Gharar refers to speculative or overly risky transactions. Imam Muslim records in his Sahih: “On the authority of Abu Hurairah who said that the Messenger of Allah (peace and blessings of Allah be upon him) forbade ‘sales of speculative nature’ (bai’ al-gharar).” Al-Bukhari and Muslim record: “On the authority of ibn Umar who said that ‘the Messenger of Allah (peace and blessings of Allah be upon him) prohibited the sale of fruits until their ripeness and freedom from disease were apparent. He prohibited both the seller and the buyer.’” Commenting on a hadith with similar meaning, al-Nawawi explained why the prohibition was for both the seller and the buyer. He wrote, “As for the seller, it is because he is wanting to devour wealth wrongfully. As for the buyer, it is because he is in accord with him on this forbidden act and because he is [possibly] wasting his wealth while wasting wealth has been prohibited.”327
From these hadith and others, there is a consensus among jurists that an overwhelming presence of undue risk or uncertainty renders a business contract null and void. Such transactions are ones in which the probability of one or both of the parties being wronged is great. Concerning the meaning of this concept of gharar, Rayner states,
The Sharee’ah determined that in the interests of fair, ethical dealing in commutative contracts, unjustified enrichment should be prohibited. This policy precludes any element of uncertainty or risk (Gharar).328 In a general context, the unanimous proposition of the jurists held that in any transaction, by failing or neglecting to define any of the essential pillars of contract relating to the consideration or the object, the parties undertake a risk which is not indispensable for them. This kind of risk was deemed unacceptable and tantamount to speculation due to its inherent uncertainty. Speculative transactions with these characteristics are therefore prohibited…329
Although such contracts are prohibited by Islamic Law, due to their speculative or risky nature and hence the possibility of making gains from such transactions, they can be very alluring to individuals.330 Thus, ibn al-Atheer, going back to the lexical meaning of the term, says, “Al-Gharar is that concerning which its apparent component is preferable but its non-apparent component is disliked to the person. Hence, its apparent component entices the buyer while its non-apparent component is unknown.”331
According to ibn Juzay, examples of gharar transactions include:
(1) “Ignorance of the price and uncertainty about the existence of the object.”332
(2) “Uncertainty about the price of the object and about its characteristics, as in the example of the sale of cloth in a shop without any specification about its quality or price.”333
(3) “Uncertainty related to difficulties of delivery.”334
(4) “Uncertainty about the existence of the object, as in the case of a sickly animal.”335
328 The statement, “any element of uncertainty or risk,” is not quite correct. The Muslim jurists have long recognized that amounts of “uncertainty” or “risk” exist in many legal contracts. The true question, as much of Rayner’s quote itself further shows, is the predominance or the effect of such “uncertainty” or “risk” on the essence of the contract.
329 S. E. Rayner, The Theory of Contracts in Islamic Law (London: Graham & Trotman, 1991), p. 289.
330 Both parties must enter into contacts out of free will. However, that does not mean that every contract in which parties are willing to enter is permissible.
331 Mubaarak ibn al-Atheer, Jaami al-Usool fi Ahaadeeth al-Rasool (Maktaba al-Hilwaani. 1971), vol. 1, pp. 527-528.
332 Nayla Comair-Obeid, The Law of Business Contracts in the Arab Middle East (London: Kluwer Law Interna onal, 1996), p. 58.
333 Ibid., p. 58.
334 Ibid., p. 58.
335 Ibid., p. 58.