RAHN

Dr. MOHAMMED ELSHOBAKE

Outline
➢ Definition
➢ Legality
➢ Essential Elements
➢ Characteristics
➢ Conditions
➢ Legal Consequences
➢ Termination
Definition

RAHN - mortgage, pledge, security, surety, collateral.

Rahn, Kafalah and Hawalah fall under contracts of
surety (‘Uqud Lstisaq).
Literally: a detained thing.
Technically: detention of a corporeal property on
account of a claim such as a debt which may be
satisfied out of that property.
- Pledge is a security for the payment of a debt that will
enable the lender to reclaim the debt out of the pledged
property.
Definition

Article 701 of the Majallah: "to make a property a

security in respect of a right of a claim, the payment in
full of which from that property is permitted”.
Malikis: Al-rahn means the act of taking valuable
property from its owner as a mean of ensuring payment
of a loan that has matured or is about to mature.
Hanbalis: Al-rahn means taking property to ensure the
payment of a debt in case of default.
Definition
- Specifying an asset (‘ayn) as a surety for a
debt that will be recovered through it when
settlement is unfeasible.
- Withholding against a liability a tradable
property (mal), through which the former can
be recovered in full or in part.
Definition
- The term asset (‘ayn) excludes usufructs, which
may not be made sureties.
- Reference to tradable property (mal) signifies
that what is not so may not be pledged against a
monetary liability.
- The clause ‘in full or in part’ denotes that the
value of the pledge may be higher than the debt,
equal to it, or be less.
Definition
Bank Negara Malaysia:

Rahn refers to a contract where a party, as

pledgor (rahin) pledges an asset as collateral
(marhun) to another party, a pledgee (murtahin) to
fulfil an obligor’s liability or obligation (marhun
bih) owing to the pledgee in the event of default
of such obligor.
Legality
Established through qur’an, sunnah and ijma’.

Qur’an: In reference to securing future liabilities: ‘If

you are on a journey and could not find a scribe, then
let there be a pledge that is taken possession of.’
[Surah al-Baqarah: 283].
Legality of surety while in residence in the availability
of a scribe is established from the sunnah, thus rahn is
permissible in travel and otherwise.
Legality

Sunnah: ‘The Messenger of Allah (Sal.) mortgaged a

coat of armour with a Jew in Madinah and obtained
some barley for his family.’ [Narrated by Anas (rad.)
and recorded by al-Bukhari].

Ijma’: Scholars are unanimous on the permissibility

of rahn, which enables securing of debts, thus easing
the way for lending and borrowing when needed.
Essential Elements
Contractors – Rahin (the one who offers the security, i.e.
the debtor).
Murtahin (the one who takes the security,
i.e. the creditor).
Subject matter – Rahn or marhun (the asset offered as
security for the debt).
– Marhun bihi (the debt that is secured).
Text – Offer and acceptance, such as to say, ‘I pledge this
item against the debt that I owe to you,’ and ‘I accept’.
 Characteristics
- The contract of rahn is binding on the rahin (i.e. the
debtor), but is not binding on the murtahin (i.e. the
creditor). Thus, the creditor may terminate the rahn at
any time.
- Rahn is a gratuitous contract, i.e. ‘aqd tabarru’. It is
one of those contracts that are termed ‘uqud ‘ayniyyah
where the contract is not concluded until the subject
matter is taken possession of, such as hibah (gift), i’arah
(free lending of an asset for use), deposit (ida’), and loan
(qard).
- The rahn contract is permissible and not compulsory,
by the consensus of scholars.
 Conditions

