Theory of Gharar and its interpretation of Risk and Uncertainty from the perspectives of Authentic Hadith and the Holy Quran: A Qualitative Analysis

Waemustafa, Waeibrorheem and Sukri, Suriani (2015): Theory of Gharar and its interpretation of Risk and Uncertainty from the perspectives of Authentic Hadith and the Holy Quran: A Qualitative Analysis. Published in: International Journal of Economic Perspectives , Vol. 10, No. 2 (15 February 2017): pp. 1-27.

Abstract

The inconclusive definition of Gharar as risk and uncertainty can be commonly found in the contemporary literatures. The difference in the meaning of Gharar is generally thought to be due to the difference in the jurisprudence point of views. The current practice is that there is no standard in defining the terms. Hence, this study introduces steps in defining terminology namely; dictionary definition, Arabic linguistic definition and jurisprudence definition. However, the philosophy of risk as stated in the Holy Quran and Hadith differs from the concept of risk in conventional finance. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar. mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Gharar, Mukhatarah, Mysir, al ghunm bil ghurm and al kharaj bil daman.
• Subjects: G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G2 - Financial Institutions and Services > G29 - Other; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; K - Law and Economics > K0 - General > K00 - General; P - Economic Systems > P4 - Other Economic Systems; P - Economic Systems > P4 - Other Economic Systems > P40 - General; P - Economic Systems > P5 - Comparative Economic Systems; P - Economic Systems > P5 - Comparative Economic Systems > P51 - Comparative Analysis of Economic Systems

References

Akanbi, M. M. (2012).The Case for the Integration of Islamic Banking Principles into the Nigerian Banking System. African Journal of Social Sciences, 2(2), 41-66.

Alam, S. M. (2011). Islamic Finance: an Alternative to the Conventional Financial System. Korea Review of International Studies, 37-59.

Al-Darir, Al-Siddiq. M. Al-Amin. (2004). The Amount of Gharar that Prevent Transactions from being Valid. Proceedings of 4th Conference of the Shari’ah Boards of Islamic Financial Institutions. 3-4 October,Kingdom of Bahrain.

Al-Dhareer, S. M. A. A., & Mohammad, S. (1997). Al-Gharar in contracts and its effects on Contemporary transactions. Eminent Scholars’ Lecture Series, (16), 10-11.

Al-Muharrami, M. S., & Hardy, M. D. C. (2013). Cooperative and Islamic Banks: What can they Learn from Each Other? (No. 13-184). International Monetary Fund.

Al-Saati, A.-R. (2003). The Permissible Gharar (risk) in Classical Islamic Jurisprudence. Journal of King Abdul Aziz University; Islamic Economic, 16(2), 3-19.

Al-Suwailem, S. (2006). Hedging in Islamic finance. Islamic Development Bank, Islamic Research and Training Institute.

Al-Taani, K. (2013). Challenge facing financial engineering with islamic rules.International Journal of Economics, Finance and Management Sciences, 1(5), 234-240.

Al-Zuhayly, W. (1989). Al-Figh Al-Islami Wa Adillatuh. Damshk, Syria: Dar Al-Fikr.

Ansari, S., & Farooq, M. (2012). The Demand Determinants of Takaful (Islamic Insurance) By Conventional and Islamic Banks in Pakistan. Paper presented at 3rd International Conference on Business and Economic Research (3rd ICBER 2012),Golden Flower Hotel, Bandung, Indonesia, 12-13 March (2859-2873).

Åström, Z. H. (2012). Risk Analysis for Profit and Loss Sharing Instruments.(Unpublished doctoral dissertation). International University of Sarajevo.

Buang, A. H. (2000). Studies in the Islamic Law of Contracts: The Prohibition of Gharar. Kuala Lumpur: International Law Book Services.

Chapra, M. U. (Oktober, 2008). The global financial crisis: can Islamic finance help minimize the severity and frequency of such a crisis in the future?. In A paper presented at the Forum on the Global Financial Crisis at the Islamic Development Bank.

Cizakca, M. (2010). Domestic borrowing without the rate of interest: Gharar and the origins of sukuk (No. 23205). University Library of Munich, Germany.

Dusuki, A. W. D., & Smolo, E. (2009). Islamic hedging: rationale, necessity, and challenges. In International Seminar on “Muamalat, Islamic Economics and Finance (SMEKI 09).

Dusuki, A. W., &Abozaid, A. (2008). Fiqh Issues in Short Selling as Implemented in the Islamic Capital Market in Malaysia.JKAU: Islamic Econ, 21(2), 63-78.

El-Gamal, M. A. (2006). A simple fiqh-and-economics rationale for mutualization in Islamic financial intermediation. Houston: The Rice University. Retrieved June, 20, 2011.

Elgari, M. A. (2003). Credit risk in Islamic banking and finance. Islamic Economic Studies, 10 (2), 1-28.

Elgari, M. A. (2006). An Islamic Perspective on: Risk Bridging Conventional and Islamic Banking.Manuscript submitted for publication.

El-Khatib, H., & Patel, Z. (February, 2009).In Harvard-LSe Workshop on Risk Management (Islamic economics and Islamic ethico-Legal Perspectives on current Financial crisis), London School of economics.

Elo, S., & Kyngäs, H. (2008). The qualitative content analysis process. Journal of advanced nursing, 62(1), 107-115.

Farooq, M., Muhammad, N., & Ullah, S. (2012). A Shari’ah Perspective of Minimum Account Balance Requirement in Islamic Banking.Al-Idah, 25.

