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Rahn refers to an arrangement whereby a valuable  asset is given as security for a debt. In other words, it is the financing using an asset as a collateral to the repayments.

There are only two parties involves, the Islamic Bank and the customer.

1.The customer approaches the bank with a valuable asset (jewelleries worth RM20,000) as collateral  for ﬁnancing.

2.The bank accepts the pledged asset and grants an interest-‐free loan to the customer amounted RM 18,000 (not financing the full amount of the asset).

3.The customer pays a custodian fee for the service rendered in safekeeping the asset.

4.If the debtor is unable to repay the debt, the pawned asset will be sold to settle the outstanding debt.

The surplus amount from the sale of the pawned asset will be returned back to the customer.

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Automobile Financing- Al Ijarah Thumma Al

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Automobile Financing- Al Ijarah Thumma Al

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The purpose of the financing is to provide leasing of required asset to customer.

It starts with the buyer (Party A) promises topay monthly payment of the financing after the leasing to the Islamic Bank (Party B).

1. The customer identifies the asset to be lease (vehicle).
2. The bank purchases the vehicle on cash basis.
3. The bank leases the asset bought to the customer.
4. The customer repays the financing to the bank via monthly payments.

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Musharakah is partnership or co-ownership agreement. Under Musharakah Mutanaqisah, the partnership is diminishes. The diminishing partnership involves the Islamic Banks and the financing customer.

It starts with the buyer (party A) promises to purchase the equity share of the house owned by owner (party B) gradually, until equity completely transferred to him.

1.Customer identiﬁes the property, signs the S & P agreement, pays deposit, and applies for the ﬁnancing.

2.Once the application is approved, Bank enters into a Musharakah Arrangement with the customer.

3.Customer leases the Bank’s share in the house on Ijarah basis.

4.Customer will pay an amount in addition to the rental to buy the Bank’s units in the property.

5.The partnership will be terminated with the customer owning 100% of the house and the title will be transferred to customer.