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A STUDY ON ISLAMIC PAWN BROKING AWARENESS AND FACTORS INFLUENCING THE SCHEME IN SUNGAI PETANI, KEDAH
Santhi Appannan and Gaithry Doris Faculty of Business Management AIMST University Email: santhi_appannan@yahoo.com gaithry_doris@yahoo.com

ABSTRACT
This paper aims to identify the level of public awareness towards Islamic pawn broking Ar Rahnu Scheme and the main factors that influence the public to pursue Islamic pawn broking in Sungai Petani, Kedah. Questionnaires were used to collect the data and were analyzed via cross tabulation, mean score analysis and multiple regressions. The findings indicate Sungai Petani’s community is aware of the term Islamic pawn broking but the awareness is at a different level among the races. The majority of Chinese and Malays were aware of this scheme. However the Indians were not aware of the scheme. The findings also indicate that the majority of Islamic pawn broking consumers are in a lower income group, mainly from the private sector with an income of RM1000 and below. It is also found that the main factor influencing public to pursue Islamic pawn broking was its cheap cost of loan. The other factors that were tested were confidential, customer service, locality and income level. Keywords: Ar Rahnu Scheme, public awareness, cost of loan, confidential, customer service, locality and income level.

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1. INTRODUCTION The first Islamic pawn broking institution, Muassasah Gadaian Islam Terengganu (MGIT), was set up by the Terengganu State Islamic Affairs and Malay Customs in January 1992.On 21 August 1993, the Minister of Finance announced the introduction of a scheme, known as Ar-Rahnu scheme through the collaboration of three institutions namely Bank Negara Malaysia (supply the expertise in financing field), Islamic Economic Development Foundation Malaysia or YPEIM as the funder, and Bank Kerjasama Rakyat Malaysia Berhad which supply the infrastructures and managing the transaction. Later, on 27 October 1993 the first phase of Ar-Rahnu scheme was launched at six branches of Bank Kerjasama Rakyat Malaysia Berhad. Now, the Ar-Rahnu scheme is available at all Bank Kerjasama Rakyat Malaysia Berhad branches throughout Malaysia. YPEIM had also taken the initiative to launch 17 counters of Ar-Rahnu scheme through YPEIM co-operatives. Later in 1997, the Islamic pawn broking commenced in Bank Islam followed by EON Bank (August 2002) and Bank Pertanian Malaysia in September 2002.

Generally, the operation for Islamic pawnshop transaction is quite similar with conventional. Only, the contract (aqad) in the Islamic pawnshop is different from the conventional pawnshop. The loan granted is based on four concepts, i.e. al-qardhul hassan (loan without interest), al-wadiah yad dhammanah (keeping valuable goods by guarantee), al-ujrah (storage fees) and ar-rahn (collateral). The storage fee is based on the value of gold and not on the amount of the loan, and charged differently by each Islamic pawn broker as in Table 1.

Table 1.0: The safekeeping fees charge in Islamic pawnshops
Safekeeping fee for every RM100.00 of gold value per month Bank Rakyat RM0.65 (RM100.00-RM1,000.00) RM0.75 (RM1,001.00 RM10,000,00) Permodalan Kelantan Berhad RM 0.60 RM1.00 - RM 400.00 RM 0.85 RM 401- RM2,000 RM 0.95 (RM 2001 and above Muassasah Terengganu No Charge (RM 1,000 and below) RM0.50 (RM 1,001 sehingga RM 3,000) RM0.60 (RM 3,001 sehingga RM 5,000) RM 0.70(RM 5,001 sehingga RM 10,000) RM 0.75 (RM 10,001 ke atas) Gadaian Islam

In the Islamic-based pawnshop, gold is the only permitted item. Gold have several advantages as collateral over other items (Skully, M.S, 2005). Firstly, gold is easily resold and so there is potentially auctioning the collateral should the borrower not redeem the pledge. Secondly, gold’s purity can be easily determined and so the risk of mispricing the collateral can be minimized. Thirdly, gold chains and rings typically require only a small flat envelop for storage and so can be kept securely in the bank safe at little, if any, additional cost. Finally, women often receive

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gold chains and bracelets as wedding gifts and generally retain personal ownership of these items especially in Malaysia. This practice is common across income levels and so provides a rich base of potential customers.

1.1Problem Statement Lack of knowledge about mortgage tax system caused many community members, especially those who desperately need money, deceived and damage hundreds of dollars. Despite the popularity of store mortgage tax as 'bank' to get money immediately had monopolized or illegal moneylender along, but it can survive and function continue to be required until now. In fact, there is no exaggeration to claim mortgage tax shops as a temporary rescue. Although Islamic mortgage tax scheme, Ar-Rahnu introduced in recent years in several leading banks homeland, but many still choose to obtain service tax mortgage shops on the ground it is easier and faster (Daily Metro, 2004). Therefore this research is conducted to identify whether public aware of Islamic pawn broking (Ar Rahnu) scheme.

1.2Research Objectives 1. To identify the level of public awareness towards Islamic pawn broking scheme 2. To identify the factors that influence public to pursue Islamic pawn broking scheme 3. To identify the most important factor that influence people to pursue Islamic pawn broking scheme.

1.3 Research Question 1. What is level of public awareness towards Islamic pawn broking in Sungai Petani, Kedah? 2. What are the factors that influence public to pursue Islamic pawn broking? 3. Which is most important factor that influences public to pursue Islamic pawn broking scheme?

1.4 Significant of the Research Results from the study findings are expected to provide additional information or knowledge to the general public about the concept of Islamic pawn broking (Ar-Rahnu) and to take advantages of it. In addition to contributing to the increase of knowledge, these findings also expected to contribute to the management of Islamic pawn broking (ArRahnu) to make further research to study the extent of public acceptance of Islamic financial products. Similarly, the findings of this study can be expected starter so that it can be used to make planning for future to further develop the Islamic financial system. Besides this research is also useful for the future business people who wanted to intend to open Islamic based pawn shop.

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2. LITERATURE REVIEW

2.1 Micro Credit Program in Malaysia Microcredit is the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. It has proven an effective and popular measure in the ongoing struggle against poverty, enabling those without access to lending institutions to borrow at bank rates, and start small business. The key implications of microcredit are in its name itself: 'micro'. A number of issues come to mind when 'micro' is considered: The small size of the loans made, small size of savings made, the smaller frequency of loans, shorter repayment periods and amounts, the micro/local level of activities, the community-based immediacy of microcredit etc. Hence microcredit is not the solution, but is a menu of options and enablement, that has to be put together, a la carte, based on local conditions and needs. Microcredit has been used as an 'inducer' in many other community development activities, used as an entry point in a community organizing programme and as an ingredient in larger education/training exercises (Hari Srinivas, Coordinator).

2.1.2 Amanah Ikhtiar Malaysia Amanah Ikhtiar Malaysia (AIM) was established in 1987 and one of the oldest microfinance institution in Malaysia and also one of the largest Grameen Bank replication in Asia. AIM seems bear out Gibbon’s word that loan portfolio equity, as the loans outstanding are a microfinance organization’s most important asset. The target group for AIM is the hardcore poor with household income below two-thirds of the poverty line, with the majority consists of female borrowers. AIM has adopted best practices of microfinance lending methodology and to a certain extent has performed within their objectives. AIM adopts group-based lending practices and charges administrative fee of 7% to 12% for its loans. It adopts close monitoring, granting small amount of loans, imposes high frequency repayments (weekly basis) and compulsory savings of 1% of total loan per week on its borrower. In terms of funding, there are still limited resources contributed by the savings of borrowers. (Selamah Binti Maamor and Abdul Ghafar Ismail, 2006). In an impact study conducted in 2005 by AIM to assess the effectiveness of its microcredit schemes, the results have been quite positive, where out of 1,497 “sahabat” who were beneficiaries of AIM’s schemes for an average of six years, 90% had succeeded in raising themselves out of the poverty level and 27% are now earning a stable income of more than RM2,000 a month (SME annual report, 2006).

2.1.3 Bank Pertanian Malaysia Bank Pertanian Malaysia has been given the responsibility to implement the Economic Stimulus Package in 2003. One of the stimulus packages is the provision of RM500 million to finance small scale entrepreneurs to provide working capital to entrepreneurs who undertake all agricultural activities involving production, processing and distribution. Viable projects and financing is dependent upon project requirements and cash flow as basis of the

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financing. Finally the target group is entrepreneurs at all levels of agricultural activities including part time entrepreneurs who are government or private sector employees (Selamah Binti Maamor and Abdul Ghafar Ismail, 2006). In 2003, BPM was directed to allocate RM500 million of funds under the Micro Credit Scheme. The target group is entrepreneurs at all level of agricultural activities including part time entrepreneurs who are government or private sector employees. The mechanism employed by BPM to deliver its microfinance facilities is relatively simple. A client has to complete an application form together with a business proposal. The client does not have to provide any collateral to support the application (Bank Pertanian Malaysia ).