Fisher, O. C. (2013). A Takaful Primer: Basics of Islamic Insurance, Islamic Finance Gateway, Thomson Reuters.

Hailey, P. (2009). Microfinance and Islamic Finance: can they be reconciled and how can they benefit one another?.HEC Social Business Certificate.

Heck, G. W. (2006). Charlemagne, Muhammad, and the Arab roots of capitalism. Walter de Gruyter.

Hoque, N., Syed Mohammad Ather, F. C. M. A., &Ahsan, S. M. H. (2013). Islamic Business Practices in Bangladesh–a Survey on Some Selected Firms in Chittagong.European Journal of Business and Management, 5(20), 121-129.

Hussain, M. M., & Pasha, A. T. (2011). Conceptual and Operational differences between General Takaful and Conventional Insurance.Australian Journal of Business and Management Research,1(8), 23-28.

Ibn Taymiah, A. B. A. (1415H). Tafseer Aa-yaat Ash-kelt.Maktabah Al-Rushd.

Ibrahim, A. A. (2011). The Rise of Customary Businesses in International Financial Markets: An Introduction to Islamic Finance and the Challenges of International Integration. American University International Law Review, 23(4), 6.

Iqbal, M., & Llewellyn, D. T. (Eds.). (2002). Islamic banking and finance: New perspectives on profit-sharing and risk. Edward Elgar Publishing.

Jensen, N. C. (2008). Avoiding Another Subprime Mortgage Bust through Greater Risk and Profit Sharing and Social Equity in Home Financing: An Analysis of Islamic Finance and Its Potential as a Successful Alternative to Traditional Mortgages in the United States. Ariz. J. Int'l & Comp. L., 25, 825.

Kamali, M. H. (1998). Uncertainty and Risk-Takinng (Gharar) In Islamic Law. Law Journal, 7(2), 1-11.

Kamali, M. H. (1999). Uncertainty and risk-taking (gharar) in Islamic law. IIUM Law Journal, 7(2), 199-216.

Khan, T., & Ahmed, H. (2001). Risk management: an analysis of issues in Islamic financial industry. Islamic Development Bank, Islamic Research and Training Institute.

Kozarevic, E., Nuhanovic, S., &Nurikic, M. B. (2013). Comparative Analysis of Risk Management in Conventional and Islamic Banks: The Case of Bosnia and Herzegovina. International Business Research, 6(5), 180.

Lambak, S. (2013).Shari’ah Juristical of Gharar in Predetermining Takaful Contribution. International Journal of Education Research, 1(2).

Lee, K., & Ullah, S. (2007). Integration of Islamic and Conventional Finance. International Review of Business Research Papers, 3(5), 241-265.

Mohammad, M. O., & Shahwan, S. (2013). The Objective of Islamic Economic and Islamic Banking in Light of Maqasid Al-Shari’ah: A Critical Review. Middle-East Journal of Scientific Research,13.

Mounira, B. A., &Anas, E. M. (2008). Managing Risks and Liquidity in an interest free banking Framework: The case of the Islamic banks. International Journal of Business and Management, 3(9), 80.

Nabil, A. S. (1986). Unlawful gain and legitimate profit in Islamic law: Riba, Gharar and Islamic banking. Cambridge University Press, 118.

Obaidullah, M. (2002). Islamic Risk Management. International Journal of Islamic Financial Services, 3(4).

Obaidullah, M. (2005). Islamic Financial Services. Jeddah: Scientific Publishing, King Abdulaziz University.

Qal'aji, M. R. & H. S. Q. (1985). Muajim Lughat Al-Fuqaha 'Dictionary of Islamic Legal Terminology' (Arabic-English). Beirut, Lebanon: Dar An-Nafaes.

Razali, S. S. (2007).The principles of Gharar in the BaiBithamanAjil contract.In Proceedings of the MFA Conference, Minneapolis, MN, USA.Pelanduk Publications (M) Sdn. Bhd.

Razali, S. S. (2012). Revisiting the principles of Gharar (uncertainty) in Islamic banking financing instruments with special reference to bay al-inah and bay al-dayn-towards a new modified model. International Journal of Financial Management, 2(1), 33-43.

Razmi, M., &Abbasspour, R. (2012).Innovation of New Islamic Financial Instruments. International Symposium on Advanced in Science and Technology. Symposium conducted at the meeting of Khavaran Institute of Higher Education, Kuala Lumpur, Malaysia.

Saleh, N. A. (1992). Unlawful Gain and Legitimate Profit in Islamic Law: Riba. Gharar and Islamic Banking, Graham and Trotman, London. Schmid, T. J. (2013). The Real Shari’ah Risk: Why The United States Cannot Afford To Miss The Islamic Finance Moment. University of Illinois Law Review, (3), 1293-1335.

Sole, M. J., & Jobst, A. (2012). Operative Principles of Islamic Derivatives-Towards a Coherent Theory (No. 12-63). International Monetary Fund.

Spremann, K. (2004). Islamic Banking. Paper presented at the Doctoral Seminar "International Finance" (03/04).

Swartz, N. P. (2013). Risk management in Islamic banking. African Journal of Business Management, 7(37), 3799-3809.

Visser, H. (Ed.). (2009). Islamic finance: Principles and practice. Edward Elgar Publishing.

Waemustafa, W. (2013). The Emergence of Islamic Banking: Development, Trends and Challenges. IOSR Journal of Business and Management (IOSR-JBM), 7(2), 67-71.

Yankson, S. (2011). Derivatives in Islamic finance–A case for Profit rate swaps. Journal of Islamic Economics, Banking and Finance, 7(1), 39-56.