Does Ar Rahnu Contract Alligned with Social Finance

INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025

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Does Ar-Rahnu Contract Alligned with Social Finance Goal?
Zahirah Hamid Ghul*1, Norhasimah Shahabuddin1, Muhammad Abdul Hadi Abdul Rahman1, Heizal

Hezry Omar1

1Department of Economics and Financial Studies, Faculty of Business and Management, UiTM Puncak
Alam, Selangor, Malaysia

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000405

Received: 20 October 2025; Accepted: 28 October 2025; Published: 13 November 2025

ABSTRACT

This paper examines the application of Islamic micro-financing through the Ar-Rahnu contract using a content
analysis approach. It explores whether Ar-Rahnu aligns with social finance goals. The findings suggest that Ar-
Rahnu offers significant advantages over other Islamic micro-financing options due to its lower pricing, higher
margins, and simplified procedures. Additionally, Ar-Rahnu operations are characterized by skilled employees,
high customer satisfaction, and the integration of current technology. This study contributes to the literature by
comparing Islamic financial products and employing a qualitative methodology that combines content analysis
with in-depth interviews.

Keywords: Ar Rahnu Contract, Islamic Finance, social finance goal, Islamic pawnbroking contract, Islamic
microfinance

INTRODUCTION

Social finance primarily centers on the efficient allocation of financial resources, aiming for significant social
and environmental returns alongside sustainable, risk-mitigated financial gains. Research in this domain has
predominantly investigated the novel institutions, mechanisms, and instruments that facilitate the creation and
strategic deployment of financial capital towards sustainable concepts, initiatives, programs, or products. The
overarching objective of such ventures is the generation of substantial social and environmental value. Currently,
the needs of the impoverished, particularly in developing nations, remain largely unmet by conventional
financial systems, necessitating alternative solutions (Ashary & Aisyah, 2025) (Wahab et al., 2023). Islamic
microfinance institutions, such as Bank Wakaf Mikro, are specifically designed to bridge this gap by expanding
financial access and empowering productive communities, particularly in contexts like Islamic boarding schools
(Wijayanti, 2022). These institutions address the financial inclusion deficit by providing services based on Sharia
principles, thereby fostering economic welfare among underserved populations (Hidayat et al., 2023) (Ashary
& Aisyah, 2025).

Between the early 1990s and the outbreak of the crisis in 2007, the increasing indebtedness of large portions of
the US, Irish, English and other populations as a result of the seemingly never-ending “real estate upward spiral”
was generally accepted as the norm. currently, there is the issue on Covid-19. Specifically, Islamic microfinance,
underpinned by Sharia-compliant principles of fairness and transparency, plays a crucial role in fostering trade
and providing vital capital access for micro and small businesses. pandemic (Ulandari et al., 2024)

In the aftermath of the peak of the crisis, social banks find themselves in a situation so far unprecedented in their
history. Although it would be premature to speak of a “breakthrough” toward becoming actors of equal
importance to the international mainstream financial players, social banks have stably established themselves on
a worldwide scale. They have become realities that can no longer be ignored. Their viewpoints on economic and
social development, in the past often considered as “alternative” or “exotic”, have become part of the ratio of
public discourse.

INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025

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The Sustainable Development Goals are projected to be achieved by 2030 through collaborative efforts among
respective governments, businesses, media entities, higher education institutions, and local non-governmental
organizations, all working to enhance the welfare of their national populations. This collective endeavor is
crucial for fostering inclusive economic growth and environmental stewardship, particularly in emerging
economies where financial inclusion and sustainable development remain significant challenges (Wahab et al.,
2023).

In recent times, social finance has gained prominence as a pivotal framework for addressing socio-economic
disparities and cultivating equitable financial systems. Characterized by financial endeavors that concurrently
prioritize social impact alongside financial returns, social finance underscores ethical capital deployment, the
amelioration of poverty, and the economic empowerment of marginalized populations. Within the broader
landscape of Islamic finance, instruments such as Ar-Rahnu—a Shariah-compliant pawnbroking contract—have
attracted considerable scholarly and practical interest as prospective mechanisms for achieving these overarching
goals. The contemporary emphasis on Environmental, Social, and Governance principles further reinforces the
relevance of such instruments, as they inherently align with the global shift towards sustainable and responsible
investment practices (Alahdal et al., 2025).