2.1.4 Co-operatives The Department Of Co-operative Development was established in July 1992. The department is entrusted with development and regulatory functions under of the Co-operative Societies Act, 1993 (Act 502) and the Co-operatives Regulations, 1995. To ensure the co-operative movement plays an effectives role in the socio-economic development of the country towards an equitable distribution of wealth (Selamah Binti Maamor and Abdul Ghafar Ismail, 2006). 2.1.5 Credit Guarantee Corporation (CGC) Credit Guarantee Corporation Malaysia Berhad was incorporated in 1972 with Bank Negara and Financial Institutions as its shareholders. As an agency under the purview of Ministry of Entrepreneur and Co-operative Development (MECD), CGC acts as the only institution in Malaysia which provides guarantee on loans to Small and Medium Industries (SMIs). The aim is to assist viable SMIs with inadequate collateral or without collateral or have no track record to gain the much needed access to financing. Credit Guarantee Corporation has evolved from its primary role as a credit supplementation institution to a more market-driven role to sustain Malaysian SMIs in the competitive economy. The role as a ‘Credit Enhancer’ is revealed in CGC’s approach to position itself as the intermediary to provide access to credit for all Malaysian SMIs (Selamah Binti Maamor and Abdul Ghafar Ismail, 2006). Since its establishment in 1972, CGC has approved more than 385,000 applications amounting to RM34.5 billion under its various schemes. In 2006, CGC approved 7,500 loan applications amounting to more than RM3 billion (SME Annual Report, 2006).

2.1.6 Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) TEKUN is specialized in the provision of small loans to micro enterprises of the native groups (Bumiputera). Similar to AIM, the operation of TEKUN is financed mainly by funding from the Government. TEKUN adopts simple loans processing without collateral requirement and charges administrative fee of 8% for its loans. Similar to AIM, TEKUN adopts close monitoring, imposes high frequency repayment (every fortnight) and compulsory savings (0.5% of loan amount per week) (Azila Abdul Razak, 2004). TEKUN micro credit scheme per se is unsustainable. For example, in 2004, the non-performing loan of TEKUN is estimated at RM84, 737,059 (inclusive of interest) or 18.9% of total loans outstanding, involving 41,046 clients or 40.1% of the total borrowers (Roslan Abdul Halim, Faudziah Zainal Abidin, Mohd Saifoul Zamzuri Noor and Rahimah Majid, 2007).

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2.1.7 Bank Simpanan Nasional (National Saving Bank) Bank Simpanan Nasional Malaysia was established on 1st December, 1974 under the Act of Parliament 146 Laws of Malaysia 1974. Savings mobilised from small savers by Bank Simpanan Nasional (BSN) or National Savings Bank was launched in June 2003 as part of the Government’s Economic Package. As at end-2003, a total of RM415.6 million had been extended under the micro credit scheme, accounting for 17% of total loans outstanding. BSN received 102,432 loan applications under the scheme, of which 60,364 applications amounting to RM541.8 million and RM430.8 million were approved and disbursed respectively. The micro credit borrowers were involved mainly in food stall business, retail trading and business services. Meanwhile, more than 90% of the loans outstanding, excluding micro credit, was extended to individuals mainly in the form of consumer loans and for purchase of residential property. (Bank Negara Malaysia)

2.2 History of Islamic Pawnshop

To cater for the demand of non-interest bearing pawn-broking services by the lower income group, a few Islamic pawn-broking institutions were established in the early 1990’s. The first Islamic pawn-broking institution, Mu'assasah Gadaian Islam Terengganu (MGIT), was set up by the Majlis Agama Islam dan Adat Istiadat Terengganu in January 1992. In March 1992, Kedai Al-Rahn (KAR), a subsidiary of Permodalan Kelantan Berhad commenced its operations. On 21 August 1993, the Minister of Finance announced the introduction of a scheme, known as Skim AlRahnu (SAR) through the collaboration of three institutions namely Bank Negara Malaysia, Yayasan Pembangunan Ekonomi Islam Malaysia and Bank Kerjasama Rakyat Malaysia Berhad. Later, on 27 October 1993 the first phase of SAR was launched at six branches of Bank Rakyat (Selamah Binti Maamor and Abdul Ghafar Ismail, 2006).

