Filter by Categories
Accounting
Banking

Islamic Finance




Types of Gharar


Gharar is an element of risk, uncertainty, or hazard that could render a contract void. A gharar-associated contract is one that contains a degree of risk on the part of any of the counterparties in a way that could lead to him losing part or all of some countervalue, right, etc. Gharar was defined by some shari’a scholars (namely Ibn al-Qayyim) as “a sale in which the vendor is not in a position to hand over the subject matter to the buyer, whether the subject matter is in existence or not”. From a contractual perspective, gharar is generally subdivided into three types:

  • First type: it arises due to the non-existence of, or the inability of the parties to control, the exchanged countervalues (the subject-matter of a commutative contract or exchange-based contract). In this specific sense, gharar relates to settlement risk or counterparty risk.
  • Second type: it arises due to lack or inaccuracy of information disclosure of material information on the subject matter. The relevant information relates to the characteristics of an underlying countervalue such its genus (species), quantities, date of future delivery, etc. This specific case is conventionally known as the problem of asymmetric information.
  • Third type: it results from the undue complexity of the contract. Such complexity may be caused by combining two sales in one or more interdependent contracts (hybrid or structured contracts). A prime example of this is the so-called two sales in one (in Arabic bai’tan fi bai’ah), where a person tells another: “I sell to you this object at 50 dinars in cash today and at 60 dinars to be paid within a month”. If the buyer accepted the offer without mentioning the price at which he would buy the object, then the transaction is said to be “two sales in one” or “two contracts in one”, which shari’a utterly forbids.


Tutorials
This section contains quite a vast collection of easy-to-understand explanatory manuals, practical guides, and best practices how-tos covering the main themes of this ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments