Gharar Explained

Gharar (Arabic: غرر) literally means uncertainty, hazard, chance or risk.[1] It is a negative element in mu'amalat fiqh (transactional Islamic jurisprudence), like riba (usury) and maysir (gambling).[2] One Islamic dictionary (A Concise Dictionary of Islamic Terms) describes it as "the sale of what is not present" — such as fish not yet caught, crops not yet harvested.[3] [4] Similarly, author Muhammad Ayub says that "in the legal terminology of jurists", gharar is "the sale of a thing which is not present at hand, or the sale of a thing whose aqibah (consequence) is not known, or a sale involving hazard in which one does not know whether it will come to be or not".

Definitions, fiqh

According to Sami Al-Suwailem, "researchers in Islamic finance" do not agree on the "precise meaning" of gharar,[5] although there is not necessarily great difference among the Islamic schools of jurisprudence (madhab) in the term's definition.

The Hanafi legal school defines gharar as "that whose consequences are hidden", (according to Sami Al-Suwailem).[5] According to Md Akther Uddin, scholars of Hanafi school of fiqh (Islamic jurisprudence) have defined gharar as "something which its consequence is undetermined." Sarakhsi, an Islamic scholar of the Hanafi school, described gharar as "anything that the end result is hidden or the risk is equally uncommon, whether it exists or not."

Similarly, the Shafi legal school defined gharar (according to Sami al-Suwailem) as "that whose nature and consequences are hidden" or "that which admits two possibilities, with the less desirable one being more likely."[5] Scholars of Shafi’i fiqh have described it as “something which in its manner and its consequence is hidden."[6]

The Hanbali school defined it as "that whose consequences are unknown" or "that which is undeliverable, whether it exists or not."[5] Ibn Hazm of the Zahiri school of jurisprudence wrote "Gharar is where the buyer does not know what he bought, or the seller does not know what he sold."[5]

To the Islamic scholar Al-Qarafi, gharar is "that which has a pleasant appearance and a hated essence".[7]

Among modern scholars of Islam, Mustafa Al-Zarqa has written that "Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature that makes the trade similar to gambling."[5] Sami al-Suwailem, has used Game Theory to try and reach a more exact, measurable definition of Gharar, defining it as "a zero-sum game with unequal payoffs".[8]

Scripture

While the word gharar is not specifically mentioned in the Quran, two verses (2:188;[9] 4:29[10]) are thought to refer to it.[6] [11]

There are "numerous hadiths" forbidding gharar sales according to the Academy for International Modern Studies. In one, Ahmad and Ibn Majah narrated on the authority of Abu-Said al-Khudriy that:[12]

Varieties

In Islamic economics and finance, jurists have tried to sort out different aspects of gharar to determine whether a given financial transaction is "shariah-compliant" or not when gharar is present. Because some amount of gharar is "always present in all contracts and conducts",[6] Islamic scholars (at least in recent years) generally divide gharar into two types:[6]

When not prohibited

Four conditions where gharar is not invalidated are:[14] [15] [16]

While both gharar and riba (Usury) are negative elements in Islamic economics, there is much less material available about gharar in the literature of Islamic economics and finance than there is on riba,[13] and "ghara is considered to be of less significance than Riba." According to Muhammad Ayub, "a consensus" among Islamic scholars has emerged in the recent past "regarding its extent rendering any transaction valid or void". While the slightest involvement of Riba makes a transaction non-Shariah-compliant, some degree of Gharar" is acceptable.[17]

Insurance and Takaful

See main article: Takaful. Orthodox Islamic scholars argue that commercial insurance (as opposed to social or cooperative insurance) contains gharar and is haram (forbidden). In its place takaful or cooperative insurance "built on principles of voluntary contribution and mutual cooperation" has been proposed.[18]

Khatar

Khatar (خطر) is a kind of gharar that occurs when the "liability of any of the parties to a commutative contract is, or becomes, uncertain or contingent on some unforeseen/uncontrollable event", according to the Islamic Investment and Finance website.[19]