For contractors:
Eligibility to contract sale and charity
(tabarru’), by being sane adults with
prudence (rushd).
Thus, the guardian of an orphan is not
entitled to offer property belonging to the
orphan as security except in case of necessity
and in the latter’s interest.
 Conditions
For the debt (marhun bihi):
1. It should be an established obligation (confirmed
debt) that the debtor is obligated to settle.
- When the debt itself is not confirmed, it does not
require collateral.
- When the established obligation is a debt (dayn),
rahn is permissible irrespective of the cause of debt,
be it due to a preceding sale, loan (qard), or
otherwise. Thus, a security may be demanded
against goods to be delivered in the future in
forward sales (salam).
 Conditions
- When the established obligation is specific funds/assets
(‘ayn), rahn is not permissible by consensus, where these
happen to be trust-based (amanah) such as deposits
(wadi’ah), mudarabah capital and sharikah capital. This is
because the parties concerned are not liable for such
funds/assets, and are not obliged to return them or
compensate them if these perish.
- According to this condition, rahn cannot be demanded to
cover a loan that is yet to be given, as the arising debt
becomes an obligation to settle only after receipt of the
loan.
2) The debt should be known by quantity and quality
to the contractors.
 Conditions
For the asset offered as security (rahn or marhun):
- The asset offered as rahn should fulfill the requirements for
subject matter of sale, as it is intended to be sold for
recovering the debt, when the rahn happens to be of a genus
different from the genus of the debt.
- Thus, the rahn should be an asset having a tradable value,
existent at the time of contracting, capable of being
delivered, known, i.e. identified, and owned by the rahin, i.e.
the debtor. Therefore, wine, for example, cannot be
pledged, nor an undefined asset.
- It is permissible to pledge assets belonging to others, i.e.
parties other than the debtor, with their permission. Thus,
assets can be borrowed or taken on lease for the purpose of
pledging.
 Conditions
For the conclusion of the rahn contract:
- The contract of rahn does not become binding until the
rahn is given possession (qabd). Prior to this, the rahin
(debtor) may rescind or withdraw from the contract,
which he may not do after the rahn is delivered to the
murtahin (creditor) and the latter takes possession of it.
This means that the rahn contract becomes binding only
with the possession of the rahn.
- In Maliki school, the rahn contract becomes binding
with the conclusion of the contract itself. The debtor
is compelled thereafter to deliver the rahn to the
creditor. Thus, possession is a condition for completion
of the contract, and not for its bindingness.
 Conditions
Method of possession:
- Taking possession of rahn is similar to taking possession
of the purchased asset in contracts of sale. Thus, when
the rahn is immovable property such as houses,
possession is given by the rahin (debtor) giving the
murtahin (creditor) free access to it; in movables,
possession is by shifting the asset, and in items that
could be handed over, it is by handing over the item.
- Some contemporary scholars consider that rahn of
immovable property today could take place through a
mortgage bond.
 Conditions
Conditions in taking possession (qabd):
- Possession should take place with the permission of the rahin
(debtor).
- Continuance of possession by the murtahin (creditor) is not
required in the Shafi’i school. The creditor may return the asset
to the debtor after formally taking possession of it thereby
establishing his right, or to a trusted third party (‘adl).
Continuance of possession is required in the Hanafi school.
- The third party (‘adl) so entrusted with the rahn is considered a
representative of the rahin and the murtahin both; therefore, he
should fulfil the requirements for an agent (wakil).
- The third party ‘adl may take possession when the creditor requests
him to do so, and the contract of rahn becomes binding. The ‘adl
is required to safeguard the rahn, and keep it in his custody. He is
not allowed to draw benefit from the rahn.
 Conditions
What is qualified as rahn:
- An undivided portion of an asset such as a half or a
third may be pledged. Pledging undivided portions is
not valid in the Hanafi school.
- A debt may not be offered as rahn.
- The owner of an asset that is currently leased to another
or lent by way of i’arah to another (i.e. given for use
without a rent) may offer it as a rahn when the creditor
happens to be the lessee or the user.
- When the creditor is other than the lessee or the user,
rahn of such property is permissible if the creditor is
willing to accept the lessee or the user as the ‘adl (i.e.
custodian for the rahn).
 Conditions
- Rahin (debtor) may take on lease or borrow by way
of i’arah an asset belonging to another for pledging
it, with the permission of the owner.
- After pledging an undivided part of an asset to one
