Recent Communication. Ar-Rahnu Scheme Profitability

Week 16.1 Recent Communication. Ar-Rahnu Scheme Profitability

I recently met up with an Ar-Rahnu officer somewhere in town, I was told that the scheme is doing very well. He told me that 1 year ago, his branch only managed to get about an average accumulated RM800,000 of gold leasing at any point of time. Right now, the figure is about RM8 million. On top of that, his branch is located in rural area in Selangor.

Ok. Let us do an average estimation, city area RM40million per branch, sub-urban such as kajang RM20 million per branch, rural area RM10 million per branch at interest rate of 14% per year. For ease of calculation let said 2% interest is given back to the bank customer from saving and fixed deposit account leaving a gross profit of 12% per year or 1% per month.

At RM40 million, 1% is about RM400,000 per month already. That enough to cover everything because in Ar-Rahnu operation maximum you need about 8 staffs, 2 security guard, 1 manager, 1 officer,2-4 counter services, plus all the renovation, rental etc. Operation cost only about RM40,000 – RM80,000 per month. Furthermore, some of the operation can be leveraged with the bank counter service operation.  It ‘s a big profit.  The only issue is capital. A small pawn shop will not have RM40 million cash in capital but a bank will have more than that.

With such a good business, I do foresee some price war in the future if licensing is obtainable for those who qualified. I believe one can still make $ if he accepts only common bullion, give away >70% of the pawn gold with 1% interest per month. Within 6 months, if the customer did not redeem back his gold, you take gold sell back to UOB and Public gold. However, such scheme required a strong tie with depositor such as banks, insurance company etc.

For the old traditional pawn shop mainly Chinese operate, it‘s time to make a change and be nicer to your customer as alternative is easily available.

With the recent drop in gold price below USD1500 per oz in May 2011, more people are leasing their gold to load up even more stock.  Furthermore, the scheme won’t loss any money unless there is a robbery because only 70% of the gold value is paid to the buyer and 30% of the metal value is withheld by the bank. Many may wonder whether if possible to get such licenses or not! Well, it’s off-limit for me as I have no networking, no cable, no Islam (I mean not a muslim), no connections and most importantly no big $$$ to spend on this. Maybe some of you can figure out some alternatives and reap some profit out of it.