Innovating Finance: Applying the Nash Concept to Develop a Sustainable Pawn Model Aligned with the SDGs

Abstract

Objective: This study explores the application of the Nash Equilibrium concept in developing a sustainable pawn (Rahn) model within the framework of Islamic finance, aiming to contribute to the realization of the Sustainable Development Goals (SDGs), particularly SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 9 (Industry, Innovation, and Infrastructure). The main objective is to analyze stakeholder interactions—such as those between Islamic financial institutions, customers, and the broader community—and how their strategic decisions affect the stability and sustainability of pawn contract mechanisms. Theoretical framework: The theoretical framework is grounded in Islamic jurisprudence (Fiqh al-Muamalat) and game theory, particularly Nash Equilibrium, which emphasises rational decision-making among interdependent stakeholders. Literature review: The literature review discusses previous models of Ar-Rahn (pawn) in Islamic financial systems, along with contemporary applications of behavioral economics and decision theory in finance. Methods: Using a descriptive qualitative approach, data were gathered through an in-depth review of scholarly literature, regulatory frameworks, and semi-structured interviews with Islamic finance scholars and industry practitioners. The study investigates the legal basis for Rahn contracts—highlighting permissibility rooted in Qard (loan), al-Ba'i (credit sales), and Ijarah (leasing with deferred payment)—and analyzes the potential of Nash strategies in minimizing risk and optimizing outcomes. Results: Findings reveal that applying the Nash concept in Rahn-based financing can improve contract sustainability by encouraging balanced cooperation and minimizing conflict of interest. Implications: However, implementation challenges include the complexity of modelling, information asymmetry, and the need for clear regulatory support. The study emphasizes the role of multi-stakeholder collaboration to optimize contract design for long-term economic resilience. Novelty: The novelty of this research lies in integrating Islamic legal principles with modern strategic modeling to offer an innovative pawn model aligned with the SDGs. This integration opens new pathways for ethical finance innovation that promotes economic justice, sustainability, and financial inclusion in Muslim-majority and global contexts.