ARBUN

In a sales contract, arbun is described as a nonrefundable deposit paid by the buyer. This type of deposit gives the buyer the option to confirm or cancel the sale. This word is pronounced differently in different languages and may be derived from the Ugaritic word “arbn,” which means “collateral.” There are many schools of thought in Islamic law about whether arbun is acceptable or not. Some Islamic scholars believe arbun is permitted, while others do not. Those who support arbun say that the hadiths are weak and that arbun will not result in unjust wealth. Arbun is used to pay the seller for potential losses and to mitigate the risk of contract failure. It also serves as a motivator to meet contractual obligations. Arbun can also be thought of as an alternative to typical option contracts. By paying in advance, the buyer has the right to determine a specific price; however, if he does not exercise this right, the amount he paid is subtracted from the sales price. This generates a call option on the asset and provides the buyer with conditional insurance. As a result, arbun is a payment technique utilized in sales contracts, a contentious issue in Islamic law, and provides an alternate way to standard option contracts.