Laws of Collateral in Today's World in Islamic Perspective

Aqeel Akhtar(1), Fahad Ahmed Qureshi(2*), Mubeen Butt(3)
(1) Bank Alfalah Islamic Pakistan
(2) American School of Oriental Research, Boston University
(3) School of Islamic Economics, Banking and Finance, Minhaj University
(*) Corresponding Author
DOI : 10.22515/shirkah.v3i1.178


Taking from Pakistan State Bank case, this article initially elaborates and critically discusses collateral (in conventional term) and Islamic collateral (rahn). In conventional banking, collateral traditionally refers to secured lending (also known as asset-based lending). Since possession is pre-requisite for binding of the contract, the charge can be registered in this regard to the regulating authority. Third party charge registration in this regard will not be entertained until the debtor scrutinizes it with registration. We argue that it is allowed for a creditor to take one asset as collateral from two debtors and this asset will be considered from both debtors as rahn. Since one single asset is considered from both debtors, the creditor may hold the asset until his whole debt would be paid off. Although this research happens in Pakistan, the case of collateral and rahn can be academic precedence in Islamic global world. 


Keywords: collateral, rahn, Pakistan state-banking


Abdul, -Rahman, Y. (2010). The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking: Wiley.

Abdul-Rahman, Y. (2014). The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking: Wiley.

Abidin, I., & Amin, M. (1992). Raddul Mukhtar Alad Durril Mukhtar. Beirut: Darul Fikr.

Adelino, M., Schoar, A., & Severino, F. (2018). The role of housing and mortgage markets in the financial crisis. Annual Review of Financial Economics, 10, 25–41.

Ahiadorme, J. W., Gyeke-Dako, A., & Abor, J. Y. (2018). Debt holdings and investment cash flow sensitivity of listed firms. International Journal of Emerging Markets, 13(5), 943–958.

Ahmed, R. R., Vveinhardt, J., & Ahmad, N. (2016). The impact of time and regime on external debts of Pakistan: An empirical study (pp. 486–497). Presented at the Proceedings of the 27th International Business Information Management Association Conference - Innovation Management and Education Excellence Vision 2020: From Regional Development Sustainability to Global Economic Growth, IBIMA 2016.

al-Shāfi‘ī, A. M. (1990). al-Umm. Beirut: Dār Al-Kutub Al-’Ilmiyyah.

al-Shafi‘i, M. bin I. (n.d.). Musnad al-Shafi ‘i. Beirut: Dar al-Kutub al-‘Ilmiyyah, tt.

Al-Bahuti, M. bin Y. bin. (n.d.). Idris. Syarh Muntaha al-Iradat. Bayrut: Dar al-Fikr.

Al-Bahwti, M. bin Y. (n.d.). Kashf al-Qina”an Matn al-Iqna’. Dar Al-Fikr.

Al-Hanafi, I. H. (n.d.). Fathul Qadir. Bairut, Darul Kutub.

Al-Hattab, M. (1992). Mawahib al-jalil fi sharh mukhtasar al-khalil. Damascus: Dar Al-Fikr.

Al-Kharashi, M. B. (1988). Sharh Mukhtasar Khalil. Damascus: Dar Al-Fikr.

Al-Mardawi, A. (1957). Al-Insaf. Beirut: Dar Ihya Al-Turath Al-Arabi.

Al-Marghinani, B. A. A. (1990). al-Hidaya. Beirut: Dar Al-Arqam.

Al-Mawardi, A. al-Hasan. (1994). al-Hawi al-Kabir (Vol. 7).

Al-Salim, F. H. (2009). Islamic Financial Product Innovation. International Journal of Islamic and Middle Eastern Finance and Management.

Al-Sarakhsi, S. al-Din, & Ahmad, I. (1978). al-Mabsut. Cairo: Dar-al-Ma’rifah.

Usmani, MT (2007). Sukuk and their contemporary applications (Sheikh Yusuf Talal DeLorenzo, Trans.). Saudi Arabia: AAOIFI Shari’a Council Meeting.

Al-Sharbini, S. M. al-Khatib, & al-Khatib, I. M. (1995). Mughni al-Muhtaj ila Marifah Maani Alfaz al-Minhaj. Beirut: Dar al-Fikr.

Al-Tanukhi, A.-I. S. bin. (1902). al-Mudawwanah al-Kubra. Beirut: Dar Al-Shadr.

Ariff, M., & Iqbal, M. (2011). The Foundations of Islamic Banking: Theory, Practice and Education: Edward Elgar Publishing Limited.