In terms of legislation, the Islamic pawnbroking system is subject to certain laws but no specific acts. For example, ar-rahnu scheme in Bank Kerjasama Rakyat Malaysia Berhad is subject to three different acts, which are the Bank Kerjasama Rakyat (M) Berhad Act 1978, the Co-operative Societies Act (1993) and the Development Finance Institutions Act 2002. In addition, Bank Kerjasama Rakyat Malaysia Berhad has introduced separately the ar-rahnu manual guidelines(Bank Kerjasama Rakyat (M) Berhad (2000, 2002 dan 2003). Manual Pinjaman Pajakgadai Islam) . Other relevant acts are the Occupational Safety and Health Act for workers who are exposed to acid for the gold test and the Weight and Measurement Act, in which the gold weighing device has to be licensed every year (Sehan, M. A.)

2.3 Level of public awareness towards Islamic pawn broking (Ar Rahnu)

Studies by Mustafa indicates that level of awareness was measured using few variables such as gender, age, working status, race, education background, income level, number of dependent and type of marketing tools. According to Mustafa (2006), 73.3 % of respondents aware of Islamic pawn broking and about 26.7% of respondents were not aware of Islamic pawn broking. Studies by (Mohd Fazli Mohd Sam, Md Nor Hayati Tahir, Noor Khamisah Abdul Latif, 2010) indicate that level of awareness was measure using variables such as education, and good advertising such as promotion.

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The study by YPEIM indicates people know the existence of micro-credit scheme of the organizers of the scheme YPEIM and implementing the scheme. However, given the information has not been a very effective implementation scheme. YPEIM measure level of aware using variables such as race, income level, marketing tools and working group (Religion news daily, 2008). The study by (Assoc. Prof. Dr. Zuriah Abdul Rahman, 2007) measure level of awareness using variables such as race, marketing tools and education background. The study by (Mohamed Ishak Hj Badarudin Rais, 2007) measure level of awareness using variables such as race, gender, working group and income level. Hence the variables that are used in this research in order to measure the level of awareness are gender, age, marketing tools, education background, income level, and working status.

2.3.1 Race

Mustafa (2006) indicate that majority of Malay respondents about 93.3% aware of Islamic pawn broking, followed by about 3.30% of Chinese respondents aware of Islamic pawn broking and about 3.30% of Indian respondents aware of Islamic pawn broking. He made a conclusion that majority of Malay respondents aware of Islamic pawn broking and there was lack of awareness among Chinese and Indian respondents. YPEIM conduct social behaviour on the use of Ar-Rahnu scheme (Islamic mortgages) involving a total of 1.321 respondents and the results showed that the largest users of Ar-Rahnu scheme are Malays. But the study also found that the scheme based on Islamic law began to get attention China and India. If the promotional efforts and explains the differences between Ar-Rahnu scheme with the scheme of the conventional mortgages made to work, of course they chose this scheme because the benefits of its own (Religion news daily, 2008) The Study by Zuriah Abdul Rahman, (2007) indicate that majority, 88.6% of the respondents are aware of the existence of Islamic financial products in Malaysia, among the respondents who are not aware, comprising of 11.4% or133 respondents, they are mostly among the non-Muslims and the respondents from Sabah and Sarawak. For race, in average the Malays reported the highest respondent that represent 78.95 %.Whereas for types of pawnshop, 91.18 % of the Islamic pawnshop customers are Malays, and 4.90 % and 3.92 % are Indian and Chinese respectively (Mohamed Ishak Hj Badarudin Rais, 2007).

2.3.2 Gender

Level of awareness also was measure using gender. According to Mustafa (2006) about 53.3% of female respondents aware of Islamic pawn broking and about 46.7% of male respondents indicate aware of Islamic pawn broking. For the gender variable, 65.26 percent of respondents are female. Based on the value, 54.03 % prefer the Islamic pawn broking service. On the other hand, from the total number of male respondents, 53.03 % of male customers prefer the Islamic pawn broking service. In general, the percentage of respondent asking for the Islamic pawn broking service is 53.68%. (Mohamed Ishak Hj Badarudin Rais, 2007)

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2.3.3 Age

Mustafa (2006) research also indicate that majority of Islamic pawn broking consumers which is about 45.0% were age between 26 to 35 and all of them aware of Islamic pawn broking. This followed by about 31.7% of respondents age between 36-45, about 10.0% of respondents age 18-25 and about 8.3% of respondents were age 4655 . The remaining respondents which are about 5.0 were fall in age between 55 above. The researcher concluded that majority of Islamic pawn broking consumers fall in working group.

