The Prohibition of al-gharar Rationale & Current Issues
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1 The Prohibition of al-gharar Rationale & Current Issues (د. نجم الدين كوناي ( Guney Dr. Necmeddin IRTI Visiting Scholar Necmettin Erbakan University, Konya, TURKEY nguney@konya.edu.tr 20/02/2018 Tuesday 1
2 Outline Introduction Meaning of Gharar Main Cases of Forbidden Gharar Is Gharar Always Effective? Reasons/Rationale for Prohibition of Gharar Gharar Related Current Issues Conclusion 2
3 Introduction Shariah issues: English Literature vs. Arabic Literature Three major prohibitons in the field of Muamalât: riba (interest) gharar (excessive ambiguity) bâtil (prohibited) practices in business Source: Abubakr Ibn al-arabi, Ahkam al-quran, I,
4 Introduction Three related principles in the Qur an : The prohibition of maysir (chance games/games of hazard) (Baqara 2:219; Maidah 5:93) Mutual Consent :(التراضي) O you believe! Eat not your property among yourselves unjustly except in a trade amongst you by mutual consent (Nisa 4:29) requires to know the terms and outcome of a contract Sanctity of contracts: (Maidah 5:1) every contract has spesific rulings to be followed (bai: sale, salam, ijara: rent, mudaraba/mushara etc ) 4
5 CRANE GAME / CLAW MACHINE 5
6 Meaning [غ ر ر : [Gh-r-r Literal Meaning a) uncertainty, danger, risk, hazard b) deceit, fraud GHARAR TAGHRER (Esp. with GHABN) Technical Meaning / Definition: «a contract that has unknown/unrevealed consequences and outcomes» «something that may occur/materialize or may not» 6
7 Main Cases of Forbidden Gharar A. Form/Structure of the Contract Prohibited sales of the Jahiliyya Period (bai al-hasât, al-mulâmasa, al-munâbatha etc) Conditional Contracts (depends on contract type) I ve sold you this item, if it rains this week the parties are not sure if the sale may or may not take place Interdependent Contracts combining two contracts (sales, ijara, loan etc.) in one contract In composite products, the multiple contracts must be independent of each other 7
8 Main Cases of Forbidden Gharar B. Settlement Risk (Risk of failing to deliver the terms of a contract) Due to legal reasons: cannot guarantee delivery due to legal hinderances None or incomplete ownership - selling something not owned, or owned by another person Common Ownership (mal mubah) e.g. birds in the sky, fish in the lake (not yet caught) Due to practical reasons Bay al-ma dûm: does not exist yet can not be sold ; but salam-istisna possible selling unborn animals when the mother is not part of the sale cf. Habal al-habalah selling agriculture that has not grown yet (farm produce which has not been harvested yet) The sale of an item that is not yet in the possession of the vendor Selling lost, stolen or runaway items 8
9 Main Cases of Forbidden Gharar C. Want of knowledge (jahalah) - can cause dispute (niza) the characteristics or quality of the item: selling carrots, potatoes etc. without pulling them out of the soil the quantity of the item: Selling by estimating the amount depends on the conditions: selling wool while it is still on the sheep, selling the oil in the olive etc. impermissible the price: currency type, amount, payment date etc. not specifiying the item: selling one non-spesific sheep of the herd 9
10 The Sum of all Gharars? 10
11 Is Gharar Always Effective? While the prohibition of riba is absolute, some degree of gharar is acceptable in the Islamic framework. AAOIFI accepted four conditions for gharar to be effective: 1. The contract should be an «exchange based contract» and not «gratuitous contract». 2. The Gharar should be major/excessive. [3 pictures] 3. Gharar should be in the primary object (principal item) of the contract. 4. There should be no necessity for concluding this kind of contract. 11
12 Daily Life Examples CHOCOLATE + TOY EGGS 12
13 Daily Life Examples TAKING A TAXI? (Taximeter) 13
14 Daily Life Examples ALL YOU CAN EAT BUFFETS 14
15 Reasons/Rationale for Prohibition of Gharar Sanctity of Contracts: The parties must perform their respective duties under a spesific contract Risk or uncertainty casts doubts on the settlement of the contract Mutual Consent: can only be achieved through full knowledge, full disclosure and transparency Want of knowledge is a source of dispute between parties Draw the line between business and gambling/chance games profit for one party and corresponding loss to other party (zero-sum game or gambling) 15
16 Gharar Related Current Issues Conventional Insurance Contracts (are aleatory contracts) Premium is paid regularly compensation received only in the event of a loss insurance itself cannot be considered an object of sale gharar. Conventional insurance also suffers from riba since premiums are mostly invested in riba based bonds. İslamic insurance: cooperative nature + need for insurance Derivatives: Forwards, Futures, Options and Swaps (For details: Muhammad al-amine, Risk Management in Islamic Finance, 2008) 16
17 CONCLUSION Contracts must include transparency and honesty. undue complexity in contracts must be eliminated. Not all types of risk are prohibited. taking risks that are inherent in productive economic activities. risks of trading, doing business, making investments, becoming shareholder etc Risks related to gharar are most of the time: unnecessary and avoidable. 17
18 QUESTIONS? 18
19 19
20 Contacts of the presenter Dr. Necmeddin Guney (د. نجم الدين كوناي ( [ IRTI Visiting Scholar ] Assistant Professor, Islamic Law Department, Necmettin Erbakan University, Konya, TURKEY nguney@konya.edu.tr Contacts of IRTI Website: Phone: +966 (0) Fax: +966 (0) P.O. BOX Jeddah Kingdom of Saudi Arabia 20
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