Bai’ al-Urbun, also called simply as 'Urboun' or  ‘Arboun', is a Sharia-based commercial arrangement where a buyer makes a partial advance payment to a seller after the conclusion of a sale contract. This payment grants the buyer the right to proceed with the purchase of a specified asset at a predetermined price within an agreed period, while not imposing an obligation to complete the purchase.

If the buyer chooses to continue with the transaction, the Urbun amount is treated as part of the total sale price. If the buyer decides to withdraw from the transaction, the treatment of the Urbun payment depends on scholarly interpretation. According to the Hanbali school of Islamic law, the seller is allowed to retain it, while other schools such as the Hanafis, the Malikis and the Shafi’is  require the seller to return the amount after deducting any proven actual losses.

Urbun is fundamentally different from a simple deposit because it is contractually linked to the right of unilateral withdrawal within a fixed time period.

Practical Application and Examples

In a Urbun contract, a buyer and seller enter into a sale agreement for a specific asset. The buyer pays a portion of the price as Urbun.

Situation 1: If the seller successfully delivers the asset and the buyer completes the transaction, the Urbun payment is deducted from the total price and becomes part of the purchase consideration.

Situation 2: If the seller fails to secure or deliver the agreed asset within the stipulated timeframe, the Urbun must be returned to the buyer.

Situation 3: If the seller fulfills their obligation by securing the asset but the buyer decides not to proceed, then - according to the permissive opinion - the seller may retain the Urbun as compensation for the time, effort, and opportunity cost incurred.

This mechanism creates a balanced structure, allowing flexibility for the buyer while protecting the commercial interests of the seller.

Legal and Jurisprudential Nature of Urbun

From a fiqh perspective, Urbun has been interpreted in different ways by classical jurists.

Some jurists have described Urbun as a “conditional gift.” Under this view, if the buyer withdraws, the Urbun effectively becomes a gift to the seller. However, even within this framework, Urbun is not considered a separate or independent sum. It remains attached to the overall sale price and is conceptually part of the commodity’s value.

Other scholars emphasize that Urbun is not a gift in the literal sense, but rather a form of financial compensation tied to an agreed option period granted to the buyer.

What is unanimously agreed is that Urbun is not a freely tradable financial right and cannot be detached from the original sale arrangement.

Scholarly Opinion on the Permissibility of Urbun

The permissibility of Urbun has been a subject of extensive scholarly debate.

The Hanafi, Maliki, and Shafi schools of Islamic jurisprudence generally hold that the seller is not allowed to retain the Urbun amount if the buyer cancels the transaction. According to these schools, keeping the Urbun without delivering the asset constitutes unjust enrichment. However, they allow the seller to deduct any proven, actual costs or damages incurred due to the buyer’s withdrawal.

The Hanbali school, in contrast, adopted a more permissive approach. Hanbali scholars allow the seller to retain the Urbun when the contract clearly defines the time period and conditions. Their justification is based on the idea that the seller sacrifices alternative commercial opportunities while waiting for the buyer’s decision.

The International Islamic Fiqh Academy chose the Hanbali view as its adopted opinion, thereby recognizing the permissibility of Urbun under regulated contractual conditions.

Difference Between Urbun and Conventional Options

Urbun has often been compared with conventional call options in modern finance, but these two instruments are structurally and ethically distinct.

In conventional finance, an option is a standalone contract that is bought and sold independently of the underlying asset. The buyer of an option pays a premium solely for the right - not the obligation - to buy or sell an asset at a future date. This premium is not part of the price of the asset and is often traded in secondary markets. Options are widely used for speculative purposes and may involve parties that do not own the underlying asset at all.

Urbun, by contrast, is not an independent financial instrument. It is embedded within a real sale framework and is directly connected to the price of a real asset. There is no separate “premium” in Urbun because the amount paid is part of the asset’s price if the sale is completed. Moreover, the right created by Urbun cannot be sold, assigned, or transferred to a third party. The relationship remains strictly between the original buyer and seller.

