Ways to pledge gold at Ar-Rahnu: What is the maximum amount that is given out as the loan?

Typically, the amount given out as a loan is between 65 to 70% of the current gold price. However, the current gold price is determined by the said Ar-Rahnu centre, not the gold producer/company. From here, we ought to understand that different Ar-Rahnu branch offices might portray different gold prices. The best way to get latest rate is by doing a quick search on the gold price, perhaps on their website. Interestingly, some of these centres may not display the gold price on their website as the rate might fluctuate depending on their policies. In such a case, calling them up is ideal for the latest information.

At first, the Ar-Rahnu officer would weigh the item and verify the purity using a device to determine the value of our gold items. Fun fact: The device is known as a densimeter. Do take note that if the purity stated on the device differs from the one indicated on the certificate of authenticity, we most likely got tricked by the gold seller. Apart from this, there might be an issue with the device. However, such crucial devices are always kept in prudent condition to ensure high accuracy. Nevertheless, we could always bring the gold items to another branch office for a second opinion in such instances.

How much would they charge for the custodian fee?

Firstly, we ought to take note that the charges imposed by them are known as custodian fees (or safekeeping fees). We can consider this charge as a fee for seeking their help to take good care of our gold items, but in fact, it is the processing fee for the loan we seek from them. This arrangement is made this way to abide by the Syariah regulations.

As a general rule of thumb, the fee imposed is RM 0.70 per month for every RM100 worth of gold pledged (known as ‘marhun’), not based on the loan we receive from them. If we were to calculate, the effective rate for Ar-Rahnu is approximately 1.15% per month based on the loan we receive.

Next thing to note is that the safekeeping fee is fixed as stated in the receipt. Meaning, the fee would not change even if the gold price might fluctuate within the agreed duration. In view of this, can we pay the fee earlier than the agreed-upon duration? The answer is yes; we can. We can make the payment within the period or at one go during our visit to reclaim the gold items.

How long is the Ar-Rahnu pledge available?

The usual duration for Ar-Rahnu service is six months. Moreover, some Ar-Rahnu centres would extend the period to nine or twelve months. The process goes as follows: we will proceed to the centre and reclaim our gold items upon completing the period. Please be aware that failing to reclaim would make them proceed to auction our gold items. However, we can always renew the pledging contract if we need more time.

Please note that we are always allowed to reclaim the gold items within the duration, not necessarily at the end of the agreed period. If we can reclaim the item within a month, this would bring down the safekeeping cost even lower. Hence, this method is flexible in its duration, and we can utilise it to our advantage.

How do we extend the Ar-Rahnu pledge?

Before the end of the contract, pay a visit to the centre and settle the safekeeping fee involved baseed on the current agreement. Following to this, the Ar-Rahnu officer would reassess gold according to the current gold price. For instance, let’s say the gold was pledged for RM 10,000. However, upon reassessment, the price has gone up to RM 12,000. That would mean that the loan amount would be revised to RM 7,800 (assuming 65% of proportion based on current price), with the safekeeping fee being RM 84 per month (based on a new value of RM 12,000).

What does this mean?

Based on the table above, we can see that upon contract renewal, the centre would add on the loan amount by RM 1,300. Knowing this is a good news if the gold price appreciates within the duration. But how if the opposite occurs? Yes, we have to be the one paying the centre RM1,300 to renew the contract. This was the exact reason why so many people got stuck when they serially pledged their gold around 2012 when the gold price was somewhat stagnant (it did not appreciate).

In short, these are the ways to pledge gold at Ar-Rahnu.

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Your buddy on gold investing,

Naresh G