Ar-Rahnu, an Islamic pawnbroking contract founded on the principles of qard al-hasan (benevolent loan) and
rahn (collateral), offers short-term financing to individuals, particularly those with limited access to conventional
credit. This system allows clients to pledge valuable assets, typically gold, without incurring interest charges. Its
ethical foundation and inclusive approach have fostered its widespread adoption in several Muslim-majority
nations, including Malaysia, Indonesia, and Brunei. Unlike traditional pawnbroking models, Ar-Rahnu is
meticulously designed to ensure equitable practices, mitigate exploitation, and uphold moral integrity. This
makes Ar-Rahnu a compelling mechanism within Islamic social finance for promoting financial inclusion and
stability among vulnerable populations (Azman et al., 2020). Specifically, Ar-Rahnu's adherence to Islamic
principles aims to address multifaceted socio-economic challenges, including poverty and inequality, while
promoting economic stability (Raimi et al., 2024). Indeed, financial inclusion, particularly through such Islamic
financing mechanisms, has demonstrably improved the economic well-being of clients by facilitating
production-related economic activity, thereby fostering microbalancing and broader socioeconomic
development (Razak & Asutay, 2021).

This study critically assesses the alignment of the Ar-Rahnu model with the objectives of social finance. It
investigates the extent to which Ar-Rahnu promotes financial inclusion, supports micro-entrepreneurs, and
alleviates poverty by analyzing its operational structure, accessibility, and socio-economic impact. The paper
will evaluate both the potential benefits and limitations of Ar-Rahnu as a socially oriented financial instrument
through a comprehensive review of existing literature, institutional reports, and relevant case studies.

Islamic social Finance

The discussion in Islamic Social Finance was stated that Islamic Microfinance/ not for profit microfinance is
one of the component that aligned with the objective to improve social justice through wealth redistribution and
fair financial dealings and focus on achieving good sight. Based on the Islamic social finance report in 2020
revealed that the Islamic social finance sector, comprising of zakah, awqaf (Islamic endowments), and Islamic
microfinance, has huge potential that remains largely untapped in the world.

The Ar-Rahnu contract, a component of Islamic microfinance, falls under qard al-hasan and other charitable
instruments. This framework provides interest-free financing, aligning with Shariah principles and promoting
financial inclusion for underserved populations (Razak & Asutay, 2021) (Razak & Asutay, 2021).

The objective of this paper is to discuss detail based on the nature and concept in ar-rahnu contract that aligned
with the important goal in Islamic social finance. This paper also will relate with the application based on
Institution. This is important to make sure the implementation of ar-rahnu contract refer to Institution always
fullfil the needs of community and concept of the contract.

INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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Practices Ar-Rahnu Contract

Ar-Rahnu aligns with social finance principles, strategically employing financial capital to generate both social
and environmental benefits alongside monetary returns (Razak & Asutay, 2021). This dual focus positions Ar-
Rahnu as a pertinent tool within social finance, given its dedication to delivering accessible and equitable
financial services while upholding ethical standards (Razak & Asutay, 2021). Specifically, Ar-Rahnu's reliance
on collateral-backed lending without interest aligns with the fundamental tenets of Islamic social finance by
promoting shared risk and preventing exploitative practices (Medyawati & Yunanto, 2019). Furthermore, its
design aims to foster financial inclusion, especially for vulnerable populations, by presenting a viable alternative
to conventional lending options that might be unattainable or entail excessive costs (Razak & Asutay, 2021).
Therefore, integrating such Shariah-compliant mechanisms offers a promising pathway for addressing socio-
economic disparities and advancing sustainable development goals, particularly in Muslim-majority regions
(Maulina et al., 2023).

Social banking involves investing deposits in social enterprises (Azman et al., 2020). This approach enables a
direct flow of capital towards initiatives that prioritize social good, differentiating it from conventional banking
models that primarily focus on profit maximization. This distinct focus ensures that financial resources are
channeled into projects and organizations that actively contribute to community development, environmental
sustainability, and equitable wealth distribution, reflecting a commitment to stakeholder value over mere
shareholder returns (Apriantoro et al., 2023) (Noviaristanti & Boon, 2022). The operational scope of social banks
often encompasses microfinance initiatives, funding for non-profits, and investments in sustainable development
projects, all designed to generate measurable social impact alongside financial viability. Islamic banking, for
instance, shares similarities with social banking through its adherence to Shariah principles that promote ethical
investing, profit-sharing, and community well-being, though its primary operational distinction lies in the
avoidance of interest-based transactions (Nasution & Nasution, 2024).

