Arbon Sale Essay

5159 words - 21 pages

The Arboon Sale
A Shariah Compliant Alternative to Selling Short with Borrowed Securities

SHARIAH CAPITAL 2008 Shaykh Yusuf Talal DeLorenzo, Chief Shariah Officer

The Arboon Sale
A Shariah Compliant Alternative to Selling Short with Borrowed Securities
Until the present stage of its development, modern Islamic Finance has been without the ability to profit from falling markets or even to protect stock market investments from downward trends. It is widely acknowledged in Shariah finance circles that the conventional methods for hedging, and the short sale in particular, are simply unacceptable owing to their use of elements that are contrary to Shariah principles and ...view middle of the document...

In order to sell something, according to the Shariah, one must first have ownership of what is to be sold, or the subject of the sale. Under Shariah rules, then, if securities are to be sold into the market, the seller must first establish ownership of those securities. It is not possible, using conventional prime brokerage documentation, for a hedge fund manager to be Shariah compliant and to borrow shares of stock from a prime broker and then sell those shares into the market. It is for this reason that hedge funds are widely understood to be non-compliant with Shariah norms. It is for this reason too that it is widely believed that hedge funds will never become Shariah compliant. It is perhaps this mistaken belief that has led some product providers to have recourse to artificial solutions which attempt to circumvent Shariah strictures by swapping returns from hedge funds, even though the hedge funds themselves are without Shariah supervision and may invest in anything from currency futures to interest-bearing instruments like T-bills and bonds; and may even include shares of companies in the business of gambling or alcohol. Such defeatist stratagems, however cleverly engineered or labeled (one such calls itself “Shariah Conversion Technology”), have been rejected by the market. Other difficulties associated with short sales as practiced by prime brokers using the conventional borrow and sell methodology include a series of interest-based charges for services and, remarkably, interest payments on borrowed securities; any and all of which render the transaction unacceptable from a Shariah perspective. None of this, however, need concern the Muslim investor any longer. The Arboon Sale is the ideal solution to all of these problems.

The Arboon Sale | 7/24/2008


Shariah-based Strategies for Shorting
The conventional short sale is a forward-looking transaction that involves different times for initiation and completion. In this respect, it is immediately suggestive of two types of sales sanctioned by classical Islamic law. These are the salam and the arboon sales. The salam sale, used historically in an agricultural context, was designed to provide farmers with seeds and, at the same time, to offer merchant/financiers protection from price fluctuations on the crops which they effectively financed by providing the farmers with seeds. The arboon sale also has its roots in classical Islamic law. In an arboon, the seller takes an earnest money deposit from the buyer with the understanding that the deposit will be credited toward the price if the sale is concluded, and forfeited if it is not. From a theoretical perspective, both of these sales would appear to be suitable for replicating the conventional short sale in a manner that complies with Shariah.

Approval for the Arboon Sa le
While both of these transactional models have been approved by Shariah supervisory boards around the world and are routinely used by Islamic banks and...

Other Papers Like Arbon Sale

A Heart Of Darkness Essay

1748 words - 7 pages In this short story, there are frequent significant subject and ideas that make the story, "A Heart of Darkness," by Joseph Conrad, and haunting novel. The main theme is absolute white power over the natives. The theme validates the corruption, and the dependence caused by the white people as they took over the Congo. White men were giving all the power; they had no self-control, and in the end they did not use wisely. The white men became

The Aspects Of Vulnerability Among The Exploited In Medical Research

2287 words - 10 pages Essentially, everyone is in some state of vulnerability. However, some of us are more susceptible to harm due to our vulnerabilities. The susceptible are the individuals with the greatest risk. These individuals risk the loss of their autonomy, and maybe even their lives. Vulnerable populations can be found in every subset of society. However, as previously mentioned, there are some vulnerable populations that are at an even greater risk than

The Hitchhiker’S Guide To The Galaxy

1171 words - 5 pages The Hitchhiker’s Guide to the Galaxy As the human race makes life-changing discoveries, it is made apparent that there is always more to learn as the universe, instead of becoming familiar, is becoming absurd. The Hitchhiker’s Guide to the Galaxy, written by Douglas Adams, as well as the 2005 film adaption, portrays absurdity to be an all-encompassing system in the universe. Through the introduction and attempt to understand lack of reason, the

The Ford Motor Company Wage Increase Of 1914 And The Theory Of Incentives And Efficiency Wages

1252 words - 6 pages ‘It’s not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages’ (Henry Ford, cited in Johnson and Weinstein 2004, p. 2). When the Ford Motor Company announced that it would more than double the wages of its workers in January 1914 to a ‘five-dollar day’ minimum, was this a contradiction to Henry Ford’s statement? If customers are actually the ultimate payers of wages, then more than

