Getting a Temporary Loan To Invest. Ar-Rahnu Schema

Getting a Temporary Loan To Invest. Ar-Rahnu Schema

What do you do when you run out of fund to buy precious metal when there is a major price correction? I first get to know this scheme via jutawanemas.com website. I ‘m sure a lot of Malays friend already know about this.

You can pawn your gold via Ar-Rahnu scheme to various Islamic banks. There are few banks offering these services, they are Bank Rakyat and Agro bank. The interest rate is much lower than credit card.

http://www.bankrakyat.com.my/arrahnu

http://www.agrobank.com.my/ar-rahnu

1. Bank Rakyat

http://www.bankrakyat.com.my/arrahnu

The details are below

Max Loan Amount	$100,000
Effective Interest Rate	13.8%
Minimum charges	½ month of leasing.
Lease charges	75 cents per $100 of gold value per day
Lease Period	6 months
Extension	6 months by paying the lease fee.
Malaysian only

FYI, not all branches accept bullion coin. Only some Ar-Rahnu Exchanges accepts bullion gold. This branch below accepts bullion coin.

Ar-Rahnu X'Change
BANDAR BARU SENTUL
22, Jalan 14/48A, Off Jalan Sentul
Bandar Baru Sentul
51000 Kuala Lumpur
Pegawai Petugas : Rusngaton Hj Hassan
Tel : 03-4043781
Faks : 03-40442546
Email : rahnu_sentul@bankrakyat.com.my
Tarikh Beroperasi : 7 Disember 2006

From time to time, there is a policy change in what kind of gold coin or bar acceptable by them. In 2008, they accept everything, then in 2009 due to Etika Emas issue they refused to accept gold bar mainly Pamp Sussie 100g. Sometime in 2009, they don’t accept even UOB gold. As off now Jan 2011, they do accept gold sold by various local bank in Malaysia but does not accept Public Gold bar. There may be some reason behind it maybe it is prevent excessive leveraging among those who sells gold bar.

2. Agro Bank

http://www.agrobank.com.my/ar-rahnu

The details are below

Max Loan Amount	$50,000 $10,000/day
Effective Interest Rate	13.8%
Minimum charges	Not sure.
Lease charges	75 cents per $100 of gold value per day
Lease Period	6 months
Extension	6 months by paying the lease fee.
Malaysian only

The terms and condition is almost the same as Bank Rakyat. Make sure you call them up first before you go. This is to make sure that the bank accepts the gold coin to be pawned. In my last visit in 2010, they do accept Public Gold Bar.

3. Advice.

Having said all that, the purpose of pawning is to temporary relieve your cash flow position and also to enable you to stock up more precious metal at lower price. You should try to minimize the period of pawning as the interest rate is quite high. The average annual return for gold is about 10 – 18% per annum depending on when you buy it. If you factor in the buy and sell spread imposed by the banks, then the return may be within 5 – 15% depending on when you buy and sell. Thus, by pawning these gold, you can actually make a lost, in most case you may just barely break-even but lose all your petrol and time. Think about it.

For new kid on the block, those who just started off with precious metal, one should buy with own saving and not pawning it. Once you become more technically well-verse then you can opt for pawning. Just be aware from experience, most people end up pawning 2x longer than they should.

If you have some saving in gold bullion and needed some cash for a short time while waiting for your annual bonus, you may want to consider pawning it. If you do the calculation, the buy and sell spread for the physical gold at UOB As at 17/02/2011 09:34. $4396 (bank Sells) and $4211 (banks buy). You lose RM185 of 4.2%. For 4.2% interest, you can get free pawning at Ar-Rahnu for about 4 months. You also have to consider the hassle (time and petrol) of retrieving the gold from your safe, pawned it at Ar-Rahnu, the process of retrieving it back at Ar-Rahnu and put back the bullion into your safe. Think about it. Have this option available to you?

Lessons Learned

Don’t pawn your gold unless you really have to. In most cases, all your effort goes into servicing the interest. Those who pawned are those who are in trading business where they can make 1-5% profit in buying and selling goods every weeks or month. The more they pawned the better. For example, a gold agent got a ready buyer for 5 units of 100 gram PAMP Sussie gold bar. He will make about 1% profit out of the sales, so he pawned his gold to Ar-Rahnu, get the money buy 200 gram of PAMP Sussie then sell to the buyer, get the cash then make the 2^nd trip lah. Do you have this opportunity or network? Definitely not for most of you, so buy gold and store it somewhere safe and don’t think off it until you need it.