Recently, I received some inquiries about the strategy used by some gold investors to generate cash flow to a gold investment known as Ar Rahnu. In this article, I will try to share some of the insights I have gained from this scheme.
What is Ar Rahnu about?
An Islamic Lombard system that allows borrowers to use gold coins or jewelry as collateral. It is designed to comply with Islamic law, where borrowers pay a maintenance fee as opposed to a compound interest rate.
Why should anyone go to Ar Rahnu?
At least RM100 is useful for those who need a small loan. This usually seems more competitive than individual loans, which require fixed interest rates of 9% to 12% per annum. The Islamic pawnshop scheme charges a safekeeping fee of $ 0.50-0.75 per month for each RM100 worth of gold. This is equivalent to an interest rate of 0.5% to 0.75% per month or 6% to 9% per year.
Most importantly, the chances of loan approval are high, because this scheme is supported by gold.
How does Ar Rahnu work?
Step 1 – Suppose you offer the bank gold jewelry worth 100,000 RM as collateral with a financial margin of 65%. This means that you will receive RM6500 in cash.
Step 2 – Note that there is a monthly storage fee. Suppose that the monthly storage fee is 0.75%. This means that for every RM100 worth of gold, there is a storage fee of RM0.75. This equates your monthly storage fee to RM75.
Step 3 – Ar Rahnu’s funding period is usually set at 6 months, although clients are allowed to renew it for more than 6 months. So, by the end of 6 months, you will pay a total safekeeping fee of RM450. At the end of the ownership period, your gold will be returned to you when you pay your principal debt and storage fee.
However, if the price of gold increases during the auction, the remaining balance (after deducting the principal and deposit) will be returned to you.
Note that if you do not pay your principal debt and storage fee, the bank has the right to auction your gold.
Which Bank offers Ar Rahnu?
So far, there are two local banks in Malaysia that offer Islamic pawnshop schemes. Go to Agrobank or Bank Rakyat to better understand how Ar Rahnu works!