Gharar: a scholarly debate

Scholars’ debates on Gharar,

Sami Al-Suwailem has summarized part of the controversies between the authors in relation to gharar, showing how some Muslim jurists are very much involved in causing confusion in this topic. He argues that despite the well-established legal characteristics of gharar under Islamic contract law, authors who are interested in Islamic finance find problems or “dilemmas” in the way of defining gharar to give specific meaning to this concept. In order to prove this point, he states that Zaki Badawi suggested that a specific meaning for gharar is uncertain, adding that gharar is not given a definite meaning in the Islamic law literature. This drives Muslim scholars to deal with every case separately, thereby generating different meanings for the term gharar. Frank Vogel expressed the same opinion; he argued that Islamic jurisprudence cannot provide a precise concept for gharar, which demands deeper study and articulation for the purpose of its definition (Al-Suwailem, 1999/2000, p.61).

It is noted that some authors include the deception element as part of their definition of gharar (Islamic Capital Market Task Force, 2004, 7). Some others tread a closer line to the Qur’an, and the logical construction of gharar, when they include uncertainty as well as deceit as an element of gharar, so that the term does not only mean uncertainty (Anon, 2006, p.49). This leads to another result: gharar is not uncertainty or risk or ambiguity, but rather, gharar by its action, taghreer, can induce people into an unknown excessive risk or an excessive uncertainty, thus causing loss and damage to the contracting parties. This was evident when in his Hadith, the Prophet prohibited the sale of Muzabanah (exchanging dates with raisin) as sort of gharar (Al-Bukhari, 1987, p839). Uncertainty is not established here, as well as risk. The prohibition of this kind of sale would be related directly to any kind of misleading or misrepresenting the counter values of the articles sold.

As can be seen in this paper, risk itself is not impermissible. Risk is strongly accepted and expected under Islamic law within financial and commercial transactions, for the purpose of motivating people to act productively, thereby adding new value to economic activities. As mentioned elsewhere in this paper, a mudarabah contract is a very clear and desirable example that has an acceptable level of risk associated with it (Al-Suwailem, 1999/2000, p.64).

Based on previous analysis, a similar approach can be seen when some authors interpret gharar to mean probable or certain deception (Ebrahim, 2007, p.6). This approach fits with the viewpoint of this paper, partly emphasising that gharar is prohibited, not because of risk or uncertainty, but because it contains the meaning of deception. This leads to a further two points of note. First, the interpretation of gharar as uncertainty could be understood to mean uncertainty about the existence of deception in the contract. In other words, the prohibition of gharar as being probable deception means that gharar is considered to be misrepresentation, because misrepresentation and deception have the same concepts in the Islamic-Arabic term. Under Islamic contract law, parties are encouraged to avoid entering a contract if they have doubts about the existence of misrepresentation. To simplify the discussion, understanding the logic of  Islamic economics leads one to say that it is impossible to banish all types of risk, as no business or human activity is without risk, including the issue of making a profit. This issue can be associated with the expectation from some contracting parties of disappointing results, as the issues of gain and loss are key elements in commerce. The significant changes in prices of some goods from one day to another are a good example of this (Abdelwahab, 2007, p.97).

It has to be noted that the most direct and clear definition of gharar as translated from Arabic to English states that “gharar is deceptive misrepresentation and usage of misleading means” (Abdul-Rahman, 2007, p.1). This is what would be found in the Hasah sale which was also prohibited by the Prophet’s Hadith as sort of gharar (Al-Tirmidhi, ND, p532). In this sale one of the parties throw a stone towards items and the one touched by the stone will be the item sold and the buyer has to accept it in the pre-agreed price. This is more likely to contain deception and misrepresentation from one party against the other. It is useful to know that one of the reasons for misunderstanding gharar, and many other Islamic terms or concepts, is due to incorrect translation from Arabic to English by authors who write about Islamic legal and financial terms. This issue becomes more serious when this is caused by renowned Muslim scholars who do not understand the Arabic language fluently, which results in altered meanings of concepts from their original and intended purposes (Ebrahim, 2007, p.3).

As a result, a lack of knowledge of the Arabic language and its context has caused clear and serious misunderstandings with regards to the impermissibility of gharar in the Qur’an. The Qur’an deals clearly and directly with the concept of gharar, its derivative terms and verbs, and clarifies how important it is to be avoided. Based on this analysis, it is much easier for people to understand and appreciate why gharar is absolutely not allowed under Islamic contract law, as one of the most moral and ethical demands of all transactions between people.

It should be remembered that a large part of early trade and commerce between Muslims and other nations was continental trade. The situations and conditions of this trade held risks, which included uncertain results. Therefore, it would not be possible or imaginable that the Qur’an and the Prophet would prevent Muslims from practising trade across the desert because it is was risky or uncertain. Otherwise, early Muslims would have had to stop work, because most of their economic and financial system was built on trade. As mentioned earlier, considering gharar to mean risk or uncertainty would contradict one of the most famous Islamic contracts (mudarabah), which is mentioned in the Qur’an as a type of work that involves travel comprising of risk and uncertainty (73:20).

It can be imagined the level of risk that the early Muslim traders experienced at that time, without the modern facilities now available. Some may wonder if all categories or types of risk, speculation, and uncertainty are forbidden under Islamic law, or whether some are allowed. The answer is found in what has already been discussed; issues such as excessive risk, speculation, and uncertainty are dealt with under the concept of gambling (maysir), which is the way for some people to make money easily, without any effort, at no risk, and is also the way for others to lose money without working, and through excessive risk. Doing business in this way would contradict the concept of productivity, which is one of the most important factors to keep an economy healthy. Risk, speculation, and uncertainty are acceptable as they are far away from gambling, which is an extreme level of risk and uncertainty.

The Ottoman Journal of Equity organizes the rules of taghreer in the context of fraud (khida’a) in relation to trade contracts (selling and buying) (Manthour, n.d., p.3211). As explained earlier, taghreer is the action of gharar, which is misrepresentation. There is another perspective that supports the meaning of taghreer as misrepresentation and misrepresentation as fraud (tadlees, khida’a). This possibility comes under the title of khiyar al-tadlees or khiyar al-taghreer, as a fraud option where “the disappointed party” would have the right to rescind the contract if they can prove that they entered into that contract on the basis of “deceit or intentional misrepresentation by the other contracting party” (Hasan, 1994, p.59). This supports the idea that taghreer (gharar), tadlees, deceit, and misrepresentation bear the same meaning under Islamic contract law, as demonstrated in this paper.

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