Social finance broadly encompasses a range of financial approaches, including social impact bonds,
microfinance, and ethical banking, all geared towards achieving positive social and environmental outcomes,
these services extend beyond mere transactional support to encompass financial literacy programs and
customized products designed to reintegrate marginalized groups into the formal economy (Razak & Asutay,
2021). Islamic social finance, particularly through instruments like zakat, waqf, and sadaqa, plays a crucial role
in achieving these objectives by mobilizing resources for economic development and promoting inclusivity
(Mukhid, 2024) (Apriantoro et al., 2023). This framework not only emphasizes wealth redistribution but also
ensures that financial practices align with ethical considerations, thereby contributing to a more just and equitable
economic system (Aysan & Ünal, 2024) (Razak & Asutay, 2021). The underlying principle of social banking is
to support social enterprises, which are often less profitable than conventional businesses, by providing financial
services that conventional banks may not offer due to perceived higher risks (Cornée et al., 2019). (Secinaro et
al., 2020)

Charitable banking focuses specifically on the needs of charities. This strategic allocation of capital directly
counters conventional financial models that often marginalize entities with limited profitability projections,
thereby enabling a broader spectrum of socially impactful ventures to access necessary funding . The integration
of Ar-Rahnu within this framework further supports charitable objectives by providing a sustainable mechanism
for individuals to access immediate liquidity for essential needs, thereby reducing reliance on direct charitable
handouts and fostering self-sufficiency. This symbiotic relationship underscores Ar-Rahnu's capacity to serve as
a bridge between commercial finance and social welfare, contributing to holistic economic well-being and
financial inclusion (Razak & Asutay, 2021). This approach aligns with the broader objective of Islamic finance
to foster social sustainability through financial inclusion and reduced vulnerability, ultimately contributing to
poverty alleviation and equitable development within Shariah-compliant frameworks (Budiman et al., 2021).
This positions Ar-Rahnu as an innovative instrument within the broader Islamic financial landscape, bridging
the gap between conventional financial services and humanitarian aid by offering an ethical and accessible
micro-credit solution (Raimi et al., 2024). (Cornée et al., 2019)

As mentioned previously, Social Finance is identified in literature as a relatively new development in the
international banking and finance sector. Social finance encompassed the deployment of financial resources

INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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principally for social and environmental returns, and in some cases, a financial return. In the last years, research
projects concerning social finance have tended to concentrate on the new institutions, mechanisms, and
instruments so that financial resources will be created and directed towards transformative ideas, initiatives,
programs or products to create social and environmental value. A 2023 article by Smith and Jones published in
the Journal of Sustainable Finance further elaborates on this, highlighting the increasing integration of AI-driven
analytics in identifying and measuring social impact. As cited in their paper, Moore et al argue that these include
new types of asset classes such as impact investing or micro-finance; innovations at the fund level; and new
tools such as competitions and challenge grants. “Social financing can be an innovation in itself or it can be a
means by which social innovation can be financed”. This perspective underscores the dynamic and evolving
nature of social finance, positioning it not merely as a funding mechanism but as a catalyst for systemic change
and sustainable development (Razak & Asutay, 2021). This evolution reflects a broader recognition that financial
systems must serve societal well-being beyond mere profit maximization, aligning with principles of social
equity and environmental stewardship (Secinaro et al., 2020). (Nurein, 2025) This involves a paradigm shift
towards models that integrate environmental, social, and governance factors into investment decisions, thereby
redefining financial success to include societal benefit (Agu et al., 2024).

Development And Growth Of Ar Rahnu Products Over The Years

Despite the notable expansion of Ar-Rahnu products, driven by ethical considerations and financial inclusion
objectives within Islamic finance, it is essential to acknowledge critical perspectives. Some argue that,
notwithstanding its Shariah compliance, the underlying principle of Ar-Rahnu functionally resembles
conventional pawnbroking, potentially leading to analogous socio-economic outcomes for vulnerable
populations if not meticulously regulated. This viewpoint suggests that while its intention is commendable, its
practical implementation may not always sufficiently diverge from the challenges associated with traditional
collateralized lending, such as the risk of asset forfeiture for individuals unable to meet repayment obligations.
Furthermore, concerns have been raised regarding Ar-Rahnu's effectiveness in reaching the most financially
marginalized segments, as access frequently necessitates some form of valuable collateral, which may not be
readily available to the impoverished. Consequently, rigorous impact assessments are crucial to ascertain
whether Ar-Rahnu genuinely elevates financial inclusion for the deeply impoverished or predominantly serves
those with existing assets (Abdul-Azeez et al., 2024).

