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Gharar
Practical Law Glossary Item 5-500-7094 (Approx. 3 pages)
Glossary
Gharar
Meaning uncertainty, ambiguity, or unnecessary risk. Sharia treats as void contracts whose fundamental terms (for example, subject matter, price, and time of delivery or date of performance) are uncertain at the time the contract is executed. Because of the prohibition against gharar, several conventional finance products or techniques may not be acceptable in Islamic finance. For example:
- Derivatives. However, the International Swaps and Derivatives Association, Inc. (ISDA), in conjunction with the Bahrain-based International Islamic Financial Market, created in early 2010 a Sharia-compliant ISDA Master Agreement that allows Muslim investors and financial institutions to engage in derivatives products that comply with Sharia principles.
- Traditional insurance products because of the uncertainty as to whether the insured event will occur.
For more information on gharar and Islamic finance generally in the US, see:
For more information on gharar and Islamic finance generally in the UK, see Practice Notes: