Gharrar

What is Gharar?
Gharar is an uncertainty, hazard, chance or risk

Gharar is one of those impediments which make the contract illegitimate.

An agreement that has any element of Gharar is not Valid from the Shari’ah
point of view irrespective of whether the parties of the agreement agree upon
the contract or not.
Gharar - Defined

“The uncertainty that is present in the basic

elements of an agreement: Wording, Subject Matter
and Consideration”.
Gharar in Ahadith
 Examples of events which have been prohibited in Ahadith because of Gharar
• Sale of unborn Camel’s baby still in the mother’s abdomen.
• Sale of Flowers before they appear on the plant.
• Sale of Milk in the Lactose Glands.
• Sale of Fish that comes in one throw of net.
• Sale of Fruits on the tree from mere estimation.
• Sale of any one of the animals from the herd.
• Sale of wool on the body of the animal
• Sale of camel on deferred payment until it gives the birth.
Gharar - Types
1. Minor Gharar – Uncontrollable
e.g. Business profits/loss, contract of marriage

2. Excessive Gharar – Controllable

e.g. next slide
Gharar- Few Instances
 Selling goods that the seller is unable to deliver
 Selling known or unknown goods against an unknown price
 Selling goods without proper description
 Selling goods without specifying the price
 Making a contract conditional on an unknown event
 Selling goods on the basis of false description
 Selling goods without allowing buyer to properly examine the goods
Gambling is a form of Gharar because the gambler is ignorant of the result of
his gamble
When Gharar is prohibited?
1.Excessive Gharar ((‫ غ"رر ک"""ثیر‬not a minor Gharar(‫)غ"رر ی""سیر‬

2. In compensatory contracts not in non-compensatory contract.

3. Gharar should be linked to the principle object of the contract

and not something attached to it.
 Lecture # 03

Economic Systems and Islam

Muhammad Aslam
[email protected]
Iqra University
ISLAMIC ECONOMICS
 Outlines
• Economics
• The Basic Economic Problems
• The Economic Systems
• Feudalism
• Capitalism
• Socialism
• Islamic Economics
• Shariah Approach towards Muamla'at
• Basic Objectives of Islamic Economics
• Distribution of wealth in Islam
• Economic Activities in Islam
 Economics
Every person in a society has different types of wants and
demands;
• If “A” wants a cup of milk at a time then “B” may
wants a piece of cloth at the same time and so on so
forth;
 Economics
• Resources (natural or man-made) available to human
being are limited but wants (desires) are not limited
and everyone wants to achieve the best.
 Economics
Management of these wants with in available resources is
the art which is called economics;
• So economics is an art of management of unlimited wants
within limited resources. The system in which efforts are
made to achieve these targets is called 'Economy'
 The Basic Economic Problems
1. Determination of Priorities;
• What to produce?
• Various policies – monitory, trade, labour and taxation etc.
• Micro and macroeconomics;

2. Allocation of Resources(Land, Labor, Capital, Entrepreneur);

• Where and how to allocate?
• What are the resources of wealth generation

3. Distribution of Income;
• How to distribute the income between members of the society?
• Primary and secondary levels of wealth owners;

4. Development;
• Future planning of creation of wealth;
‘Economics’ is the branch of knowledge concerned with the production, consumption,
and transfer of wealth.
Economics is divided into basic two types;

Macroeconomics Microeconomics
 The Economic Systems
• Feudalism System
• Capitalism System
• Socialism System
-Communism
• Islamic System
 Feudalism
Simple Words: a social system existing in medieval
Europe in which people worked and fought for nobles
who gave them protection and land in return
 Capitalism

Eighteenth Century
 Capitalism
 Principles of Capitalism:
• Private Property
• Freedom(Profit Motive, Laissez Faire)
• Market Forces
 Capitalism
 Factors of Production
– Land - Rent
– Labor - Wages
– Capital - Interest
– Entrepreneur - Profit
 Capitalism
 For economic solutions
– Profit motive
– No prohibition of any kind in maximization of profit
– Law of supply and demand
 Capitalism
• Determination of Priorities
-Law of demand and supply
• Allocation of Resources
-Law of demand and supply
• Distribution of Income
-Law of demand and supply
• Development
-Law of demand and supply
 Capitalism