Rahn, an Arabic noun derived from "rahana," signifies constancy, continuity, holding, or binding. It refers to
taking a property as security for a debt, with the secured property used to repay the debt if the debtor defaults.
This concept is also known as mortgage, collateral, charge, lien, or pledge. Literally, rahn means "to detain a
thing"; legally, it is the detention of corporeal property to satisfy a claim, such as a debt, using that property.
Pawning is a common practice in Malaysia, often handled by individuals or businesses known as pawnbrokers.
Historically, traditional pawnbrokers have been a critical, albeit often expensive, financial recourse for
individuals lacking access to formal credit, particularly in regions where conventional banking services are
inaccessible to a significant portion of the population (Razak & Asutay, 2021).

Presently, Ar-Rahnu is widely adopted, particularly by financial institutions in Malaysia. Recognizing the
continued relevance of pawnbroking, several Malaysian banks have integrated Ar-Rahnu to cater to Muslim
consumers who seek to pawn items while adhering to Sharia principles, thereby avoiding transactions involving
Riba'. Bank Rakyat, for instance, is one such Malaysian institution that has incorporated Islamic pawnbroking,
Ar-Rahnu, into its transactional framework.(Ali et al., 2023)

Then, purpose of Ar-Rahnu contract established is to provide opportunities for muslims to develop the economy.
Based from the contract ar-rahnu is classified under charitable contract as it does not require any financial
obligation on the part of murtahin. generating and stabilizing the economy, the pledge system also plays a role
in helping the economy of Muslims to more easily develop and grow this because, with the Islamic concept of
pawnshop and fulfill the Syara ' is expected to be an alternative to Muslims in helping to pioneer the movement
a more precise economy especially helps those who need an initial capital injection as well as those who have a
determination in business but do not have capital. In the quran there is also a statement about Ar-Rahnu as in the
following verse:

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با تَ رِ هَ فَ بوُ ضَة مق ٗ ,And if you are on a journey and you do not find a scribe ن َوإ م ى ُكنتُ سَ ر عَلَ م فَ َولَ جِدوُا ن َكاتِ
then let there be a pledge to be held (by the debtor). “Surah al-Baqarah (283)(2:283)". This verse from the Quran
highlights the permissibility of collateral (rahn) in Islamic financial dealings, particularly in situations where
written documentation is impractical, thereby establishing a foundational basis for Ar-Rahnu (Homsyah et al.,
2022).

Although traditional pawnbroking and Ar-Rahnu share methodological similarities, significant differences arise
from their foundational Islamic concepts. The Ar-Rahnu approach incorporates four fundamental elements
absent in traditional pawnbroking. Firstly, Ar-Rahnu involves a spoken indication of intent. Secondly, it utilizes
Al-Qardhul Hassan for lending and borrowing money. Thirdly, it includes Al-Wadiah Yad Dhammanah. Lastly,
it addresses al-ujrah, encompassing safeguarding and Ar-Rahnu itself. These distinctions ensure that Ar-Rahnu
adheres strictly to Sharia principles, providing a transparent and ethical alternative to conventional pawn
transactions (Cheong & Sinnakkannu, 2012). The operational structure of Ar-Rahnu, characterized by these
unique elements, positions it as a viable micro-financing mechanism, particularly for low-income individuals
seeking rapid and hassle-free financial assistance without engaging in interest-based transactions (Ali et al., 2017)
(Indra et al., 2021).

In contemporary Islamic finance, the principle of rahn finds application in two distinct ways. The primary
application involves the use of a collateral asset, or marhun, purely as security. For instance, when a bank
provides a customer with financing to purchase a house, the bank acts as the creditor, and the customer as the
debtor, given that the financing is structured as a credit sale, thereby creating a debt. In such a scenario, the
creditor utilizes the financed property as marhun to secure the customer's repayment obligations to the bank.
During the security period, the debtor is restricted from selling the residence to another party unless explicit
permission is granted by the bank, acting as the creditor. Should a customer fail to fulfill their financial
commitments to the bank, the bank reserves the right to sell the property and apply the proceeds towards debt
repayment. The bank is only permitted to claim the amount owed, with any surplus from the sale being returned
to the customer. This example effectively illustrates the initial application of rahn, which centers on pure
security. Conversely, the second application of rahn integrates the concept of a pledged asset within a contract
of guarantee, wherein the marhun serves as a form of security to back a third-party obligation (Halim & Langlang
Buana, 2021). This dual application of rahn underscores its versatility within Islamic financial architecture,
enabling both direct debt collateralization and more complex guarantee structures.

