Contracting with Gharar (Uncertainty) in forward contract: What does Islam says?

Nadhirah Nordin, Sumayyah Abdul Aziz, Azlin Alisa Ahmad, Normadiah Daud

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

The forward contract is one of derivative instruments. The value of this contract is derived from the values of underlying assets such as commodities, equities, and currencies. Muslim scholars differ on the permissibility of forward contracts. Among the key issues raised in the forward contract is the issue of gharar. In general, gharar means an excessive uncertainty and risk. However, not all contracts containing the element of gharar void the contract. This article attempts to formulate a parameter for gharar that voids the contract based on the opinions of classical and current scholars. It also analyses the elements of gharar that exist in forward contracts of crude palm oil in Malaysia. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. Based on the analysis of forward contracts on the parameter of gharar, the finding of this research indicates that the issue of gharar exists in forward contracts does not void the contracts.

Original languageEnglish
Pages (from-to)37-47
Number of pages11
JournalAsian Social Science
Volume10
Issue number15
DOIs
Publication statusPublished - 11 Jul 2014

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Islam
uncertainty
Forward contracts
Uncertainty
Contracting
crude oil
currency
Malaysia
commodity
Muslim
assets
equity
industry
interview

Keywords

  • Crude palm oil
  • Derivatives
  • Forward
  • Gharar
  • Parameter

ASJC Scopus subject areas

  • Social Sciences(all)
  • Arts and Humanities(all)
  • Economics, Econometrics and Finance(all)

Cite this

Contracting with Gharar (Uncertainty) in forward contract : What does Islam says? / Nordin, Nadhirah; Aziz, Sumayyah Abdul; Ahmad, Azlin Alisa; Daud, Normadiah.

In: Asian Social Science, Vol. 10, No. 15, 11.07.2014, p. 37-47.

Research output: Contribution to journalArticle

Nordin, Nadhirah ; Aziz, Sumayyah Abdul ; Ahmad, Azlin Alisa ; Daud, Normadiah. / Contracting with Gharar (Uncertainty) in forward contract : What does Islam says?. In: Asian Social Science. 2014 ; Vol. 10, No. 15. pp. 37-47.
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