Arbun

Also known as urbun. In an arbun transaction, a buyer makes a down payment toward the purchase of an asset at a specified price (strike price) within a specific time period (exercise period). If at the time the buyer wishes to buy the asset, the market price of the asset is:

  • Higher than the strike price, the buyer will conclude the arbun transaction by paying the balance of the strike price.

  • Lower than the strike price, the buyer will elect not to conclude the transaction and the seller will keep the deposit.

The arbun structure is often used to effect a Sharia ( www.practicallaw.com/9-500-7092) -compliant option because it resolves the uncertainty inherent in a conventional or western option (for example, whether and when the option will be exercised) and which violates the Sharia principle against gharar ( www.practicallaw.com/5-500-7094) .

For more information on Islamic finance in the US, see:

For more information on Islamic finance in the UK, see Practice notes:

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