Reconceptualizing Ar-Rahnu as an Integrated Islamic Social Finance Ecosystem for Sustainable Social Enterprise Development: The IPSEFM Model

Abstract

Despite the expansion of Islamic social finance, micro-entrepreneurs and social enterprises—particularly those serving low-income and underserved communities—continue to face constraints in obtaining timely, affordable and development-oriented financing. Ar-Rahnu (Islamic pawn financing) is widely recognized as a Shariah-compliant source of short-term liquidity, yet the literature has largely treated it as a stand-alone, collateral-based transaction. This conceptual paper develops the Islamic Pawnshop Social Enterprise Financing Model (IPSEFM), which reconceptualizes Ar-Rahnu as the coordinating platform of an integrated entrepreneurial financing ecosystem. Using a critical synthesis of the literature on Ar-Rahnu, Islamic microfinance, Islamic social finance, social entrepreneurship, and entrepreneurship ecosystems, the paper integrates Maqasid al-Shariah, Islamic social finance, the entrepreneurship ecosystem, and stakeholder and institutional perspectives. IPSEFM combines asset-backed micro-credit, entrepreneurship incubation, zakat and waqf support, community-based revolving finance and digital infrastructure. The framework proposes that the developmental value of Ar-Rahnu increases when financing is linked to capability building, institutional collaboration and complementary social-finance resources. The model therefore, shifts the unit of analysis from a financing transaction to an entrepreneurial development pathway. The paper contributes by bridging previously fragmented streams of Islamic finance and entrepreneurship scholarship, offering a theoretically grounded model for financial inclusion, enterprise resilience and community empowerment. It also provides policy directions for Ar-Rahnu operators, Islamic financial institutions, zakat and waqf agencies, regulators, universities and development organizations, while establishing propositions for future empirical validation.