2.3.4 Working status Islamic pawn broking consumers consist of those who work in public or private sector, the self-employed as fortune-house, mechanics, farmers, rubber tapers, fishermen and tailors. (Religion news daily, 2008).The study by (Mohamed Ishak Hj Badarudin Rais, 2007) 25% of the respondents are housewife, 15.26 percent are government staff, 24.47 percent worked in the public sectors, 6.32 percent are farmer, 23.95 percent of the respondent involved in business activities and 5 percent represent the non-productive unit such as the pensioner, unemployed and students. Furthermore for the Islamic pawnshop customers, the highest distribution are reported for the public sectors employee that represent 24.02 percent, follows by the government staff and housewife that represent 22.06 percent respectively and for respondent that involved in business activities represent 21.57 percent.

2.3.5 Income level

Mustafa (2006) indicate that about 56.0% of respondents were income above RM1200 aware of Islamic pawn broking, followed by about 25.0% of respondents income between RM801 to RM1200 indicate aware of Islamic pawn broking and about 15.0 % of respondents income between RM501 to RM800 indicate aware of Islamic pawn broking. The remaining about 3.30% of respondents’ income between RM200 to RM500 indicates aware of Islamic pawn broking. The researcher concludes that majority of Islamic pawn broking consumers were with income above RM1200.

Most of Islamic pawn broking consumers fall on middle and lower income groups which were about 21 per cent earning less than RM500, less than RM1 ,000 (39.8 percent), less than RM1, 500 (22.7 percent), between RM1, 500 to RM2, 000 (8.3 percent) and the rest earn between RM2, 000 to RM4, 000 (Religion news daily, 2008).

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2.3.6 Marketing tools

The researcher concluded that majority of respondents aware of Islamic pawn broking through friends. Majority of Islamic pawn broking consumers aware about Ar Rahnu scheme through various sources such as from friends, relatives, posters, print and electronic media. (Religion news daily, 2008) In general, the public knows about Islamic financial products (88.6%) but are not familiar on its operations, product attributes and many other factors of which the relevant information have not been adequately disseminated to them (Assoc. Prof. Dr. Zuriah Abdul Rahman, 2007)

2.3.7 Education background

Mustafa (2006) research indicate that majority of respondents who completed secondary school which is about 50.0% of respondents aware of Islamic pawn broking, followed by about 21.7% of respondents who completed diploma aware of Islamic pawn broking, about 18.0% of respondents who completed degree indicate aware of Islamic pawn broking and about 10.0% of respondents who completed primary school education indicate aware of Islamic pawn broking. The researcher concluded that majority of respondents who completed secondary school education indicates of Islamic pawn broking. The distribution for educational level, results shows 50 % of the respondents have completed the secondary school, follows by completed primary school and uncompleted secondary school that represent 15.79 % and 13.68 % respectively aware of Islamic pawn broking. (Mohamed Ishak Hj Badarudin Rais 2007).

The study by (Mohd Fazli Mohd Sam, Md Nor Hayati Tahir, Noor Khamisah Abdul Latif, 2010) indicate that most of the respondents either they well educated or not well educated agree and totally agree that they were not notice AgroBank Malalysia had Ar Rahnu scheme. The research result shows that about 113 of respondents were not aware of Ar Rahnu scheme regardless of whether they were educated or not educated. Majority of respondents fall in both educated and non educated background and indicate them unaware of Islamic pawn broking. Low level of education is main reason people not aware of Islamic financial products. The analysis reflects that potential respondents who were unaware of Islamic pawn broking due to still lack understanding on Islamic financial products of it its objective and operations, therefore, respondents could not make an informed decision on whether to participate in it by (Assoc. Prof. Dr. Zuriah Abdul Rahman, 2007)

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2.4.8 Promotion

Study by (Mohd Fazli Mohd Sam, Md Nor Hayati Tahir, Noor Khamisah Abdul Latif, 2010) measure level of awareness using promotion. The researcher result of chi square indicates about (60.761) not aware of Islamic pawn broking through promotion and about (67.133) indicate that respondents even not know there is Islamic pawn broking. Besides that about (36.513) chi square result indicate that respondents aware of Islamic pawn broking through promotion. The researcher made a conclusion that majority of respondents’ not aware Islamic pawn broking due to lack of effective promotion.

