GHARAR (UNCERTAINTY)
Gharar comes from the word of arabic root that means deception. In practice, the term is used quite widely such as uncertainty, risk, hazard and dishonesty. (ISLAMIC BANKER)
According to Muhammad Yusuf Saleem (2000), gharar refers to uncertainty in a particular contract that may possibly lead to unknown consequences or results, where one or both parties to the contract will put up with unfairness. Mohd. Hashim Kamali (1988) stated that gharar is ambiguities in a contract are intended to commit fraud, cheat and exploit one of the parties and synonymous with al khida or fraud as well.
Mohammed Obaidullah (2005) stated that Islamic scholars have broadly defined gharar in two ways: “First, gharar implies uncertainty. Second, it implies deceit”. The founders of the various schools of Islamic thought have defined gharar in the following words:
Hanafi School (Al-Sarakhsi): “that whose consequences are hidden”
Shafi’e School (Al-Shiraazi): “that whose nature and consequences are hidden” or “that which admits two possibilities, with the less desirable one being more likely”
Hanbali School (Ibn Taymiya): “that whose consequences are unknown” or “that which is undeliverable, whether it exists or not.”
Prohibition of Gharar.
Though there is no verse in the Qur’an to proscribe Gharar explicity, vanity (albatil)
is forbidden in many verses:
“And do not eat up your property among yourselves for vanities, nor use it as bait for the judges” Surah Al-Baqarah, verse 188.
The basis of prohibition of gharar is a hadith of the Prophet s.a.w.:
Meaning: “Verily, the Prophet s.a.w. forbids gharar trading”. Hadith narrated by Muslim.
Classifications of Gharar
According to Siti Salwani Razali (2009), inadequate information which leads to increase uncertainty becomes a major factor to the existence element of Gharar. Whenever the elements and sub-elements of the contracts are absent or not well defined, this absolutely leads to gharar. Gharar may occur when the subject matter of a contract is non-existent, not in possession of the owner, not deliverable, not clearly defined, etc.; if the consideration or price is not clearly be specified.
As stated by Mohammed Obaidullah (2005), he categorizes the various expositions of gharar into the following:
· Settlement Risk—in which the subject matter of sale is non-existent, i.e. the seller does not have possession of the object of sale and thus delivery of the same to the buyer is uncertain, thus rendering the contract unsettled.
· Inadequacy and Inaccuracy of Information—in which critical information pertaining to the price, subject matter, date of delivery, etc. is unknown or inadequate; also where such critical information is inaccurate due to deliberate withholding of the same by either party in an attempt to deceive or commit fraud. Ill intentions and evil motives, thus, also constitutes gharar.
· Complexity in Contracts—in which a single contract is made up of two or more interdependent contracts leading to conditionality in the contract which renders it uncertain and ambiguous.
· Pure Games of Chance—in which gharar occurs due to the uncertainty in events or consequences of the gamble.
Al quran does not mention explicitly about the prohibiton of gharar contacts and several of hadith by the Prophet (PBUH) as mention earlier indicate the need to stay away or avoid gharar in contacts. Some of the gharar can be tolerate in several condition.
According to Hassan O. Ahmed (1990) Gharar can be classified into two categories, namely:
· Gharar yasir i.e. minor or slight gharar
· Gharar fahish i.e. major or serious gharar
Gharar Yasir (minor or slight)
According to Dr. Mohammed Alwosabi, this type of gharar is tolerated and will not invalidate a contract. Gharar yasir may consist of the following cases:
· The uncertainty is slight, small or trivial.
· Contract is unilateral or charitable (al tabarru’at) such as gift or bequest
· There is a public need for the transaction or contract (consideration of maslahah), for example, Bai’ al salam and Bai istisna’
Gharar Fahish (major or excessive)
Dr. Mohammed Alwosabi also stated that this type of gharar is not tolerated and may result in contract voidability. Gharar fahish is a great uncertainty and the product cannot be measured, so the contract is ambiguous.
The principles of Gharar in Bai Bithaman Ajil Contract (BBA)
According to Siti Salwani Razali (2008), Bai Bithaman Ajil is one of the popular methods of home financing in Islamic banking system that mostly use by customers. However, there are certain conditions or circumstances in which this type of contract will involve in very high probably of gharar especially dealing with the purchase of assets which is not present and exist yet.
