Gharar (risk and uncertainty)

Gharar (risk and uncertainty):

Gharar describes speculative transactions. Concept involves excessive risk and supposed to foster uncertainty and fraudulent behavior. Gharar generally translated as risk, hazard or uncertainty.

El-Gamal (2000, p.7) defines Gharar as “… the sale of probable items whose existence or characteristics are not certain, due to the risky nature which makes the trade similar to gambling”. However, Al-Saati (2003) counters that there is no agreement among Muslim jurists about the degree of uncertainty in commercial transactions to be considered as Gharar. Iqbal and Molyneux (2005, p.14), for instance, suggest that “Gharar refers to acts and conditions in exchange contracts, the full implications of which are not clearly known to the parties. This is something very similar to asymmetric information”. Metwally (2006) also argues that Gharar are speculative transactions which are harmful to society.

Al-Dareer (1997, p.10) defines Gharar in jurisprudential terms under three headings:

First, Gharar applies exclusively to cases of doubtfulness or uncertainty, as in the case of not knowing whether something will take place or not. The definition by Ibn Abidin is a case in point: Gharar is uncertainty over the existence of the subject matter of sale.

A second view holds that Gharar applies only to the unknown, to the exclusion of the doubtful. This view is adopted by the Zahiri School. Thus, according to Ibn-Hazm, Gharar in sales occurs when the purchaser does not know what he has bought and the seller does not know what he has sold.

The third view is a combination of the two categories above; Gharar here covers both of the unknown and the doubtful, as exemplified by the definition proposed by Al-Sarakhsy who states that Gharar obtains where consequences are concealed. This is the view favored by most scholars.

Gharar can be any contract for sale or purchase that includes uncertainty in genus, species, quantity of the object, price, time of payment in deferred sales, existence of object, and identity of object.

The prohibition of Gharar from two Quranic verses (2:188; 4:29) as follows:

para 2 verse 188

para 2 verse 188 translation by Yusuf Ali

para 4 verse 29

para 4 verse 29 translation by Yusuf Ali

In addition, he adds that there is a consensus between some scholars about the meaning of Al-batil (vanity) which is Gharar.

However, there are many Hadiths (traditions) banning Gharar sales narrated by Muslims. For instance, “Ahmad and Ibn-e-Majah narrated on the authority of Abu-said Al-khudriy: Muhammad (S.A.W) has forbidden the purchase of the unborn animal in its mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to their distribution, the purchase of charities prior to their receipt, and the purchase of the catch of a diver”.

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