Bay’ al-Urbun

This entry examines the meaning and implementation of the bay’ al-urbun in classical and modern practices of Islamic finance and economics. Urbun refers to a partial payment of an asset’s price that grants the buyer the right to purchase but does not oblige them to do so. If the buyer buys the asset, the urbun is included in the price. If not, the seller retains it as compensation for their efforts. After paying urbun, the buyer gets the right to buy an asset at a particular price in the future. Historically and currently, most of the Muslim world was agricultural. Urbun contracts provide hedging for commodities with price volatility. Urbun is different from margin sales as it does not transfer ownership of the asset to the buyer.