Rahn

Collateral or pledge in Islamic finance. An asset provided by a borrower as security for a financial obligation. If the borrower defaults, the creditor can sell the pledged asset to recover the outstanding amount.

The key difference from conventional collateral is that the creditor cannot benefit from or use the pledged asset during the pledge period (in most scholarly opinions). Any income generated by the pledged asset belongs to the pledgor. Rahn is commonly used alongside Murabaha and other financing structures to provide security.

Rahn is pledge or collateral — property held as security for a debt, expressly validated by Qur'an 2:283 ('let there be a pledge taken') and by the Prophet's own practice: he died with his armor pledged to a Jewish merchant for a food debt (Bukhari). The classical rules protect both sides: the pledged asset stays owned by the debtor (its benefits and growth remain theirs), the creditor holds it only as security and — critically — cannot derive benefit from it, because any benefit extracted from the pledge on top of repayment is riba ('every loan that draws a benefit is riba' in the famous juristic maxim).

On default, the asset is sold and the creditor recovers only what is owed, returning any surplus. Modern applications: halal home and auto financing programs use liens and recorded security interests that function as rahn (compatible with U.S. secured-transaction law); Islamic banks take rahn over deposits, shares, and property for financing facilities; and 'Islamic pawnbroking' (ar-rahnu, common in Malaysia) lends against gold with safekeeping fees replacing interest — a model scholars accept when the fee reflects actual custody cost rather than scaling with the loan.

The doctrine's consumer edge in the U.S.: collateral itself is fully halal, so a security instrument on a Murabaha or Ijara home is unobjectionable; what matters is that the secured obligation itself is riba-free.