Gharar

''Gharar'' ( ar, غرر) literally means uncertainty, hazard, chance or risk. It is a negative element in ''mu'amalat'' ''fiqh'' (transactional Islamic jurisprudence), like '' riba'' (usury) and '' maysir'' (gambling).
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. 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, 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). 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."
Scholars of Shafi’i ''fiqh'' have described it as “something which in its manner and its consequence is hidden."

The ''Hanbali'' school defined it as "that whose consequences are unknown" or "that which is undeliverable, whether it exists or not." 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."

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

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." 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".

Scripture

While the word ''gharar'' is not specifically mentioned in the Quran, two verses (2:188; 4:29) are thought to refer to it.

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:

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", Islamic scholars (at least in recent years) generally divide ''gharar'' into two types:
* ''Gharar fahish'' ("excess" ''gharar'') (also ''gharar-e-kathir'', "too much" gharar) is prohibited ('' haram'') and discussed in '' ahadith''
* ''Gharar yasir'' ("light" ''gharar'') (also ''gharar qalil'', "nominal" gharar) refers to small or trivial amounts of gharar which are tolerated ('' halal'').

When not prohibited

Four conditions where ''gharar'' is not invalidated are:
* in the aforementioned ''gharar yasir;''
* where the contract is "unilateral or charitable" (''al tabarru'at'') so that the other party to the contract is not exploited, such as a gift or bequest;
* where there is a "public need for the transaction or contract" (''maslahah'', for example in the Islamic finance instruments of ''bay' al salam'' and ''istisna`'');
* where risk (''ghurm'') "inherent in productive economic activities".

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'', 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.

Insurance and 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.

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.

See also

* Maisir
* Sharia and securities trading

References

{{Islamic banking and finance

Islamic banking
Credit
Banking terms
Arabic words and phrases in Sharia
Islamic banking and finance terminology