The Evolution and Role of Ar-Rahnu in Malaysia's Financial System

Advancing Financial Inclusion through Shariah-Compliant Microcredit

Abstract

This mini-review investigates the development and functional significance of ar-rahnu, Malaysia’s Syariah compliant pawnbroking system, within the broader framework of Islamic finance and financial inclusion. Initiated in the early 1990s, ar-rahnu has served as an accessible microcredit facility primarily targeting low-income earners and micro-entrepreneurs. It utilizes gold as collateral and operates without charging interest, adhering strictly to Islamic legal principles. Over time, the model principally operated by cooperatives and Islamic financial institutions has proliferated across the country, establishing itself as a viable ethical substitute to conventional pawnbroking. This review specifically analyzes ar-rahnu's contribution to Malaysia’s financial inclusion agenda and assesses the prospective role of digital innovations, particularly AI tools like ChatGPT, in enhancing service delivery. Although AI integration in Islamic finance remains nascent, preliminary findings suggest its potential to support user education, automate routine inquiries, and optimize operational processes. Nonetheless, concerns persist regarding the precision of citations and content completeness. The paper identifies a significant research gap in harmonizing digital innovation with traditional Islamic finance mechanisms and emphasizes the necessity for further inquiry into the ethical, legal, and technological dimensions. Synthesizing key themes from existing scholarship, this review offers insights into the evolving role of ar-rahnu as a pillar of inclusive financial systems in Malaysia, while proposing directions for technological enhancement aligned with Syariah compliant development.