Understanding Islamic Finance - Doha Academy of Tertiary Studies

58 Understanding Islamic Finance“Gharar” means hazard, chance, stake or risk (Khatar). Khatar/Gharar is found if the liabilityof any of the parties to a contract is uncertain or contingent; delivery of one of the exchangeitems is not in the control of any party or the payment from one side is uncertain. In thelegal terminology of jurists, “Gharar” is the sale of a thing which is not present at hand orthe sale of a thing whose “Aqibah” (consequence) is not known or a sale involving hazard inwhich one does not know whether it will come to be or not, e.g. the sale of a fish in water,or a bird in the air. Material available about Gharar in the literature on Islamic economicsand finance is far less than that on Riba. However, the jurists have tried to discuss differentaspects to determine whether or not any transaction would be non-Sharī´ah compliant dueto the involvement of Gharar.Uncertainty cannot be avoided altogether in any business. Risk-taking is rather a conditionfor the entitlement to profit in business. The problem, however, was that the extent ofuncertainty making any transaction Haram had not been clearly defined. Lately, scholars havedifferentiated between Gharar-e-Kathir and Gharar Qalil (too much and nominal uncertainty)and declared that only those transactions that involve too much or excessive uncertainty inrespect of the subject matter and the price in a contract should be prohibited. Therefore,although it has been more difficult to define than “Riba”, a consensus has emerged inthe recent past regarding its extent rendering any transaction valid or void. Accordingly,Gharar is considered to be of less significance than Riba. While the slightest involvementof Riba makes a transaction non-Sharī´ah-compliant, some degree of Gharar in the sense ofuncertainty is acceptable in the Islamic structure of business and finance.However, many areas still need Ijtihad, particularly in terms of Takaful operations, thesecondary market for Sharī´ah-compliant securities and the possible involvement of variousderivatives in Islamic finance.Imam Malik defines Gharar as the sale of an object which is not present and thus whosequality of being good or bad is not known to the buyer: as in the sale of a runaway slaveor an animal which has been lost by its owner, or the sale of an offspring still in the wombof its mother, 32 or buying of olives with olive oil, or sesame with sesame oil or butter withbutter oil. These are all illegal sales according to Imam Malik because of the involvementof the element of chance.As indicated above, Gharar includes ambiguity/uncertainty about the end result of acontract and the nature and/or quality and specifications of the subject matter of the contractor the rights and obligations of the parties, possession and/or delivery of the item of exchange.In other words, it relates to uncertainty in the basic elements of any agreement: subjectmatter, consideration and liabilities. The sale of a thing over which the seller has no control,like an escaped animal or any bird flying in the air, or a contract in which the price hasnot been finalized or the future performance date is not known involves Gharar, making thetransaction illegal. In some other cases, however, jurists differ slightly about the coverageof Gharar. 33A number of Companions of the holy Prophet (pbuh) have reported the prohibition ofBai‘ al Gharar from the holy Prophet. While a number of books of Hadith and Islamicjurisprudence mention this special form of prohibited Bai‘, the term Gharar is generally usedas a cardinal principle of Islamic law on Bai‘. For example, Imam Bukhari in his Sahih,32 Malik, 1985, p. 422. See also Tirmidhi, 1988, No. 1252. It is important to observe that while an offspring of a cow in its wombcannot be sold, the price of the cow is indirectly increased due to its conception and that is valid according to the jurists.33 Al-Dhareer, 1997, pp. 9–11; Hassan, 1993, pp. 47, 48.