As with riba, gharar may only arise in an exchange – in any commutative transaction. There is no single English term corresponding to gharar so the Arabic word is retained. The closest single English word, which requires qualification, is risk.

Risk, Uncertainty, Speculation

Risk is inevitable in any commercial transaction (or other aspect of life), and the level or kind of risk is subjectively determined. Therefore there is threshold issue of how much (or what kind of) risk constitutes gharar[1] and therefore invalidates an exchange or contract. The majority view is that gharar arises where a party to a contract is ignorant of one or more material aspects of the contract; or where there is an unacceptable element of uncertainty whether to one or more interested party. When speculation rises to the level of gambling it results in gharar.

Possession of the good would also be a condition precedent to a valid sale (therefore it is not lawful to sell birds in the air or fish in the sea, as hadith state) as the number and quality are not unascertainable. Price would usually be regarded a material term of a contract which also must be known by the parties; however there are two exceptions to this rule which do not fall foul of the rule against gharar: future and manufacturing sales.


Riba and Gharar

Riba and gharar interact.


Qur’anic reference to games of chance (2:219 and 5:90-91) are (by analogy) the scriptural basis for the prohibition of gharar.

[1] AAOIFI states only ‘excessive’ level (not ‘medium’ or ‘minor’) nullifies a contract or transaction. This formulation highlights the threshold problem and the difficulty in specifying how much risk or gharar is acceptable and how much is too much — viz. enough to render a contract void or voidable.