The Issue of Gharar in BBA Contract for Purchase of House (To Be Constructed)
Bai Bithaman Ajil is concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed upon by both parties. The profit is not an interest payment, however, it is part of the sale price. (Wikipedia)
Normally, Bai’ Bithaman Ajil is consist of an agreement in which a bank buys an asset/house and sells it to a third party customer at a contracted price whereby the customer is obliged to pay based on deferred payment such as by periodic instalments for a particular period of time. The issue arises here as to what if the asset concerned is not in existence or only will exist in the future or end up as an abandoned house or unable to be completed due to unforeseen circumstances. Does this type of contract not amount to gharar when clearly finally it will result to a huge loss to the buyer.
According to Siti Salwani Razali (2008), there are three reasons how Bai Bithaman Ajil contract will involve in amount of gharar such as:
1. This type of contract does not fulfil the requirement of subject matter under Islamic law of contract.
o Muslim jurists have laid down several conditions for subject matter in order to become valid and they are;
1. The Subject matter must exist
Islamic law lays down the condition that the subject matter (mahal ‘aqd) must actually exist at the time of the conclusion of contract. Therefore if the subject matter is non existent, the contract is void even though it could probably exist thereafter or even if it is established then that it would exist in the future. The wisdom behind the underlying prohibition of the contract in the non existing matter is the fear of gharar or risk which may affect the consent which is important element of the contract.
2. The Subject Matter can be delivered
It is necessary that the subject matter of the contract should be able to be delivered to the contracting parties. This implies that the subject matter must exist or possibly exist at the time of the conclusion of the contract. This rule is applicable in to the property transactions as well as to gratuitous transactions.
3. The Subject Matter Can Be Ascertained
It is important that the subject matter must be ascertained and known by the parties to the extent that the knowledge is sufficient to avoid future disputes. To determine how the ascertainment and the knowledge of the parties can be attained it is important to distinguish between the two situations of whether or not the subject matter is actually present at the meeting of the contracting parties.
2. It is similar to Bai Ghaib
o In Bai Bithaman Ajil contract, if the subject matter here is the house to be constructed this will be similar to Bay’ Al-Ghaib or buying the asset which is not in existence.
o Hashim Kamali (1999) stated that with reference to sale of the unseen or sale of what is not visible (bai Ghaib) the schools of law have held different views on the ground basically of their respective perceptions of gharar. Whereas Shafi’e considered gharar. In bay’ al-ghaib to be fatal, Imam Malik viewed it to be negligible. Abu Hanifah on the other hand held that there was no issue over gharar as long as the buyer was granted the option of viewing (khiyar ru’yah).
3. It will result to a huge loss to the purchaser.
o Generally, there are several advantages of BBA house financing and they are;
- The total cost of the property purchased is determined at the time of the contract or aqad.
- There is no additional or hidden cost that will change the price of the property purchased.
- The transaction is transparent.
- Customers will know exactly when the financing will end.
- There will be no compounding of arrears and outstanding penalty charges.
- Repayment is not subjected to fluctuation of the Base Lending Rate (BLR). - Allows better financial planning.( The Star newspaper, Malaysia, contributed by Bank Negara Malaysia).
Unfortunately, all the advantages above only can be acquired by enter a contract on buying asset or house that already existed using Bai Bithaman Ajil Contract. Against with those who buy a house that not yet being construct that lead to uncertainty or gharar.
If the bank cannot deliver the asset or house to the customer, and yet they still need to pay the instalment for nothing as their already enter the contract and cannot enjoy the property. This will cause a financial burden to the purchaser and huge loss as well. Therefore, the prohibition of gharar is to avoid the disarray in the society due to dissatisfaction and heavy financial burden of debts that will affect the life of particular family institution.
Al Quran Al Karim
Saleem.M.Y,2000, A Handbook on Fiqh for Economists ,IIUM
Kamali,M.H.i,(1988),Uncertainty and Risk-Taking (Gharar) In Islamic Law, IIUM Law Journal,
Vol. 7, No. 2, , IIUM
Islamic Banker. Islamic Banker. (2009). Retrieved March 2, 2011, from http://www.islamicbanker.com/gharar.html
Razali, S. S. (2009). A Revisit to the Principles of Gharar in Islamic Banking Financing Instruments with Special Reference to Bay Al-Inah and Bay Al-Dayn. 6th International Islamic Finance Conference Peer Reviewed Paper .
Muhammed Obaidullah,2005, Islamic Financial Services, Islamic Economic Research http://islamiccenter.kau.edu.sa/english/publications/Obaidullah/ifs/ifs.html
Hassan O. Ahmed,1990, Shariah Contracts in Islamic Banking & Finance, Dar al Fikr, Beirut
Alwosabi, D. M. (n.d.). Prohibition of Gharar. Retrieved March 1, 2011, from http://staff.uob.edu.bh: http://staff.uob.edu.bh/files/620922311_files/Prohibition-of-Gharar.pdf
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