creditor, the remainder may be pledged again to
another creditor. The second creditor should be
willing to allow the possession of the first creditor
in this instance.
- When an asset is pledged in whole to secure one
debt, it may not be pledged again for a different
debt.
 Legal Consequences
1. The debt is attached to the whole of the asset
mortgaged as rahn.
2. Expenses for the asset pledged as rahn are borne by the
rahin (debtor), while expenses for safeguarding the
rahn fall on the creditor.
3. The debtor may use/benefit from the rahn asset when
this does not result in damage to it in the Shafi’i school,
such as the debtor riding the mortgaged animal or
residing in the mortgaged house.
In the other schools, this is possible only with the
permission of the creditor. In Maliki school, the debtor
may not utilise the mortgaged asset.
 Legal Consequences
4. The creditor is not permitted to use/benefit from
the mortgaged asset in any manner, except when
such use is quantifiable and is drawn against rent at
market rate. When the creditor uses the rahn
without the permission of the debtor, such use is
deductible from the outstanding debt.
5. The debtor may not enter into a transaction
involving the rahn asset that results in the transfer
of its ownership, as the right of the creditor is
attached to its monetary value.
6. The creditor may not enter into a transaction
involving the rahn asset as he is not its owner.
 Legal Consequences
7. The creditor’s control over the rahn asset is trust-based,
i.e. yad amanah. Therefore, he is not liable for its loss
except in the event of committing an excess or
negligence. No part of the debt becomes waived due to
loss befalling the rahn.
In Hanafi school, the creditor is considered liable for the
rahn asset to the extent of the debt. If the rahn is
destroyed, it is counted as recovery of the debt. The value
of the rahn in excess of the debt is considered amanah.
8. When an outsider destroys the rahn, he is liable, and the
substitute/ compensation takes the place of the rahn.
9. The debtor may sell the rahn with the permission of the
creditor.
 Legal Consequences
10. When the debt becomes due and the debtor fails to settle
upon being demanded by the creditor, or when the debtor
disappears or refuses to sell the rahn asset, the judge will
order the debtor to sell if he is present; otherwise, the judge
will sell it himself.
- In the Hanafi school, the judge may not sell the rahn himself
without the permission of the debtor. However, he may
imprison the debtor until the latter sells it himself.
- Expenses pertaining to the sale are borne by the debtor, as he
is the owner.
11. The creditor is entitled to preferential rights to the proceeds
of liquidation, i.e. the creditor is given preference in
settlement through the sale proceeds of the rahn over other
parties, as his right is attached to the mortgaged asset.
 Legal Consequences
12. When it is stipulated in the rahn contract that if the debt is
not settled upon falling due, the rahn asset would be
considered sold to the creditor, the contract becomes invalid.
This is due to the hadith, ‘the mortgaged asset shall not be
forfeited from its owner,’ i.e. he shall not be prevented from
reclaiming it.
13. The creditor is required to return the rahn to the debtor at
the termination of the debt through any mode, e.g. waiving,
gift, settlement, transfer etc.
14. When the debtor settles a part of the debt, the whole rahn
asset remains mortgaged.
15. The debtor is required to settle the debt first, and the rahn
is released by the creditor thereafter.
 Legal Consequences
Increase/growth of the rahn asset:
- Growth/increase in the rahn asset that is attached to its corpus such
as an animal becoming fattened and increase of size is added to
the rahn. Increase that is unattached such as fruits, offspring, milk
and eggs do not become added to the rahn. Thus, the debt does not
become attached to such increase.
Invalid rahn
- When the rahn contract is invalid due to a reason such as the rahn
being a prohibited item, undefined, or non-existent, and the
creditor takes possession of it, he is not liable for any loss
befalling it while the asset is in his custody. Thus, the ruling on
liability here is similar to a valid rahn contract, in the Shafi’i and
Hanbali schools. The debtor may demand the rahn back from the
creditor. If the creditor refuses to return, in the event of loss to the
asset, he is considered a usurper (ghasib), and is liable for the loss.
 Termination
1. The rahn terminates through complete settlement of the debt.
2. Through compulsory sale, i.e. liquidation by the order of the
judge.
3. Through the debtor becoming free of the debt through any
means, e.g. waiving of the debt by the creditor, his gifting it
to the debtor etc.
4. The creditor annulling the contract of rahn, as the contract is
not binding on him.
5. Destruction of the rahn asset.
6. The rahn contract does not become terminated after
possession by the death of either contractor.