While conventional options are often used for price speculation, Urbun is designed to support real economic activity, genuine trade, and risk mitigation within ethical boundaries.

Difference Between Urbun and a Conventional Down Payment

Although Urbun is sometimes translated as a “down payment,” the two concepts differ fundamentally.

In conventional commercial practice, a down payment is simply an advance portion of the purchase price. Once it is paid, the buyer normally loses the unilateral right to cancel the contract. The sale becomes binding, and the remaining price must be paid according to agreed terms. Refundability depends entirely on local laws and contract clauses.

Urbun, however, is specifically designed to give the buyer an option period. During this period, the buyer may revoke the contract without the seller being obliged to perform beyond the agreed terms. If the buyer cancels, the Urbun is treated as forfeited under the permissive scholarly view.

Thus, Urbun functions as a hybrid between a deposit and an embedded option, but always within the limits of Sharia.

Difference Between Urbun and Security Deposits (Hamish Jiddiyyah)

Urbun should not be confused with a security deposit, known in Islamic finance as Hamish al-Jiddiyyah.

A security deposit is typically paid before the final contract is executed. It serves as proof of seriousness and intent, and it is usually held in trust by the seller or institution. If the deal does not proceed, the security deposit can only be used to cover actual, proven losses, and any excess must be returned.

Urbun, in contrast, is paid after the contract is concluded and is directly linked to the buyer’s right to revoke. Under permissive opinions, the seller may retain the Urbun entirely if the buyer withdraws.

Application of Urbun in Leasing (Ijarah)

Urbun is not limited to sale contracts. It can also be applied to leasing arrangements (Ijarah).

In lease contracts, an Urbun-style payment may be taken at the execution of the lease, granting the lessee the right to terminate the contract within a defined period. If the lessee cancels within this period, the lessor may retain the Urbun, although Sharia standards encourage limiting retention to the actual harm suffered.

In such cases, the Urbun is treated as an advance payment of rent if the lease proceeds.

Sharia Challenges and Unresolved Issues

Despite its permissibility under certain schools of thought, Urbun raises several unresolved Sharia questions.

These include whether a buyer can resell goods before taking possession, whether a seller may take Urbun when they do not yet own the asset, and whether a reverse Urbun mechanism should exist to protect the buyer if the seller fails to deliver.

There is also no unanimous contemporary resolution on whether Urbun rights can ever resemble a tradable financial instrument. The dominant position remains that Urbun is not tradable and must remain tied to genuine asset-backed transactions.

Resolution of the International Islamic Fiqh Academy

Bay Urbun (Down Payment Sale)

27 June، 1993

Fiqh of Financial Transactions

In the Name of Allāh,

the Entirely Merciful, the Especially Merciful

Praise is due to Allah, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.

Resolution No. 72 (3/8)

Bay Urbun (Down Payment Sale)

The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 8th session in Bandar Seri Begawan, Brunei Darussalam, on 1–7 Muḥarram 1414h (21–27 June 1993),

Having examined the research papers submitted to the Academy concerning

Bay Urbun (Down Payment Sale),

Having listened to the discussions on the subject above,

Resolves

Down-payment (earnest) sale means the sale of a commodity with the buyer making a down-payment to the seller on the understanding that if he took the commodity the down-payment would be deducted from the selling price, and if he dropped it then the down-payment would be the seller’s

It is subject to the same rulings as in service contracts for it is considered as the sale of a service. Exceptions are made in the case of sales whose validity is made subject to the reception of either of the exchange’s two elements (as in Bay Salam), and in the case of sales whose validity is subject to the spot reception of the exchange’s two elements (as in trades including usury money or currency exchange). However, it does not apply to the case of Murābaḥah to the purchase orderer at the stage of mutual promises, it is rather done at the stage of selling subsequent to the contract.

Down-payment sales are permissible if the time frame of the contract is set, and the down payment is considered part of the selling price if the purchase is carried out, and it shall be a right property to the seller if the buyer

Indeed, Allāh is All-Knowing.