|The hand on Top is better then the bottom.|
|Hakim bin Hizam RA - Sacrifices hundredth of camels|
|Hakim bin Hizam RA - Sacrifices Thousands of Sheeps|
Gharar is variously defined in English as 'uncertainty' or 'deceptive uncertainty'. The Qur'an uses the word "al-gharūr" to mean "deceptive". Ibn Taymiyyah writes that gharar exists in a contract when risk-taking is combined with the devouring of the property of one party by the other (see Kamali, M. H., Islamic Commercial Law, 2000, p. 151 for a more detailed discussion of these opinions.) In Towards an Objective Measure of Gharar in Exchange (Islamic Economic Studies, Vol. 7, Nos. 1 & 2, Oct. 1999, April 2000), Dr. Sami al-Suwailem uses simple game theory to argue that a gharar transaction occurs where one party can only benefit by the other's loss, under conditions of uncertainty. Commercial insurance is given as an example of this, since either the insured pays a premium and receives no countervalue, or the insurer pays out much more on a claim than was received by way of premium. Professor Mahmoud el-Gamal states that gharar involves the trading of unbundled risk. For example, if a homeowner insures his home conventionally against damage by fire, then the homeowner can be said to have separated the risk of fire from the right of ownership of the house (in other words, to have "unbundled" risk and ownership). The insurance company is paid to accept the risk of damage by fire, while the homeowner retains ownership of the house.
Many commentators have argued that gambling shows gharar in its most extreme form. However, gharar can also appear in a number of other forms. For example, to sell a non-fungible asset (such as a horse) that one does not own (to "sell short") is widely prohibited on the grounds of gharar since only the owner of the horse has the right to sell it. In the event that the seller cannot acquire the horse before it becomes deliverable to the buyer, harm of some kind may befall the buyer. Neither can one sell an item of uncertain quality, an unborn calf for example, since the buyer and the seller do not know the precise quality of the thing that they are trading. A third example of gharar can be seen where a contract document is not drawn up in clear terms. For example if a contract of sale states in one place that the price of the object of sale is £100 and in another place £200, then there is uncertainty as to the price at which the parties have agreed to trade.
Scholars generally distinguish between contracts containing minor gharar (which tend to be seen as valid) and contracts containing substantial gharar (which are generally prohibited). For example, it is not possible to know whether each nut in a sack of nuts offered for sale is of edible quality, yet this is a minor gharar (the buyer can of course test a few of the nuts before buying) and so the sale of nuts in a sack is generally permitted. The facilitation of ease is invoked as the justifying principle here, along with the absence of any clear inequality in the values of the exchanged items (in this case, money and nuts).
Evidence for the prohibition of contracts containing gharar comes in the hadith of the prophet Muhammad (pbuh) who prohibited the sale of fish in water on the grounds that it is a gharar sale. Hence, it seems clear that if an object of sale is not owned by person A, then it cannot be sold to Person B. Hakīm ibn Hizām asked the Prophet (pbuh):
'Oh Prophet of Allāh! A man comes to me and asks me to sell him what is not with me, so I sell him [what he wants] and then buy the goods for him in the market [and deliver]'. And the Prophet (pbuh) said: 'sell not what is not with you'.
Hadīth: Sunan Abī Dāwūd, No. 3503.
However, it is widely permitted for a seller to short-sell fungible items (wheat for example) for delivery to the buyer at a later date under the contract of bay` al-salam. For example, the prophet (pbuh) is reported to have allowed the farmers of Medina to sell-short dates for delivery two and three years after the time of contract. Since these farmers had not grown the dates in question at the time of concluding the bay` al-salam contract, they were clearly in the position of selling what they did not own. Following such evidence, many jurists have distinguished between the short-selling of fungible items (allowed in some cases) and the short selling of non-fungible items (generally prohibited).
Ibn Qayyim and some modern writers, including Hashim Kamali, argue that it is not a sale without possession (qabd) that is prohibited, but rather a sale in which the seller is unlikely to be able to deliver at the specified future time. Hence, Kamali argues that a futures contract (in which the seller agrees to deliver an object of sale which he does not presently own) may be permissible given the existence of a clearing house that guarantees delivery of the sold item to the buyer. In effect, the clearing house guarantees posession (qabd) of the object of sale at the future date.
Ibn al-Qayyim writes: "There is nothing in the Book of Allāh nor in the teachings of the Prophet (pbuh) nor in the sayings of any of his companions to the effect that the sale of something non-existent is unlawful, neither by specific nor general reference. The sunnah admittedly bans the sale of some things which do not exist, just as there is a ban on some things which do exist. Hence the effective cause (`illah) of prohibition is not the existence or non-existence but uncertainty and gharar. This is when a thing cannot be delivered, whether existent or not. The essential element of a sale is delivery of the sold thing, and if the seller is unable to deliver, this is gharar, gambling and risk."
Ibn al-Qayyim, I`lām al-Muwaqqi`īn, Vol. 1, p. 219 (cited by al-Amine, M. in Derivatives Instruments in Commodity Markets: an Islamic Analysis, International Islamic University Malaysia, undated).
Hence, the above-mentioned permission for a farmer to short-sell commodities using bay` al-salam. This contract has traditionally been used by farmers and other commodity producers to finance their production, since payment is received up-front and this allows the farmer to buy seed and pay his workers before harvest time. In modern times, the permission for bay` al-salam has been cited as evidence for permitting the short-selling of commodities in general. However, some jurists see bay` al-salam as an exception to the normal rules of sale and therefore do not allow a general permission for short-selling to be inferred from it.
It is sometimes proposed that business investment involves gharar because the outcome is unknown. Take for example a mushārakah investment in which two partners contribute a specified amount of cash in return for a known share of final profit. If the mushārakah partners agreed to share the profits of the venture in a 'fair ratio' without contractually defining what they meant by the word 'fair', major gharar would clearly be in evidence with respect to the contractual terms and such a contract is therefore likely to be judged void. But what if the profit-sharing ratios are defined clearly, at say 50% each? Is there not still gharar with regard to how much money each partner will receive at the end of the investment period? If one takes gharar to mean a lack of knowledge pertaining to a future outcome, then every act of man carries an unknown outcome. The outcome of a business venture is unknown at the outset, as is the quality of the unborn calf in the above example, yet business ventures are not generally forbidden under sharī`ah. The issue here is resolved by considering whether a gain is made by one of the partners at the expense of the other. So long as each partner's contribution commands a freely negotiated percentage share of the final profit or loss, then neither can be said to have devoured the wealth of the other unjustly. There is certainly a lack of knowledge, but not of the type that benefits one party at the expense of another. Whatever profit or loss arises will be shared fairly between the partners. This is the essence of a contract of investment, in contrast to a contract of exchange in which each countervalue must be precisely known at the time of contracting.
Abridged from The Problem With Interest, 3rd edition, 2010.
|Hadith in response to Hakim bin Hizam wanting for more|