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Islamic Finance




Non-Possessory Pledge


From a shari’a perspective, it is permissible to leave a pledged asset, with respect to a credit transaction, in the possession of the debtor/ pledgor though in principle, the pledged asset should be retained in the possession of the creditor/pledgee. It is also permissible that the pledged asset be kept with a trustworthy third party known in Arabic as “al-‘adl” (impartial or neutral party). In this case, the pledgor cannot discharge that party from liability or redeem the posted asset from him before the debt is extinguished.

The non-possessory pledge is also known as al-rahnu ghair al-heyazi (in Arabic) or security pledge/ registered pledge.



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