Gharar

What is Gharar?

Gharar is an Arabic word which is related to uncertainty, risk and deception. It is described as the sale of a thing which is not present such as crops not yet harvested or the fish not yet netted. Gharar is an important thing in Islamic finance where it measures the risk of investment regards to gambling short selling or assets of uncertain quality.

Gharar is prohibited in Islam due to some strict rules in Islamic finance against transactions, which are highly uncertain or may cause any injustice against anyone.

The gharar comes from the hadith a revered book of Islam where Prophet Muhammad who spoke about selling the birds in the sky, the fish in the water and the unborn calf in the mother’s womb. It means do not sell anything, which is not with you.

Comparison of Gharar with Few Elements

1. Jihalah

Jihalah means unawareness, which is one of the causes of Gharar. For instance, a transaction can be done from all the angles, but the subject of matter is delivery, which canbe difficult.

2. Qimar

Under Qiamr there is a possibility of a total loss to one party where the winner receives money or goods from the loser, but Qimar is not limited to gambling.

3. Speculation

Each speculative transaction is not a Gharar or gambling until it has any of the elements of Gharar. It is because these activities are carried out in the hope of profiting from the rise and fall of the price of commodities or assets.