Controls of Gharar in Financial Transaction - Appendix B (The Shariah Basis for the Standard)

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1. Shari ’ah Standard No. (31): Controls on Gharar in Financial Transactions Appendix (B) The Shari’ah Basis for the Standard ■ Gharar is divided into excessive, medium and minor, because there is a degree of Gharar which contracts could hardly avoid, whereas there is an excessive degree of Gharar that could become a distinguishing aspect of the contract, such as Bay’ al-Gharar (aleatory sale). In order to specify the two extreme limits of Gharar (excessive and minor) there should be a midpoint of Gharar (medium Gharar). Regarding controls on excessive Gharar, Abu Al-Walid Al-Baji said: “It It is the degree of Gharar which becomes so dominant in the contract, that the contract is described in terms of it.” it. (2) ■ Prohibition of concluding a contract or making a condition that involves Gharar is based on the Hadith (Prophetic tradition) which states: “The Prophet (peace be upon him) has forbidden aleatory sale”. sale” (3) Al-Nawawi said: “This Hadith is a great origin of Shari’ah injunctions on sales and covers an unlimited number of issues.”(4) ■ Assessing excessive Gharar in terms of the four conditions mentioned in this Standard is justified as follows: 1. If Gharar is in an exchange-based contract: Involvement of Gharar in exchange-based contracts would lead to unlawful acquisition of the wealth of other people, whereas it is not so in donation contracts. No dispute would arise in the case of donation contracts, since the recipient of the donation would incur no loss. 2. If Gharar is excessive: This is due to the consensus of the Shari’ah scholars on the impact of excessive Gharar on contracts. They have derived this conclusion from cases in which, due to involvement of excessive Gharar, contracts have been nullified by Hadiths (Prophetic traditions). (2) “Al-Muntaqa” by Al-Baji [1: 41]. (3) Related by Muslim in his “Sahih” [3: 156] with comments by Al-Nawawi et al; and used by Al-Bukhari as a heading of a chapter in his “Sahih” “Sahih”:: “’Umdat Al-Qari” [11: 264]. (4) Al-Nawawi comments, in “Muslim” [10: 156]. 784
2. Shari ’ah Standard No. (31): Controls on Gharar in Financial Transactions 3) If Gharar is in the primary subject matter of the contract rather than in a corollary: This is based on the Qa’idah (Fiqh Principle): “What can be forgiven in corollaries is not so elsewhere”. [item (45) of Qwa’id Al-Majallah] Al-Majallah 4) If it is not justified by a Shari’ah-recognizable need: This is because Shari’ah has come for the sake of relieving people from hardship, as Allah, the Almighty, states: {“..and has not laid upon you in religion any hardship”}. hardship”} (5) This holds true whether the need is public or private, as per the Fiqh Principle which states: “Need, whether public or private, enjoys the same status of necessity”. [Qwa’id [Qwa’id Al-Majallah, Al-Majallah, item (33)] ■ A contract which contains Gharar in its form is null and void because it will remain unconcluded. Gharar in this case tends to make finalization of the contract probable rather than definite. This has been derived from a number of similar cases on which strict prohibiting texts are available, such as the types of sales referred to in the Standard as well as other cases indicated in Fiqh sources.(6) ■ The contract is null and void when its subject matter involves Gharar in its kind, nature, type or characteristics, because Gharar in these aspects is excessive and there are Shari’ah texts which prohibit similar sales. Moreover, such cases involve a great deal of Jahalah (ignorance) and, thus, may lead to dispute. Jahalah here cannot be resolved by offering the buyer the option of viewing for instance. ■ The basis for nullity of a contract that involves Gharar in the amount of its subject matter is the consensus of the Shari’ah scholars on denial of ignorance of the amount, whether of the commodity sold or the price. It is also because ignorance of the amount leads to dispute that hinders delivery and receipt.(7) Permissibility of the cases which satisfy the conditions mentioned in this Standard (5/2/1/5 and 5/2), is due to the fact that such conditions make Gharar forgivable. (5) [Al-Hajj (The Pilgrimage): 78]. (6) “Bidayat Al-Majtahid” [2: 153]; “Fath Al-Qadir” [5: 196]; “Al-Mjmu’” [9: 340]; “Al-Sharh Al-Kabir” by Al-Dardir [3: 2]; “Al-Muqaddimat” by Ibn Rushd (The Grand Father) [2: 221]; “Al-Mughni” [4: 207]; and “Al-Bahr Al-Zakhkhar” [2: 293]. (7) “Hashiyat Ibn Abidin” [4: 28]; and “Al-Bada`i’” [5: 158]. 785
3. Shari ’ah Standard No. (31): Controls on Gharar in Financial Transactions ■ Invalidity of the contract when its duration is unknown rests on the fact that it could generate dispute. Prohibition has been reported about a sale contract known as ““Bay’ Bay’ Habal al-Habalah”, al-Habalah”, which denotes a type of sale in which the price is postponed until the fetus of the camel is born and has given birth to another camel. The Qur`an has also indicated that indebtedness should have a specific duration: {“O you who believe! when you contract a debt for a fixed period, write it down”}.(8) ■ The nullity of the contract due to Gharar that relates to failure in delivery can be justified in terms of the excessive degree of Gharar it involves. A sale contract is meant to safeguard the rights of both parties (the seller and the buyer). If, instead, the seller is to get the price, while the buyer is unable to get the sold object, this will violate the very objective of the contract. ■ impermissibility of the act of someone selling what he does not own stems from the Hadith which states: “The Prophet, peace and blessings be upon him, has forbidden people from selling things that they do not own”. own” (9) Prohibition of selling non-possessed property is also due to the excessive Gharar that failure in delivery could comprise. Gharar relating to failure in delivery is, in fact, the reason behind prohibition of selling a property which the seller does not hold, even legally. This has been derived from a Hadith(10) in this connection. Moreover banning sale of non-possessed property comes under the Fiqh Principle which states: “Any property that neither existent at present nor does its existence in the future is ensured should not be sold”. In this regard also, many scholars have explicitly mentioned that sale of nonexistent property falls under Bay’ al-Gharar (aleatory sale).(11) ■ The Shari’ah basis of the details mentioned in this standard about sale of a nonexistent asset is the degree of Gharar involved therein. Gharar in this type of sale can be avoided only if the asset in question is well des(8) [Al-Baqarah (The Cow): 282]. (9) Related by Al-Tirmidhi in “Al-Sunan” [1: 159]. (10) Related by Muslim in his “Sahih” (1529) in the following words “If you purchase food, do not sell it until you hold it” it”. (11) “Nayl Al-Awtar” [5: 244]; “Al-Bahr Al-Zakhkhar” [3: 381]; “Al-Majmu’ Sharh AlMuhadhdhab” [9: 258]; and “Al-Muhadhdhab” by Al-Shirazi. 786
4. Shari ’ah Standard No. (31): Controls on Gharar in Financial Transactions ■ ■ ■ ■ cribed; otherwise absence of viewing may hinder the conclusion of the contract. The Hanafi scholars argue that the buyer should have the option of viewing so that the risk of Gharar can be avoided. The ruling that Gharar does not affect Rahn contracts is based on the fact that the Rahn (Mortgage) contract is not meant in itself, since it is a corollary contract signed for documentation. Similarly, the ruling that Gharar does not affect agency in the strict Shari’ah sense is based on the same reasons mentioned in the case of mortgage, besides the fact that agency is primarily based on donation. Suretyship is permissible with Gharar because suretyship is a corollary contract based on delegation of the right of disposal. However, if suretyship is paid for, it becomes an exchange-based contract and, thus, affected by Gharar. Nullity of a contract which involves Gharar in any of its conditions originates from what has been discussed above about aleatory contracts. 787