Understanding Islamic Finance - Doha Academy of Tertiary Studies

60 Understanding Islamic Finance(d) Suspended (Mu‘allaq) sale.(e) Future sale.II Gharar in the object of the contract includes:(a) Ignorance about the genus.(b) Ignorance about the species.(c) Ignorance about attributes.(d) Ignorance about the quantity of the object.(e) Ignorance about the specific identity of the object.(f) Ignorance about the time of payment in deferred sales.(g) Explicit or probable inability to deliver the object.(h) Contracting on a nonexistent object.(i) Not seeing the object.In order to avoid uncertainty, Islamic law denies the power to sell in the following threesituations:1. Things which, as the object of a legal transaction, do not exist.2. Things which exist but which are not in possession of the seller or the availability ofwhich may not be expected.3. Things which are exchanged on the basis of uncertain delivery and payment.Such transactions are prohibited to avoid fraudulent activities, disputes and injustice in trade,as a sale involving Gharar may cause a vendor to consume or erode the property of othersunlawfully. Abdullah ibn Abbas (Gbpwh) extended the prohibition of Bai‘ al Gharar to Bai‘al-Ghāib (the sale of absent or concealed goods). The latter contract is considered as fallingwithin the notion of Gharar, since the object of sale is uncertain and the purchaser has theright of option (Khiyār) to revoke the contract upon sight.Examples of Gharar are: ignorance about the species being sold, about the quantityof the object and the price, lack of specification of the item being sold, e.g. saying: “Isell you one of the houses of this project” without specifying that house, sale of debt(assignment without recourse to the seller) is prohibited as realization of the debt in thefuture is not certain, ignorance of the time of payment in deferred sales, contractingon a nonexistent object and/or the inability to deliver the object, indicating more thanone price or option in a contract unless one is specifically chosen. As this uncertaintymay lead to undue benefit to one party at the cost of the other, Gharar sometimes alsoimplies deceit.Gharar also means deception through ignorance by one or more parties to a contract. Thefollowing are some more examples of Gharar:1. Selling goods that the seller is unable to deliver, as this involves counterparty or settlementrisk. This is why, for goods to be covered under the subject of Salam (which is permitted),it is necessary that the relevant commodity might be available in the market at least atthe time when delivery has been stipulated.2. Making a contract conditional on an unknown event, such as “when it rains”.3. Two sales in one transaction in such a way that two different prices are given for onearticle, one for cash and one for credit, without specifying at which price one buys theitem with the understanding that the sale is binding on the buyer at either price; or selling