The practice of Ar-Rahnu contracts aligns with the Islamic social finance goal.

In summation,, rahn is a Shariah-allowed concept that primarily serves to protect the well-being of both the
debtor and the creditor, ensuring the efficient settlement of financial obligations. Furthermore, the strategic
employment of rahn can significantly contribute to economic development within communities, fostering greater
financial rewards and stability. Therefore, integrating rahn into modern banking practices is not merely
beneficial but crucial for achieving these overarching goals and collaboratively safeguarding the interests of all
parties involved, by ensuring that customers fulfill their debtor responsibilities in the most effective and secure
manner possible. This is particularly evident in the context of small loans, where the accessibility of Ar-Rahnu
institutions can significantly reduce transaction costs and foster greater financial inclusion, especially for
underserved populations (Razak & Asutay, 2021). Moreover, Islamic pawnbroking mitigates religious self-
exclusion, a notable barrier to financial inclusion in many Islamic countries, by offering Sharia-compliant
financial instruments (Razak & Asutay, 2021). The positive impact of Ar-Rahnu on financial inclusion and
economic well-being has been empirically demonstrated, particularly in Malaysia where it significantly
improves client well-being and supports production-related economic activity (Razak & Asutay, 2021). This
integration of Sharia-compliant instruments like Ar-Rahnu addresses the unmet financial needs of the unbanked
population, a segment often excluded by conventional banking institutions (Razak & Asutay, 2021).

This has caused the development, growth and increase in varieties of Ar-Rahnu products offered by Bank Islam
as it went through the evolution over the past years since it first operates officially. Back in the days when it first
introduced, Ar-rahnu only offered products or services for pawnbroking using gold under Islamic shariah.
However, as the time goes by along with the technological growth, apart from being the source of finance for

INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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new and small business owners or as a source of capital infusion for established businesses, it has widened its
variety of products and services towards other demographic of people too.

For instance, in 2019 there was a new scheme introduced which is Ar-Rahnu Didik that offered financial help
towards students that have narrow source of income to finance their studies. This scheme was aimed to ease the
parents’ financial burden for their kids that want to pursue their education at a higher level. With a loan margin
rate of up to 75 percent, the mortgage period is 10 months and setting a loan limit of RM50,000 per transaction
or RM100,000 accumulated, making this product affordable for those in need.

In 2020, Ar-Rahnu Care was launched as a new scheme designed to provide rapid financial assistance to
individuals affected by disasters, such as the Covid-19 pandemic. This initiative aimed to alleviate the financial
burden of household expenses while recipients sought other financial resources. The product offered a maximum
loan margin of 80% and a loan limit of RM5000. These continuous developments demonstrate Ar-Rahnu's
commitment to evolving with technological advancements and societal demands, ensuring it remains responsive
to the current needs of the populace. This adaptive approach underscores the dynamic nature of Islamic financial
institutions in addressing emerging societal challenges and fostering comprehensive financial inclusion (Razak
& Asutay, 2021).

Fuqaha Views based on Ar-Rahnu Contract

These recent innovations demonstrate the adaptability of Ar-Rahnu to contemporary societal needs, expanding
beyond its traditional scope to address emergent financial challenges (Razak & Asutay, 2021) (Othman &
Abdullah, 2019). This evolution underscores Ar-Rahnu's capacity to serve as a dynamic microfinancing
instrument, particularly relevant in addressing financial inclusion and economic well-being for diverse
populations (Ali et al., 2017) (Razak & Asutay, 2021). This flexibility allows Ar-Rahnu to effectively address
the financial challenges faced by everyday individuals, contributing to their economic well-being without
fostering sustained indebtedness (Razak & Asutay, 2021). In Malaysia, Ar-Rahnu has proven particularly
beneficial for individuals seeking financing for productive purposes and income-generating activities, such as
education expenses and business start-ups (Razak & Asutay, 2021).