• Critical Analysis of Capitalism System

 Capitalism
• No prohibition of any kind in maximization of
profit
– Appeal evil desire of society
– Unwanted inflation
– Invest against social benefits
– Monopoly
– Difference in standard of living
 Capitalism
• According to G. William Domhoff
• As of 2007
– The top 1% (upper class) owned 34.6% of wealth
– 19% (Managerial professionals) 0wned 50.5%
• Which means 20% of people owned 85% of wealth.
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
(updated October 2009)
 Capitalism
• No prohibition of any kind in maximization of profit
– Interest
– Gambling
– Speculation
 Problems with Capitalist Economic System

 No bindings/ restrictions while maximizing profits.

 Blindly follows market forces that creates exploitation of labor & poor people.
 No moral value limitations.
 Monopolies & Cartels are created that exploit the society as a whole.
 Government & Industrialists join hands for mutual benefit and make laws that ex-
ploit common people.
 Imbalance in the distribution of income due to which concentration of wealth takes
place.
Socialism
 Socialism
 Principles of Socialism System:
• Collective Property
• Planning
• Collective interest
• Equality in distribution of Wealth
 Socialism
 Factors of Production
• Land
-Hence it is not in the ownership of anyone, so no need
to pay rent.
• Labor
-Government will decide the wedge.
• Capital
-Result of Production
• Entrepreneur
-Labor
-Actually State is the risk taker
 Socialism
 For Economic Solutions:
• Determination of Priorities
– Planning
• Allocation of Resources
– Planning
• Distribution of Income
– Planning
• Development
– Planning
 Socialism

• Critical Analysis of Socialism System

 Socialism
• Human error and Chances of Corruption
• Tyrant State
• Decrease in Performance
 Problems with Socialist Economic System

 The other extreme of not even giving the natural freedom.

 Perfect Planning is assumed to be the “Cure of all ills”.
 Governments are assumed to be angels which can’t commit a deliberate mistake.
 Cannot work without forceful dictatorship.
 Creates overall inefficiency in the society. There is no incentive to work efficiently as
there is no individual profit motive.
CAPITALISM AND SOCIALISM ECONOMIC SYSTEMS
Islamic Economic
 Islamic Economic

• Islam is a complete deen it is not an economic

or financial system
STATUS OF ECONOMIC ACTIVITY IN ISLAM
 MAQASID – E – SHARI’AH

Maqasid al-Shari’ah may be stated simply as the higher objectives of the rules
of the Shari’ah, the observance of which, facilitate the normal functioning of soci-
ety by  enhancing the public good (Maslaha), this implies avoiding actions likely
to
harm to individuals and society.
 The intent, objective and purpose is simply to achieve social and economic
justice as well as enhancing the welfare of the community.
 Shariah approach towards Muamla'at
• Shariah guides human beings in every walk of life and provides set of
rules which absolutely fulfill their needs.

• For the welfare of human beings, Shariah teaches them what should
do and what should not do in all areas of life, but in Muamala’at
Islamic teachings almost focus on describing Prohibitions/Don’ts and let
them do their activities according to their trend till they keep avoiding
the Prohibitions.
 Objective of Islamic Economic
• Economic activities are not the basic problem of man

• But obligatory and necessary on man to engage in lawful,

meritorious economic activities.

• In result, earning should be from lawful sources and should

be distributed justly.
 ‫‪Islamic Economic‬‬
‫‪• Islam does not reject the supply and demand theory‬‬

‫بھال کیا یہ لوگ ہیں جو تمہارے پروردگار کی رحمت تقسیم کریں گے ؟‬

‫(‪ )٨‬دنیوی زندگی میں ان کی روزی کے ذرائع بھی ہم نے ہی ان کے‬
‫درمیان تقسیم کر رکھے ہیں اور ہم نے ہی ان میں سے ایک کو دوسرے‬
‫پر درجات میں فوقیت دی ہے‪ ،‬تاکہ وہ ایک دوسرے سے کام لے سکیں۔‬
‫اور تمہارے پروردگار کی رحمت تو اس (دولت) سے کہیں بہتر چیز‬
‫ہے جو یہ جمع کر رہے ہیں۔ (‪)٩‬‬
 Islamic Economic
• Islam does not reject the supply and demand theory
 Islamic Economic System

 Islam accepts the market forces of supply and demand- Reference of Holy Quran.