2.5 Factors influencing public to pursue Islamic pawn broking (Ar –Rahnu) scheme

According to Mohamed Ishak Hj Badarudin Rais (2007) factors that influence the demand for islamic pawn broking were syariah, fast, confidentiality and mortgage. Whereas according to Hanudin Amina, Rosita Chonga, Hazmi Dahlana, Rostinah Supinaha (2007) factors that influence the demand for Islamic pawn broking were syariah view, pricing system, pledged asset, customer service and locality of Islamic pawn shop. According to Mustafa (2006) those factors that affect customer demand were low income, fast, syariah view, confidential and interest rate. Hence factors that be chosen for this research are pricing system, customer service, locality of Islamic pawn broking, confidential and income.

2.5.1 Pricing System/ No Interest charged

Prior studies have examined the important of pricing associated with the pawnshop transactions (Mohammed, N., Daud, N.M.M., & Sanusi, N.A, 2005). In more specific, Mohammed, N., Daud, N.M.M., & Sanusi, N.A. (2005) argued that the service charge imposed by Islamic-based pawnshop relatively cheaper than the traditional pawnshop (imposed 2 percent) This means that the cost of getting quick cash in Islamic-based pawnshop is cheaper, thus, little burden is borne by the customers. This statement is consistent to what analysed by Ismail, A.G., & Ahmad, N.Z. (1997). They argued that the cost of getting quick cash from MGIT is cheaper than conventional-based pawnshop, which is 2 percent for pawned items. On the basis of these findings, it is important to have Ar-Rahnu shop which is offered competitive rate, to reflect the average pricing system in the market.

In March 1992, the Kelantan State Economic Development Corporation, thoughts subsidiary, Permodalan Kelantan Berhad had set up Ar-Rahnu as the second Islamic pawnshop in Malaysia in order to fulfil the Syria needs. It is part of the Kelantan government’s effort to help those in need by giving out interest-free loans. The Ar-Rahnu system in Kelantan collects a certain fee for safekeeping of pawned goods. According to the researcher M. S. and Sanusi, N. A. (2007) Ar-Rahnu is an Islamic-based pawn broking business which offers interest free loans, but a minimum fee is charged for the safekeeping of the valuables, with a high mortgage value and a flexible pawn period. Royal Prof Ungku Aziz, in a study, find shops that mortgage tax has been in operation decades, is an oppression of the poor borrowers. Interest rate charged is high. Muslims also know that conventional mortgage activity tax practice

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usury and illegal. However, the fact, it remains a choice those who want to get small loans quickly (Ummatan Wasatan, 2008).

2.5.2 Customer service

The important of service in the conventional-based pawnshop has been in details explained by Lao, J.J. (2005). He suggested that Islamic pawnshops should offer a quick and convenient way to borrow money. Unlike banking institutions, pawnshops are more convenience for consumers. Most consumers use pawnshops primarily because they poor credit and would be denied loans from traditional institutions. The borrowed money is exchanged with pledged assets to secure the loan itself. According to Mohammed, N., Daud, N.M.M., & Sanusi, N.A. (2005), he mentioned the importance of service factor. The Islamic-based pawnshop must maintain the record of customers, keep the record confidentially and treat the customers fairly regardless of their race or religion. The Islamic-based pawnshop must stress the important of customer service in order to strengthen the customer base, in addition to Shariah view concern. In order to become a successful Islamic pawnshop, there is a need, therefore to strengthen the customer service. According to Hanudin Amina, Rosita Chonga, Hazmi Dahlana, Rostinah Supinah (2007) the present study revealed that customer service is significantly associated with acceptance. Indeed, this result offers points for local authority and businesses to consider. First, the approval for the transaction must be efficient and fast. Second, the pawnshop must offer advice service or merely consultation to facilitate the customers’ transaction. Third, the pawnshop must free from the issue of discrimination. According to Mustafa (2006) his research revealed that Islamic pawn shop offer convenient, fast and efficient services for customer. From the good service for the customer satisfaction hoped that syariah pawn shop will be the alternative company for the Moslem Community that doesn’t want interact with the conventional economic system. As the promotion tool syariah pawn shop use Halal, but with the development of age, that concept is no longer relevant. Now people is very smart when choosing the right things for their, they prefer the good service, responsible and always made Islamic ways as the number one (Arrifin, M.I, 2005). Pawn shop also gives flexible service to the customer about giving back the loan. The customer cans longer their loan with only paid the interest, which service will hard to do if we deal it with the bank. If customer can’t pay their loan, pawn shop will do the auction for the customer’s collateral. But if the price of auction is higher than the value from appraiser, the customer will get the profit from that auction. Then if the result is lower than the value, it becomes the pawn shop risk. The company gets the profit from the interest and the administration cost that coming from customer.

2.5.3 Locality of Islamic-based pawnshop There exists scare information on the important of location factor for pawnshops. The two important studies have been employed to generalize the idea into the present study analysis. The first study is by Mohammed, N., Daud, N.M.M., & Sanusi, N.A (2005), argued that location is the significant factor for the pawnshops development. In more details, Mohammed et al. (2005) also argued that, individuals tend to choose pawnshops that near to their houses. The authors also still believe that if the local authority wishes to establish such business, a well-informed location must be met at least where people know where is it. According to Hanudin Amina, Rosita Chonga, Hazmi Dahlana, Rostinah

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Supinah (2007) if individuals want to open an Islamic-based pawnshop, they should open it in the place where it is easy to access by the users.

2.5.4 Confidential In acquiring pawnshop credit the customers need not reveal the reason for acquiring the loan. It is deemed that the customer is in the best position to determine how the loan will be utilized. According to Selamah Binti Maamor and Abdul Ghafar Ismail (2006) in acquiring pawnshop credit the customers need not reveal the reason for acquiring the loan. Besides that, According to researcher Mustafa (2006), one of the factor consumer demands for Islamic pawn shop is because of confidential. Customer doesn’t have to tell the purpose of their borrowings.

2.5.5 Low Income

The important of helping the needy especially the poor has long been emphasized in much of Islamic faith. Therefore, lending to the needy should be the main focus in Islamic finance. In this context, the Islamic pawnshop (Ar Rahnu scheme) is the most appropriate mechanism as it provides a financial product for the lower-income group and small businesses which usually have limited capital or have been excluded from the mainstream financial system.

According to Ismail, A.G., & Ahmad, N.Z. (1997) the high interest rates make it difficult for the consumers to reclaim their goods or jewelers. As for those who need the loan as a business capital, they find that their capital is rapidly diminishing. Before the implementation of the Islamic pawnshop system, the conventional pawnshops had charged high interest rates on the loans given. The conventional Pawnshops were more motivated on making profit from the needy individuals and this activity was only restricted by the laws in the Pawnbrokers Act 1972.

According to Azila Abdul Razak (2004) the conventional pawnshops had indeed oppressed and put a burden on the lower-income group. Besides that, researcher Selamah Binti Maamor and Abdul Ghafar Ismail (2006) stated that the other main factor is likely to be an increase in the number of people who do not use the formal financial institutions because of poverty. According to researcher Mustafa (2006), he said the major factor that influences people to demand for Islamic pawn broking is because of low income.

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3.0 METHODOLOGY
3.2 Study Design

The study design used in this research is more inclined towards descriptive type of research.

3.4 Study Scope This research is only focus on Islamic pawn broking is Sungai Petani.

3.5 Sample Size

The sample method chosen for this study will be based on convenient sampling technique. The respondents of the study derive from both conventional and Islamic pawn broking (Ar Rahn) at Jalan Ibrahim in Sungai Petani. Besides that, respondents also derive from shops located near Islamic and conventional pawn broking shops at Jalan Ibrahim, Sungai Petani, Kedah.

3.6 Survey Instrument

A specially designed self-administrated questionnaire was used as a tool to conduct this study, and respondents were requested to complete this questionnaire. The first section gathers demographic information such as gender, age, working status, race, level of education, number of dependents and total monthly income. The second section gathers information on level of public awareness toward Islamic pawn broking (Ar Rahnu ) scheme such as information on respondents whether they aware of Islamic pawn broking , which marketing tools that create awareness about Islamic pawn broking among respondents, duration of using Ar rahnu scheme and purpose of visiting Islamic pawn broking . The third section gathers information on factors influence the public to pursue Islamic pawn broking such as low interest rate, confidential, good customer service, locality of Islamic pawn broking and low income. Besides that, information such as factors influence public choice for small cash loan are also included in third section in questionnaire in order to test generally whether the same factor influence the public demand for Islamic pawn broking. Participants were asked to express the level of their agreement with 12 attributes/factors identified earlier from the literature. 7 attributes measure the level of awareness among respondents, while remaining 5 attributes covered the factors that influencing the public to pursue Islamic pawn broking. In answering the questions, respondents were assured of the confidentiality of their responses and their names were not included on the questionnaire. Multiple

