A recent editorial in The National argued that pawnshops could provide the answer to the UAE's loan sharking problem.
Certainly, pawnshops might represent a lesser evil than a loan shark, but they also bring with them several complications.
Not the least of these issues are that they are alien to the UAE and involve lending money at high rates of interest.
However, exploring solutions to personal indebtedness is both useful and essential, especially in the light of the growing concern over Emiratis succumbing to the pitfalls of borrowing.
Pawnshops offer secured loans to individuals where the borrower’s personal property is used as collateral for the loan. The property is returned if the borrower repays the loan (with interest) within a certain time period.
If the borrower defaults – and it is inevitable that some will – the pawnshop sells the collateral and keeps the entirety of the proceeds. Since the loan is appraised below the expected sale price of the collateral, the pawnshop profits whether the borrower repays or defaults.
The business model used by pawnshops clashes with local Islamic norms and values related to financial transactions.
Firstly, the loan is a type of ribã or usury, which is expressly forbidden in the Quran and it is considered unlawful in Islamic law.
Secondly, collateral exists to secure the right of the lender to be reimbursed the lent amount at the agreed upon time. Being reimbursed more than the amount lent is not only unjust, it is also usury.
According to Islamic law, when collateral is sold to cover a debt, whatever money is left over after reimbursing the loan must be returned to the owner of the collateral.
But removing usury – and the opportunity to profit by consuming the collateral – leaves pawnbrokers without a financial incentive to offer secured personal loans to individuals.
The UAE needs an alternative solution that agrees with local Islamic norms and values without incurring usury or misappropriating the collateral.
This alternative solution also needs to preserve the general spirit of Islam that personal loans should be given for the sake of reward from Allah, rather than for the sake of financial profit.
One solution is already available through Ar Rahn, or “Islamic pawning”.
Ar Rahn is a relatively new microcredit instrument that is based on three concepts from Islamic finance.
These concepts are that borrowers are required to pay back only the amount owed (al qard al hasan). Borrowers must also place collateral with the lender to ensure payment of the loan (al rahn wa-l-wadi’ah). The lender, meanwhile, can charge a fee for safekeeping the collateral (al ujra).
In Malaysia, Ar Rahn loans typically have a term from one to six months, with the possibility to extend.
Collateral is provided in the form of gold or gold jewellery, with the loan appraised at up to 80 per cent of the value of the gold. Borrowers have the option of paying their loan in instalments or in one lump sum. The collateral is auctioned if the borrower defaults on the loan and the proceeds are used to pay the balance of the loan and the charges for safekeeping, with the remainder returned to the borrower.
The Ar Rahn model removes usury from the picture by placing pawnbrokers in the business of safekeeping and auctioning deposits.
Loan sharks and pawnbrokers are in the business of making money by offering loans to individuals who are desperate and financially vulnerable.
The Ar Rahn model provides a solution to the UAE’s personal microcredit needs that is in line with local values and morals. It also demonstrates the mercy and social justice possible through Islamic loans – in stark contrast to the debt-related depression and suicide so often resulting from its alternatives.
Musa Furber is a research fellow at the Tabah Foundation in Abu Dhabi and an associate at Straightway Ethical Advisory
On Twitter: @musafurber
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Company%20Profile
%3Cp%3E%3Cstrong%3EName%3A%20%3C%2Fstrong%3EDirect%20Debit%20System%3Cbr%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%20Sept%202017%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20UAE%20with%20a%20subsidiary%20in%20the%20UK%3Cbr%3E%3Cstrong%3EIndustry%3A%3C%2Fstrong%3E%20FinTech%3Cbr%3E%3Cstrong%3EFunding%3A%3C%2Fstrong%3E%20Undisclosed%3Cbr%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%20Elaine%20Jones%3Cbr%3E%3Cstrong%3ENumber%20of%20employees%3A%3C%2Fstrong%3E%208%3Cbr%3E%3C%2Fp%3E%0A
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Another way to earn air miles
In addition to the Emirates and Etihad programmes, there is the Air Miles Middle East card, which offers members the ability to choose any airline, has no black-out dates and no restrictions on seat availability. Air Miles is linked up to HSBC credit cards and can also be earned through retail partners such as Spinneys, Sharaf DG and The Toy Store.
An Emirates Dubai-London round-trip ticket costs 180,000 miles on the Air Miles website. But customers earn these ‘miles’ at a much faster rate than airline miles. Adidas offers two air miles per Dh1 spent. Air Miles has partnerships with websites as well, so booking.com and agoda.com offer three miles per Dh1 spent.
“If you use your HSBC credit card when shopping at our partners, you are able to earn Air Miles twice which will mean you can get that flight reward faster and for less spend,” says Paul Lacey, the managing director for Europe, Middle East and India for Aimia, which owns and operates Air Miles Middle East.
Zayed Sustainability Prize
Earth under attack: Cosmic impacts throughout history
- 4.5 billion years ago: Mars-sized object smashes into the newly-formed Earth, creating debris that coalesces to form the Moon
- 66 million years ago: 10km-wide asteroid crashes into the Gulf of Mexico, wiping out over 70 per cent of living species – including the dinosaurs.
- 50,000 years ago: 50m-wide iron meteor crashes in Arizona with the violence of 10 megatonne hydrogen bomb, creating the famous 1.2km-wide Barringer Crater
- 1490: Meteor storm over Shansi Province, north-east China when large stones “fell like rain”, reportedly leading to thousands of deaths.
- 1908: 100-metre meteor from the Taurid Complex explodes near the Tunguska river in Siberia with the force of 1,000 Hiroshima-type bombs, devastating 2,000 square kilometres of forest.
- 1998: Comet Shoemaker-Levy 9 breaks apart and crashes into Jupiter in series of impacts that would have annihilated life on Earth.
-2013: 10,000-tonne meteor burns up over the southern Urals region of Russia, releasing a pressure blast and flash that left over 1600 people injured.
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances