Risk Mitigation Through ‘Urbun’ In Islamic Finance or the Down-Payment Scheme

UAE Laws and Islamic Finance

 

 

‘Urbun’ in Islamic Finance is a down-payment paid by the buyer to the seller giving the right (option) to the buyer to settle the remaining outstanding payment within a prescribed period of time.  The investor can choose not to pay the remaining amount in the prescribed period of time, however, the ‘urbun’ or down-payment is then forfeited.  However, the forfeited down-payment may be less than the decrease in the price of the investment and therefore the ‘urbun’ has the effect of mitigating the loss incurred by the investor in investments.  ‘Urbun’ is accepted in many Sharia’h standards of Murabahah, Ijarah, and Istisna. 

For example, Without ‘Urbun’, an investor in stocks/commodities must pay the full payment price or must have agreed to pay a certain fixed price to the seller to obtain the ownership rights to the stocks/commodities.  If the market price decreases, the investor’s loss is proportionate to…

View original post 350 more words

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s