Legitimizing Ar-Rahnu Through Tawarruq: What Practitioners Have to Say

Effective February 2020, all Ar-Rahnu providers were required to streamline their existing products to the new ar-rahn structure based on the Islamic contract bay al tawarruq and rahn. The action was taken in response to the decision made by the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) where they claim that the practise of ar-rahn violates the shariah rules as outlined in the Rahn Policy (BNM, 2019). Nevertheless, the BNM enforcement was effective only for IBs or any institutions governed by the central bank and was not applicable to Ar-Rahnu cooperatives. Recent studies indicate that few studies have addressed the implementation of the new ar-rahn structure, and almost no inductive research has been conducted to seek feedback from Ar-Rahnu cooperatives' practioners related to the current changes in the ar-rahn scheme. This paper attempts to obtain views from cooperative members on this particular issue. Furthermore, this study compares the practise of the former ar-rahn scheme with the new alternative ar-rahn. A case study design was employed, and data was obtained through interviews and document review. Emergent findings from the interviews reveal that the majority of Ar-Rahnu cooperatives have adapted to the new ar-rahn scheme. However, Ar-Rahnu cooperatives faced several challenges in realising this new structure. Support from the regulator and management of the cooperatives could expedite the implementation of the new ar-rahn structure, thus enhancing the adherence to shariah. This study contributes to the body of knowledge in Ar-Rahnu and has significant implications for policymakers, customers, and cooperatives.