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Bank Islam Optimistic of Ar-Rahnu Business

KOTA BHARU, Wednesday,[16 June 2010]: It sees huge market potential for the segment and is optimistic the business will become a significant contributor to annual turnover.

“We see huge market potential in this business. Demand is there. We will look at the performance of existing outlets before we determine how many per cent it can contribute to the group,” Bank Islam managing director Datuk Seri Zukri Samat told reporters after the launch of its first Ar-Rahnu branch in Kota Baru yesterday. He said the current market penetration of Islamic pawnbroking in the country was still less than 50 per cent. The cumulative financing for the Ar-Rahnu market totalled RM5.4 billion to date, with more than 4.3 million people having benefited since it was introduced by the Malaysian Islamic Economic Development Foundation (YaPEIM) in 1993.

He said the market was under-served with only three other players, namely YaPEIM (63 branches), Bank Kerjasama Rakyat Malaysia Bhd (16 branches, including nine under a franchise system) and Permodalan Kelantan Bhd (22 branches in Kelantan, Terengganu and Pahang). “We estimate that the Ar-Rahnu industry will grow by 20-30 per cent in the next five years.” Ar-Rahnu, an Islamic collateral-based financing system, was introduced as a syariah-based alternative and easier source of financing, with gold as collateral in exchange for cash.

Zukri said the Ar-Rahnu service is an extension of Bank Islam’s offerings to serve the community, along the lines of its 2008 launch of a home-financing scheme for creditworthy individuals who have difficulties providing evidence to substantiate their income, such as farmers, fishermen and sole proprietors. “Ar-Rahnu is actually not a new business line for Bank Islam as it was part of the bank’s spectrum of offerings back in 1993 through an injection of special fund/capital from YaPEIM.” Zukri said the target market group for the microcredit scheme will be petty traders and small business operators such as restaurant owners, hawkers, tailors and low-income earners in rural areas.

The launch of the branch was officiated by Prime Minister Datuk Seri Najib Razak. Also present were International Trade and Industry Minister Datuk Seri Mustapa Mohamed, Tourism Minister Datuk Dr Ng Yen Yen and Deputy Finance Minister Datuk Dr Awang Adek Hussin.

Bank Islam gained an instant entry into the Ar-Rahnu market when it bought an 80 per cent stake in Islamic pawn broker Farihan Corp Sdn Bhd (FCSB), which operates an Ar Rahnu outlet in Pasir Puteh, Kelantan, with an annual turnover of RM6 million.

FCSB founder Aziz Nawi holds the remaining 20 per cent stake. The company will be rebranded as Ar-Rahnu Bank Islam.

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