default risk?The risk that a borrowerwill not repay the lender, be it for criminal purposes or because of mattersout of the borrower’s hands. It can also mean the risk that a contractor willnot have its invoices paid. The default risk is one of the factors that aretaken into account when calculating an appropriate rate of interest to apply toa borrower, or whether to grant credit for work as opposed to insisting uponpayment in advance. Default risk of an individual, organisation or nation canbe calculated by a creditrating agency. Default risk is also called credit risk.
deferred annuity?An annuity contract which,unlike an immediateannuity, the annuitantpays some time before the annuity matures, typically as monthly or annual deposits.deferred payment?A pre-arranged debt. The debt might be paid back in total on the agreed day or could be paidback in instalments leading up to the final payment. In advertisingterminology, the deferred payment is ‘buy now, pay later’. This often (but notnecessarily) implies zero interest, which is why it is a Shariah-compliant basis for the finance industry. Once the goods have been purchased or delivered, it is up to the debtor to make sure he or she has the funds to pay off the debt at the agreedtime.
Deferred payment arrangements are beneficial to both the borrower and thelender. For the lender (or seller), it is a useful promotional tool which canmake a customer choose it instead of a competitor who does not offer theservice, or who charges interest. Even though the money is not in the bank, it is owed, and althoughthere is a default risk, it could be neutralisedby increased sales. However, to counteract default risk it would be normal forthe risk to be assessed by a credit ratingagency, especially for larger purchases; alternatively, deferred payment mightonly be available to customers with whom the supplier has a trustingrelationship. For the borrower (or buyer), the benefit is that it allows itemsto be bought quickly, even without the money available there and then. Thiscould be useful for an entrepreneur if a gap in the market opens up which wouldbe missed by a delay.deity?The generic name for gods, a God, or any entitywhich is believed by religious people as having supernatural or superhumanpowers.deposit?The placing of money in a bank account.