Ariff, M., & Studies, I. o. S. A. (1988). Islamic Banking in Southeast Asia: Islam and the Economic Development of Southeast Asia. Singapore: Institute of Southeast Asian Studies.

Bausell, R. B. (1991). Advanced Research Methodology: An Annotated Guide to Sources: Scarecrow Press.

Bian, X., Lin, Z., & Liu, Y. (2018). House price, loan-to-value ratio and credit risk. Journal of Banking and Finance, 92, 1–12.

Bukhari, I. (1992). Shahih Bukhari (Vol. III).

Carneiro-Da-Cunha, J. A., Dos Santos, M. G., De Souza, L. J., Alssabak, N. A. M., & Macau, F. R. (2015). The history of an Islamic entrepreneurship: Achieving exporting-network leadership through religious legitimacy. International Journal of Business and Globalisation, 15(3), 272–293.

Centre, Q. F. (2010). Islamic Finance: Instruments and Markets: Bloomsbury Information Limited.

Cipriani, M., Fostel, A., & Houser, D. (2018). Collateral Constraints and the Law of One Price: An Experiment. Journal of Finance, 73(6), 2757–2786.

Elkhatib, D. H., & Gaunaurd, P. M. (2012). Islamic Finance. The International Lawyer, 46(1), 281-286.

Giambona, E., Mello, A. S., & Riddiough, T. J. (2018). Real Assets, Collateral and the Limits of Debt Capacity. Real Estate Economics, 46(4), 836–886.

Grewal, D., & Sharma. (1991). The Effect of Salesforce Behavior on Customer Satisfaction; An Interactive Framework,. Journal of Personal Selling & Sales Management, 11(3).

Haidar, A. (n.d.). Durar Al-Hukam Syarh Majalah Al-Ahkam. Dar Al-Kutub Al-‘Ilmiyyah: Lebanon.

Hanif, M. (2011). Islamic Banking: Financial Reporting Perspective: CreateSpace Independent Publishing Platform.

Hussain, L., & Ali, M. M. (2017). Sharīʿah non-compliant assets as rahn (pledge) in Islamic banking products: a fiqhī perspective. ISRA International Journal of Islamic Finance, 9(2), 196–199.

Jurjani, M. I. (1878). Zakheera-Khwarzam-Shahi. Munshi Nawal Kishore, Lucknow, 540.

Kasani, A. B. al. (n.d.). Badai’al-Shanai’fi Tartib al-Syarai’. Beirut: Dar Al-Kutub Al-Ilmiyah.

Mikail, S. A., Kasri, N. S., Elatrash, S. R., & Adewale, A. A. (2018). Framework for financial hardship indebtedness management in abandoned housing projects in Malaysia. ISRA International Journal of Islamic Finance, 10(1), 102–110.

Mohamed Imtiyaz, M. N., Kassim, S., & Harun, N. Z. (2017). Perceived fairness in islamic home financing: Comparison between Al-Bay’ Bithaman Ajil and Musharakah Mutanaqisah partnership contracts. Planning Malaysia, 15(4), 35–44.

Mwita, D., & Yan, C. (2011). Re-positioning public and private resources in urban housing projects development the case of the city of Dar es Salaam, Tanzania (Vol. 1, pp. 694–699). Presented at the BMEI 2011 - Proceedings 2011 International Conference on Business Management and Electronic Information.

Niinimäki, J.-P. (2018). Collateral in credit rationing in markets with asymmetric information. Quarterly Review of Economics and Finance, 68, 97–102.

Pardina, M. R., Rapti, R. S., & Groom, E. (2008). Accounting for Infrastructure Regulation: An Introduction: World Bank.

Punzi, M. T., & Rabitsch, K. (2018). Effectiveness of macroprudential policies under borrower heterogeneity. Journal of International Money and Finance, 85, 251–261.

Qudamah, I. (1968). al-Mughni li Ibn Qudamah. Kairo: Maktabah AlJumhuriyyah

Rushd, I. (1993). Bidayat al-Mujtahid, vol. 2. Beirut: Dar Al-Fikr.

Saleh, C., & Salsabila, K. (2018). Success factors in Halal Marketing Mix. Journal of Engineering and Applied Sciences, 13, 5308–5312.

Tomura, H. (2018). Payment instruments and collateral in the interbank payment system. Journal of Economic Theory, 178, 82–104.

Vogel, F. E., & Hayes, S. L. (1998). Islamic Law and Finance: Religion, Risk, and Return: Springer Netherlands.

Article Statistic

Abstract view : 47 times
PDF views : 26 times

How To Cite This :


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.