Rahn (pledge and guarantee deposit)

The rahn (pledge)

The pledge is placing a valuable asset with the creditor as security for a debt, recoverable from the asset or from its price if payment becomes impossible (definition of the Shafi'i and Hanbali schools). It is lawful by the Book, the Sunnah and consensus: the Prophet pledged his armor in Madina; he said:

The ridden mount may be ridden at the expense of its keeper if it is pledged, and the milk of the milch animal may be drunk at her keeper's expense, and the one who rides and drinks bears the upkeep.

al-Bukhari 2377

And: "Its gain goes to its owner and its upkeep is on him" (Ibn Hibban 5934, al-Hakim), the gain and the upkeep being those of the debtor, owner of the pledge. The scholars agree on its validity in travel and residence alike (Ibn al-Mundir, Ibn Hubayra); Mujahid alone restricted it to travel.

Conditions on the pledged asset

• Known in species, quantity and quality, like any object of contract (jumhur).
• A corporeal asset: pledging a benefit (the use of a house) is invalid for the Hanafis, Shafi'is and Hanbalis, a benefit perishing with time and securing nothing; the Malikis hold 2 opinions.
• Owned by the debtor or with permission: borrowing an object to pledge it is valid by the scholars' consensus (Ibn al-Mundir): if the borrower repays, the object returns to its owner; if not, it is sold for the debt and the lender recovers its value from the borrower.

The rahn conditions and the forbidden clause

The parties may stipulate placing the pledge with a just custodian and delegating its sale at maturity. The clause by which the creditor would own the pledge if the debt is not paid is invalid by the agreement of the 4 schools; Malik treats it as a ground of rescission, and the transmitted doctrine (Ibn Umar, Shurayh, al-Nakha'i, Malik, al-Thawri, ash-Shafi'i) knows no dissent. It is the meaning of the Prophetic saying that the pledge is not acquired: a man pledged a house in Madina; the term passed and the creditor claimed it as his; the Prophet said that the pledge is not acquired (al-Muwatta).

Delegating the sale of the pledge at maturity to the creditor himself is valid for the Hanafis, Malikis and Hanbalis, the widespread Maliki view preferring referral to the judge; the Shafi'is reject it, the 2 intents being contradictory. Delegation to a just custodian is revocable for the Shafi'is and Hanbalis, irrevocable for Abu Hanifa and Malik when stipulated in the contract.

Practical note on rahn

The pledge stays the property of the debtor and a trust in the creditor's hand: the gain returns to the debtor and the upkeep remains on him, and the debt is settled from the asset, never by confiscation.