whether the customers have the knowledge about the Islamic pawn broking system (Ar-Rahnu) or not thus recommending an appropriate next step of action to be taken for consideration.

5.1 Conclusion

From the findings of the analysis, it can be concluded that the majority of

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