Finance Islam

The financial crisis, that broke out in August 2007, was considered to be the worst in the post war period. Representing the collapse of trillions of fictitious credit derivatives and the meltdown of uncontrolled credit growth. There is only one solution left is that only islamic banking for to save banking system.

The Quaran prohibits gambling (games of chance involving money). The Hadith, in addition to prohibiting gambling (games of chance), also prohibits bayu al-ghararg (trading in risk, where the Arabic word gharar is taken to mean “risk”).

The Hanafi Madhah (legal school) in Islam defines gharar as “that whose consequences are hidden.” The Shafi legal school defined gharar as “that whose nature and consequences are hidden” or “that which admits two possibilities, with the less desirable one being more likely.” The Hanbali school defined it as “that whose consequences are unknown” or “that which is undeliverable, whether it exists or not.” Ibn Hazn of the Zahini school wrote “Gharar is where the buyer does not know what he bought, or the seller does not know what he sold.’

The modern scholar of Islam, Professor Mustafa Al-Zarqa, wrote that “Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature that makes the trade similar to gambling.” There are a number of Hadith who forbid trading in gharar, often giving specific examples of gharhar transactions (e.g., selling the birds in the sky or the fish in the water, the catch of the diver, an unborn calf in its mother’s womb, the sperm and unfertilized eggs of camels, etc.). Jurists have sought many complete definitions of the term. They also came up with the concept of yasir (minor risk); a financial transaction with a minor risk is deemed to be halal (permissible) while trading in non-minor risk (bayu al-ghasar) is deemed to be Haram.

What gharar is, exactly, was never fully decided upon by the Muslim jurists. This was mainly due to the complication of having to decide what is and is not a minor risk. Derivatives instruments (such as stock options) have only become common relatively recently. Some Islamic banks do provide brokerage services for stock trading and perhaps even for derivatives trading.