Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 194th and 195th Meeting

The Shariah Advisory Coucil (SAC) of Bank Negara Malaysia at its 194th meeting on 25 June 2019 and its 195th meeting on 31 July 2019 resolved that the ar-rahnu product structure offered by Islamic financial institutions (IFIs) through the combination of qard (loan), rahn (pledge), wadi`ah (safekeeping) and ujrah (fee) does not fulfil the Shariah requirements in Rahn Policy Document due to the following:

• The interconditionality and interdependency between the loan contract and the elements of pledge, safekeeping and fee in the product structure gives rise to the issues of qard jarra naf`an (loan that benefits the lender) and bai` wa salaf (combination of sales contract with a loan) which are prohibited in Shariah. In the ar-rahnu structure, each contract will not take effect without the other contracts. For instance, the loan will only be provided with the condition that customers safekeep their gold with the Islamic financial institution (IFI) where a safekeeping fee is charged. Such structure where the safekeeping fee charged is connected to the loan provided indirectly raises the issue of qard jarra naf`an; and