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choice types of questions were used to measure all the statements in both first and second section in questionnaire. Agreement scale was used to measure all the statements in third section in questionnaire (strongly agree, agree, neutral, disagree and strongly disagree). Finally, data was analyzed via cross tabulation, mean score analysis and multiple regression. 3.7 Research Framework Figure 1.0 – Research Framework

Level of public awareness towards Islamic pawn broking Gender Age Race Education background Working status Income level Marketing tools

Factors influencing public to pursue Islamic pawn broking Low interest rate Confidential Good customer service Locality of Islamic pawn broking Low income
Independent variable

Level of public awareness and factors influencing public to pursue Islamic pawn broking

Dependent variable

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4. RESULT ANALYSIS
4.2 Result and Discussion 4.2.1 The Level of public awareness towards Islamic Pawn Broking (Ar Rahnu)
In total 150 people responded the questionnaire distributed. There were 42 male and 84 female respondents aware of Islamic pawn (Ar Rahnu) scheme. It is also noted that majority of Islamic pawn broking consumers were female. Based on Chart 1 below 82% of male respondents and about 85 % of female respondents aware of Islamic pawn broking. Overall about 84% of respondents aware of Islamic pawn broking as indicated in Chart 3. From both chart 1 and 2 it is strongly indicates that level of awareness among respondents is not based on gender as only small difference between male and female respondents. Chart 1 Chart 2

Chart 3

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The results also indicated that the all the Malay, which is 67% of respondents are aware of Islamic pawn broking. This is followed by Chinese and Indian , which is about 17% and 16% respectively aware of Islamic pawn broking. The chart 4 strongly indicates that 46% of Indian respondents were not aware of Islamic pawn broking. Only 22 % of Chinese respondents were not aware of Islamic pawn broking as shown chart 5.

Chart 4

Chart 5

Chart 6

The findings in chart 7 shows 21% of Malay respondents completed primary school education, followed by 36% of Malay respondents completed secondary school education, about 32% Malay respondents completed diploma studies and about 11% of Malay respondents were completed degree studies indicate aware of Islamic pawn broking. Chart 8 and Chart 9 shows the education level of the Chinese and Indian respondents. The result of research indicates that about Indians respondents were not aware of Islamic pawn broking not due to lack of education. This can be proven from chart 10 in which about 33% of Indian respondents who were completed diploma studies also unaware of Islamic pawn broking. This statement can be supported by comparing the percentage of Indian respondents who were completed primary school education and indicate aware of Islamic pawn broking. Data from chart 9 strongly shows that about 28% of Indians respondents who have completed primary school education were fully aware of Islamic pawn broking. This indicate that lack of awareness among Indian respondents is due to insufficient knowledge about Islamic pawn broking (Ar Rahnu scheme) and inefficiency of Islamic pawn broking strategy in reaching their new consumer and not because of low level of education among Indian respondents.

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Besides that it is also due to lack of or ineffective advertisement about Ar Rahnu scheme. Therefore the level of respondents’ awareness towards Islamic pawn broking was not based on education background.

Chart 7

Chart 8

Chart 9

Chart 10

Majority of Islamic pawn broking consumers were from working group and earning a income. From the chart 11, 28% of respondents employed by private sector and income level below RM1000, followed by about 25% of respondents employed by private sector and income level between RM1000 toRM1500, about 17% of respondents employed by private sector and income level between RM1501 to RM2000.

Mean while about 8% of respondents employed by government sector and income level between RM1000 to RM1500 and about 8 % of respondents employed by government sector and income level between RM1501 to RM2000. This followed by about 5% of respondents retired and income level between RM1000 to RM1500, about 3% of respondents retired and income level between RM1501 to RM2000, about 3% of respondents retired and income level above RM2000. While the remaining 3% of respondents employed by government and income level

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below RM1000. From these result, research shows that the majority of Islamic pawn broking consumers were employed by private sector and income below RM 1000. The result is consistent with what studied by Amin, Chong, Dahlan & Supinah (2007) who claimed those (