Wednesday June 27, 2012
Ar-Rahnu a key part of Pos Malaysia’s transformation
Behind The News - By John Loh
ISLAMIC pawn broking, otherwise known as Ar-Rahnu, is a concept not altogether familiar among the masses but that may change when Pos Malaysia Bhd rolls out the service at its 700 plus outlets nationwide.
After hinting two weeks ago that Ar-Rahnu was one of the businesses it would be launching “very soon”, the postal company on Monday took the wrapping off its new financial product.
At a briefing with analysts and the media on June 14, group chief executive officer Datuk Khalid Abdol Rahman had unveiled an aggressive five-year strategic plan that aimed to achieve double digit growth in revenue every year till 2017, significantly improve its current pre-tax margins of 12%, and explore new mergers and acquisitions opportunities.
A key thrust of the plan was to leverage on the group's extensive network of branches scattered across not only the state capitals and major towns, but also in small towns and rural areas.
At the same time, it wants to become a provider of one stop solutions for both physical and digital services.
The firm also stressed that it was trying to reduce its dependency on the core mail business, which made up 62% of its revenue in the 15 months ended March 31, to below 40% by end-2017.
The company reaped RM138.8mil in net profit on revenue of RM1.48bil during that period. It has changed its financial year end to March 31 from December 31 previously.
As it enters the second phase of its transformation, the group is looking to diversify its earnings base, whether through digital avenues, expanding its delivery channels and even providing supply chain management to third party companies.
For its Islamic pawn broking arm, Pos Malaysia will acquire a shelf company known as Pos Ar-Rahnu Sdn Bhd to be used as the operating entity, which is a 80:20 joint venture (JV) between itself and Bank Muamalat Malaysia Bhd.
The two are essentially sister companies courtesy of their common majority shareholder, the Tan Sri Syed Mokhtar Al-Bukhary-controlled DRB-Hicom Bhd, which has a 70% stake in Bank Muamalat and 32.2% in Pos Malaysia.
The JV will have an authorised share capital of RM20mil with the funding to be raised from financial institutions.
This may include Bank Muamalat, but shall be based on “the most favourable terms to the JV company,” Pos Malaysia said in a statement to the stock exchange.
It added that Pos Ar-Rahnu's principle activity would be the safekeeping of precious items, and it would, based on syariah principles, be able to lend money, negotiate loans; draw, accept, indorse and discount bills of exchange, promissory notes or other securities; act as auctioneer or dealers in gold, silver, precious stones, jewellery, coins and medals; and act as commission agents and general merchant.
“The collaboration would enhance the product offering at Pos Malaysia outlets, besides providing an alternative to distribute micro credit convenience to small time entrepreneurs who have difficulty to obtain financing from banks,” it said, adding that the company's existing network throughout the country was a crucial factor that would enable it to lower operating costs, spread the risk and generate higher returns.
Ar-Rahnu, where valuables such as gold or jewellery are offered as collateral for debt, is considered a source of short-term funds more commonly used by the lower income segment and small businesses who, by virtue of their backgrounds, are typically denied access to mainstream financiers.
Under this system, the creditor and borrower agree to a specific loan tenure, and if the latter fails to pay back his due after the stipulated time, the pawned asset is sold off to settle the debt, with any surplus returned to the owner.
In line with the religion's ban on interest, borrowers pay a safekeeping fee instead of a compounding interest, and this fee is based on the value of the asset rather than the loan itself.
It is for this reason that Ar-Rahnu is generally seen as the more cost-effective option for those with limited capital.
“We believe Pos Ar-Rahnu can be a sizeable business as it will leverage on Pos Malaysia's 700 outlets,” OSK Research said in a note to clients.
“This is based on the success of the existing Ar-Rahnu Pawn Broking Scheme currently provided via Agro Bank and Bank Rakyat, which have a much smaller network of 176 and 136 branches respectively nationwide.
“We think the Ar-Rahnu business will boost PosNiaga's earnings since there could be plenty of low-hanging fruits arising from the difficulties faced by small-time entrepreneurs in obtaining financing from banks in rural areas.”