See also

Notes and References

  1. Web site: Glossary of Financial Terms. Institute of Islamic Banking and Insurance. 29 August 2016. https://web.archive.org/web/20160910234624/http://www.islamic-banking.com/glossary_G.aspx. 10 September 2016. dead.
  2. Web site: INTRODUCTION TO ISLAMIC FINANCE. 30 August 2016. 1.3.
  3. Book: Qazi . M.A. . 15 . A Concise Dictionary of Islamic Terms . 1979 . Kazi Publications . Lahore.
  4. Web site: Ahmed. Naeem. A Discussion on Gharar in the light of Maqasid Al Shariah. .researchgate.net. 30 August 2016. November 2012.
  5. TOWARDS AN OBJECTIVE MEASURE OF GHARAR IN EXCHANGE. Islamic Economic Studies. 7. 1, (October 1999); 2, (April 2000). 61–102. AL-SUWAILEM. SAMI. 1 August 2016. https://web.archive.org/web/20170816233704/http://www.irti.org/English/Research/Documents/IES/119.pdf. 16 August 2017. dead.
  6. Web site: Uddin. Md Akther. Principles of Islamic Finance: Prohibition of Riba, Gharar and Maysir. MPRA. Munich Personal RePEc Archive. 30 August 2016. 4. 13 October 2015.
  7. Web site: Gharar. Islamic Banker. 29 August 2016.
  8. TOWARDS AN OBJECTIVE MEASURE OF GHARAR IN EXCHANGE. Islamic Economic Studies. 7. 1, (October 1999); 2, (April 2000). 61–102. AL-SUWAILEM. SAMI. 1 August 2016. https://web.archive.org/web/20170816233704/http://www.irti.org/English/Research/Documents/IES/119.pdf. 16 August 2017. dead.
  9. ns.
  10. ns.
  11. Web site: Gharar (risk and uncertainty). Islamic finance. 23 January 2013. 30 August 2016.
  12. Web site: Prohibition of Gharar in Islam . AIMS-UK Islamic Banking and Finance . 31 August 2016 . 2 February 2017 . https://web.archive.org/web/20170202002501/https://uaelaws.files.wordpress.com/2012/01/prohibition-of-gharar-in-islam.pdf . dead .
  13. Book: Ayub. Muhammad. Understanding Islamic Finance. 2007. Wiley & Sons.. 58. 30 August 2016. 9780470687710.
  14. Al-Darir, M. S. (1997). Al-Gharar in Contracts and Its Effects on Contemporary Transactions, IDB Eminent Scholars’ Lecture Series, no. 16 (IDB/IRTI, Jeddah). Cited in: Book: el-Gamal, Mahmoud A.. Islamic Finance : Law, Economics, and Practice. Cambridge. 2006. 9780521864145. New York, NY. 202. MeGIFLEP2006. 2017-03-10. https://web.archive.org/web/20180403160351/http://iugc.yolasite.com/resources/Reference%20Book%2004%20-%20Islamic%20finance,%20law%20economics%20and%20practice,%20M.%20El%20Gamal.pdf. 2018-04-03. dead.
  15. Al-Zuhayli, W. (1997). Al-Fiqh Al-Islami wa Adillatuh (Dar Al-Fikr, Damascus). vol. 5, pp. 3415–31), Cited in: Book: el-Gamal, Mahmoud A.. Islamic Finance : Law, Economics, and Practice. Cambridge. 2006. 9780521864145. New York, NY. 202. MeGIFLEP2006. 2017-03-10. https://web.archive.org/web/20180403160351/http://iugc.yolasite.com/resources/Reference%20Book%2004%20-%20Islamic%20finance,%20law%20economics%20and%20practice,%20M.%20El%20Gamal.pdf. 2018-04-03. dead.
  16. El-Gamal, M. (2001). “An Economic Explication of the Prohibition of Gharar in Classical Islamic Jurisprudence,” Islamic Economic Studies, 8(2). Cited in: Book: el-Gamal, Mahmoud A.. Islamic Finance : Law, Economics, and Practice. Cambridge. 2006. 9780521864145. New York, NY. 202. MeGIFLEP2006. 2017-03-10. https://web.archive.org/web/20180403160351/http://iugc.yolasite.com/resources/Reference%20Book%2004%20-%20Islamic%20finance,%20law%20economics%20and%20practice,%20M.%20El%20Gamal.pdf. 2018-04-03. dead.
  17. Web site: ALI. MOHSIN. url forbidden by wikipedia http:// islamic financial systems1 .blogspot.com/2013/09/islamic-finance-within-trading.html ISLAMIC FINANCE WITHIN TRADING FRAMEWORK 4.1.2]. Islamic Financial Systems. 10 March 2017. 20 November 2011.
  18. Book: el-Gamal, Mahmoud A. . Islamic Finance : Law, Economics, and Practice . Cambridge . 2006 . 9780521864145 . New York, NY . 147 . MeGIFLEP2006 . 2017-03-10 . https://web.archive.org/web/20180403160351/http://iugc.yolasite.com/resources/Reference%20Book%2004%20-%20Islamic%20finance,%20law%20economics%20and%20practice,%20M.%20El%20Gamal.pdf . 2018-04-03 . dead .
  19. Web site: Islamic Finance. Q&A: What Is the Difference Between Gharar and Khatar?. Investment & Finance. 30 August 2016. 21 August 2014.

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