- The investors would be worried about the adverse situation, thus, buy the shares using the urbun (earnest money) contract.
- If it so happens that the share price increases as anticipated, investors normally complete the payment and sell the shares to realise profit from their investment.
Urbun (earnest money) is where the buyer buys a commodity and pays a deposit on the understanding that such a deposit will be considered part of the purchase price if the buyer completes the contract. Otherwise, if the buyer decides to withdraw from the contract, the seller will not refund the deposit.
Since urbun is part of the price of the item sold, the seller takes it in full amount even if it is more than the actual damage suffered when the sale contract is not completed. For this matter, urbun is paid for the right given to the buyer over the item he has paid deposit for and still enjoys some reservations on the same item weather to buy or not.
Hamish Jiddiyah (security deposit) is a sum of money paid by the customer (promisor) upon a request from the bank (promisee) to secure his promise to purchase or lease an item of sale in a murabahah lil a’mir bi Shira’ (murabahah to the purchase orderer). This deposit helps the bank to get assurance that the customer (orderer) is serious in his demand for the item of sale.
If the contract is effected and the customer buys or leases the item from the bank, the security deposit is refunded unless it is so agreed by the contracting parties that it will be part of the purchasing or leasing price. If the customer fails to purchase or lease the asset from the bank, the security deposit may be used to compensate the actual loss suffered and the excess is returned to the customer.
Before deciding to invest in stocks of a company, investors normally do a thorough study of the trend of the capital market. In the hope that the share prices of a company will go up in the coming days which they would sale and get a profit, they decide to invest in these shares. However, the investors would be worried about the adverse situation, thus, buy the shares using the urbun (earnest money) contract.
If it so happens that the share price increases as anticipated, investors normally complete the payment and sell the shares to realise profit from their investment. However, if the situation is contrary to their prediction and instead the share price falls, investors just forfeit the urbun contract and limit their losses to only the amount paid as urbun, no matter how sharply the share prices fall.
Dr Lujja Sulaiman,
Article is sponsored by
Tropical Bank to help understand Islamic Banking.