 Islam accepts the right to private property and accepts the right to maximize profits. But
these rights are not unbridled and un conditional rather there are some prohibitions.
 Islamic Economic
• Absolute property of ALLAH and Man is trustee.
• Market forces
• Freedom is controlled manner.
1.Divine Prohibitions:
• Islam has prohibited some economic activities that are not allowed at any time at
any place.( Interest, Gambling, Hoarding etc.)
2.Govt. Restrictions:
• Islam allows Govt. to intervene where it feels appropriate , but these restrictions
are temporary as per the need of the time.
3. Moral Considerations & Restrictions
• Life in this world is temporary and there is an eternal life after words. One has to
make this worldly life a way to get the maximum benefit in the life hereafter.
 Islamic Economic
• Factors of Production
– Land
– Labor
– Entrepreneur

• No remuneration to Capital as it is rewarded under entrepreneur

 Islamic Economic
• Difference between Land and Capital

Land Capital
Usable by itself and remains with in Does not have its own use only a medium
your hand after use of exchange.
Accept depreciation Does not depreciate
Risk belongs to the owner Risk Does not belong to the owner
 Islamic Economic
• That is why Islam does not consider capital same as land
• So, you can get rent for the land
• Not interest for the capital
• If you want profit so bear the risk
 Distribution of Wealth In Islam
• Objectives
1.Establishment of a practicable economic system-balanced
system;
2.Enabling everyone to get what is rightfully due him;
3.Eradication of Concentration of Wealth;
 Distribution of Wealth In Islam
Objectives:
1. Establishment of a practicable economic system-balanced
system;
-Law of demand and supply
-Motive of personal profit
-Natural relation of employer and employee
 Distribution of Wealth In Islam
Objectives:
2. Enabling everyone to get what is rightfully due him;
Islamic concept of deserving wealth is that both. Those who have participated
in generating wealth and those who could not participated in the generation,
have rights in wealth.

‫ للسائل والمحروم‬. ‫في أموالهم حق معلوم‬

“In their wealth there is known right for those who ask for it and those who have need
for it” (70;24-25)
TWO CONCEPTS OF ISLAMIC ECONOMICS
 Distribution of Wealth In Islam
Objectives:
3. Eradication of Concentration of Wealth;
Prohibition of:
Hoarding,
Interest;
Gambling;
Invalid speculation;
Uqood-e-Fasidah (invalid contracts), and
Gharar (excessive uncertainty);
Encouragement of:
Sadaqah,
Laws of Inheritance,
Mehar etc.
FOUNDATIONS OF ISLAMIC ECONOMICS
Question?
 WHAT IS ISLAMIC ECONOMICS?

Economics is divided into basic two types; Any activity that has a commercial, economical
and financial purpose with the priority of social benefit to mankind is classified as Is-
lamic Economics
The system that has the foundation on this classification leads to socio- economic
development and not just the economic development.”
 TRACING HISTORY OF ISLAMIC ECONOMICS
 Hasan-uz-Zaman define Islamic economics is the knowledge and application of injunctions
and rules of the Shari'ah that prevent injustice in the acquisition and disposal of material
resources in order to provide satisfaction to human beings and enable them to perform their
obligations to Allah and the society.
 Dr. Nejatullah Siddiqi define Islamic Economics as justice and freedom, cooperation and
sharing which are the fundamentals to Islamic economic philosophy within the total Is-
lamic system.
 Theory of Scarcity of Resources
 The scarcity principle is an economic theory in which a limited supply of a good, coupled
with a high demand for that good, results in a mismatch between the desired supply and
demand equilibrium.
 Most luxury products, such as watches and jewelry, use the scarcity principle to drive
sales. Technology companies have also adopted the tactic in order to generate interest in a
new product. For example, Snap Inc., unveiled its new spectacles through a blitz of public-
ity in 2016. But the new product was available only through select popups that appeared in
some cities.