Islamic Pawn Broking (Ar Rahnu): critical success factor and application for co-operatives

The Ar-Rahnu industry is still new in Malaysia in which many of the outlets commencing operation actively around 2002. Up until now research pertaining to Ar-Rahnu is limited. Previous study only concentrated on customer's awareness and satisfaction of providers of the industry. The main purpose of this paper is to study on critical success factor of Ar-Rahnu, providers of micro-credit through islamic pawn broking practices. Based on identified best practices this paper also proposes a suitable model of Ar-Rahnu which deemed suitable for cooperatives who interested in the industry. Altogether a total of 109 respondents, comprising representatives of Ar-Rahnu outlets throughout Malaysia were selected for the study. There were 7 organisations involved in the Ar-Rahnu business such as YaPEIM, Bank Rakyat, Agrobank, MAIDAM, PKB, Ar-Rahnu Cooperatives and Franchise Ar-Rahnu Cooperatives. These organizations were futher divided into 4 cluster according to nature of their business. Data for the study were obtained from survey and SPSS facilitated data analysis. The performance of the Ar-Rahnu outlets under study is measured using variables implicit in the Ar-Rahnu business, including general business operation, types of gold, pawning conditions and charges, security, and internal and external control. In general the research found the modus operandi of each and every outlet is more or less similar - having standard operating procedure (SOP). Pawning process is also similar between clusters with each charging safekeeping fee at rate ranging RM0.50 to RM0.80 for every RM100 of pawn value. Common issues of importance across Ar-Rahnu providers are competency in gold testing because of the presence of imitation gold and gold jewellery. Customer trust is a primary critical success factor (CSF) for all clusters, followed by competitive safekeeping charges, competency of employess, good quality service and service location. It was found that securing capital is not an issue for the larger organizations, but it is for the smaller ones. A customer-friendly Islamic pawn broking model for cooperatives is developed based on the expectetion of both customers an stakeholders and incorporates the best practices of the present Ar-Rahnu providers. The product of Ar-Rahnu from this model is expected to satisfy customers and bring profit to the operators.