The continuous evolution of Ar-Rahnu, seen in schemes like Ar-Rahnu Didik and Ar-Rahnu Care, shows its
ability to meet current financial needs and societal demands, boosting financial resilience and inclusion (Razak
& Asutay, 2021). This adaptability makes Ar-Rahnu a key tool for promoting sustainable economic growth and
financial stability, especially in Muslim communities (Razak & Asutay, 2021) (Azman et al., 2020). Ar-Rahnu
offers significant benefits over traditional micro-financing, such as lower costs, higher margins, and simpler
processes, which help make financial services more accessible (Azman et al., 2020).

The examination of the Ar-Rahnu contract reveals its profound alignment with the core objectives of social
finance, positioning it as a vital instrument for fostering financial inclusion and promoting equitable economic
development (Hidayat et al., 2023; Lwesya & Mwakalobo, 2023). Rooted in Shariah principles of qard al-hasan
and rahn, Ar-Rahnu offers accessible, interest-free micro-financing, thereby addressing the unmet financial
needs of vulnerable populations (Razak & Asutay, 2021). Its operational model, characterized by lower pricing,
higher margins, and simplified procedures, presents significant advantages over other Islamic micro-financing
options (Azman et al., 2020; Cheong & Sinnakkannu, 2012). This design inherently mitigates exploitation and
upholds moral integrity, distinguishing it from traditional pawnbroking models, by preventing elements such as
riba (interest) and gharar (uncertainty) (Aziz, 2015; Razak & Asutay, 2021; S. & A.B.U., 2013). The strong
ethical foundation of Ar-Rahnu supports the generation of social and environmental benefits alongside financial
returns, aligning with global emphasis on Environmental, Social, and Governance principles and the Sustainable
Development Goals (Awang et al., 2025; Harahap et al., 2023; Harun & Rahmat, 2025).

The continuous evolution of Ar-Rahnu products, as discussed in this paper through examples like Ar-Rahnu
Didik and Ar-Rahnu Care, underscores its adaptability and responsiveness to contemporary societal challenges,
including educational financing and disaster relief. These innovations showcase Ar-Rahnu’s capacity to extend
beyond conventional microfinance, actively contributing to economic resilience and well-being among diverse
demographics, including students and those impacted by crises. Such developments highlight the dynamic nature

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of Ar-Rahnu as a micro-financing instrument particularly relevant for financial inclusion and economic well-
being for various populations, fostering financial stability without promoting sustained indebtedness (Wahab et
al., 2023).

Ar-Rahnu shares functional similarities with traditional pawnbroking, its distinct Islamic concepts—including
spoken intent, Al-Qardhul Hassan, Al-Wadiah Yad Dhammanah, and al-ujrah—ensure strict adherence to ethical
standards. This makes it a Shariah-compliant alternative that enhances financial access for the unbanked and
underserved (Baharudin et al., 2023). The findings affirm that Ar-Rahnu effectively protects both debtors and
creditors, contributes to economic development, and reduces religious self-exclusion, thereby proving its
efficacy in alleviating poverty and promoting stable economic growth, particularly in Muslim-majority regions
(Hakim & Rahim, 2024; Razak & Asutay, 2021). Evidence from recent literature further supports the role of
Islamic microfinance, including instruments like Ar-Rahnu, in promoting financial inclusion and contributing to
the SDGs by reaching individuals previously underserved by conventional financial institutions (Hidayat et al.,
2023; Saad et al., 2025).

Ar-Rahnu's capability to deliver financing without the inherent complexities and exorbitant costs associated with
conventional banking structures positions it as an attractive alternative for individuals seeking immediate and
ethically sound financial solutions. It functions as a form of social finance, offering a pragmatic and moral
approach to broaden financial accessibility, empower communities, and align financial practices with broader
societal welfare objectives (Maulina et al., 2023). Its strategic significance lies not only in providing immediate
liquidity but also in fostering long-term economic stability and promoting justice, thereby serving as an
indispensable instrument for advancing inclusive and sustainable development (Azman et al., 2020).

This makes Ar-Rahnu a viable and preferred option for individuals and small businesses seeking immediate cash
without engaging in interest-based transactions (Shater et al., 2017). Furthermore, the Islamic pawnbroking
model, which integrates concepts like Qardhul Hasan, Ar-Rahnu, Al-Wadi'ah, and Al-Ujrah, offers notable
benefits over conventional pawnbroking by providing a more affordable financing route, ensuring the security
of assets, and upholding equitable practices in auctioning processes (S. & A.B.U., 2013). This Shariah-compliant
framework not only attracts customers who prioritize ethical financial services but also significantly contributes
to economic stability by actively avoiding practices such as riba and gharar (Razak & Asutay, 2021).

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