Gharar
Candlefocus EditorAt its core, gharar is linked to one's ownership claim. This can encompass a variety of situations, ranging from ambiguity in terms of claiming property to the delivery date of contracts being long after the signing date. The closer to a concept of gharar any agreement comes, the closer it is to becoming illicit in the eyes of Islamic finance law.
An example of gharar in today’s world would be futures or option contracts. Futures are contracts which are intended to protect buyers or sellers from extreme price fluctuations in the underlying commodities. Options involve the buyer paying an upfront fee to the seller for the right to buy or sell an asset within an agreed upon period of time. However, when the expiry date for these contracts is in the distant future, then the entire transaction is labeled as gharar due to its lack of applied practicality.
In addition to stressing the notion of certainty in buying and selling, Islamic finance law also demands fairness in all dealings and transactions. Gharar creates an imbalance in the buyer-seller relationship, which is considered unfair and exploitative. Gharar is thus regularly frowned upon and considered a prohibited form of exchange in Islamic finance.
In overall, although gharar may sound like a convenient solution to a seller or buyer in theory, it is generally considered to be a prohibition in the world of Islamic finance. Instead, all dealings should be based on clarity and certainity, with an end-goal of creating a fair environment for all parties involved.