Historical Analysis Of The Economical Breakthroughs Of The Industrial Revolution

1396 words - 6 pages A Historical Analysis of the Economical Breakthroughs of the Industrial Revolution During the Industrial Revolution, many elements of society experienced huge breakthroughs that would change the way they functioned forever. Economics were definitely one of them. With many new inventions and many factories appearing, many, many, more resources were being created than ever before. Also, all of the revenue from these resources was being given to

Leadership Portrayed in Monologue from Shakespeare’s Henry V

1214 words - 5 pages Leadership is defined as a socially constructed process and which also affect organizational future outcomes. Leader is someone at high position who have overall duty for an organization, she or he decide what to do and the way how to achieve it. (Carter and Greer, 2013)The role of leader is extremely important for an organization, leader use their own power to influence the followers though many different ways such as motivation in order to

Cuba Civil Rights

1906 words - 8 pages Picture a country that has limits on how much you can make random government imprisonments and more what do you do. That is the situation for the eleven million seventy-five thousand two hundred forty-four people of Cuba since the takeover of Fidel Castro. The US is opposed to Castro taking control of Cuba. Castro managed to ease the United States nerves when he said that Cuba was against all forms of communism. According to Lana Wylie the Union

US Freight System

1273 words - 6 pages General Environment Each American requires the movement of approximately 40 tons of freight per year across the freight network. This includes everything from shirts to lawn mower to orange juice. • As the U.S. population expands, the U.S. freight system will be called upon to meet the demands of a larger population • Between 2010 and 2035, the system will experience a 22 percent increase in the total amount of tonnage it moves • By 2050, with

Democratic Peace Theory

1852 words - 8 pages Intro: US Presidents have made it a goal during their term(s) in office to establish a good relationship with foreign countries and even try to improve upon existing connections with our allies. Some believe it is to prevent conflicts between the countries while others dispute that it is a threat assessment by the United States to pick and choose their friends and enemies. Preventing conflict between two democracies or countries that practice

Booker T. Washington

1621 words - 7 pages “Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome” –Booker T. Washing. Booker Taliaferro Washington was born in Hale’s Ford, Virginia on April 5th, 1856 to Jane Burroughs and an unknown White man. Washington was married three times. His first wife was Fannie N. Smith from Malden, West Virginia. Booker and Fannie were married in the summer of 1882 and had one child

Corn, Broccoli, Grass Or Balanced

2611 words - 11 pages About a century ago, there was not an epidemic of diet-related illness, a bizarre account of destroyed farmland, dead zones in our oceans created by chemical run-off spilling into the waterways, and there sure was not millions of people questioning the moral ethics of their diet. In the Omnivore’s Dilemma: A Natural History of Four Meals, the author Michael Pollan goes on a journey to investigate the sources of the nation’s food supply, for which

Related Essays

Freedom And Responsibility Essay

2141 words - 9 pages Built within the Constitution of the United States are specifically defined freedoms that are guaranteed to all citizens. Conversely, with every constitutional freedom there comes a corresponding responsibility. On September 25, 1789, the state legislature’s twelve proposed amendments were transmitted by congress, the first two dealing with congressional representation and congressional pay. The following numbers three through twelve were

Hate Crime Laws Essay

2348 words - 10 pages On June 7, 1998, 49-year-old James Byrd Jr. of Texas accepted a ride from three white men, who then beat him severely, urinated on him, chained him by his ankles to the back of their pick-up truck, dragged him for three miles into the countryside, and dumped his corpse in front of an African-American cemetery (Graczyk). A little over a year later, a jury sentenced ring leader John King to death by lethal injection (“Man Executed for Dragging

Rational Emotional Behavior Therapy Case Study Conceptualization And Treatment Plan

2140 words - 9 pages Rational Emotional Behavior Therapy Case Study of Sarah: A Conceptualization and Treatment Plan Rational emotive behavior therapy, REBT, was developed by Albert Ellis and holds the central belief that the events in our lives do not cause our disturbances but that they are instead caused by our view of the events (Murdock, 2009). Murdock (2009) states that “people are seen as responsible for their behavior” (p. 279) but, because they are

Holidays In Albania Essay

1636 words - 7 pages Have you ever thought about having exciting and incredibly cheap vacations? Albania might be the right choice. According to My Travel Guide, Albania is ranked the fourth among ten places worth visiting in Eastern Europe (“Top 10 Eastern European Destinations”). One can encounter three kinds of vacations in this Mediterranean country: winter, summer, and cultural. The ideal places to spend your winter vacations are the Albanian Alps. They are