Excessive uncertainty in a contract (gharar) is prohibited because it prevents genuine consent, creates asymmetrical risk, and enables the kind of speculation that destabilizes financial systems.
Gharar literally means “uncertainty” or “deception through risk” in Arabic. In Islamic finance, it refers to a prohibition on contracts where the subject matter (what is being sold), the price, or the outcome is ambiguous, unclear, or depends on excessive uncertainty that is not shared by both parties. A contract is void due to gharar if one party has information or control the other lacks, enabling unfair advantage.
Classic examples of gharar include selling fish still in the sea (the buyer cannot verify existence), selling goods of uncertain quality or delivery time (the terms are undefined), or pure speculation where outcomes depend entirely on chance rather than real economic activity. In all these cases, one party bears hidden risk while the other gains the option to profit, creating the asymmetrical exposure that makes genuine, informed consent impossible.
Gharar is distinct from riba, which prohibits predetermined returns on capital not tied to actual risk. While riba addresses the mathematical impossibility of exponential debt in a linear economy, gharar addresses the structural unfairness of hidden, uncertain, or one-sided risk. Together with the prohibition on gambling (maysir), gharar forms the conceptual backbone of Islamic finance’s resistance to speculation: a market structure where returns flow only from real economic activity, not from ambiguity, information asymmetry, or pure chance.
Source: Islamic Finance Guru, “What is Gharar?” (2020). AAOIFI Shari’ah Standards on gharar (Islamic Accounting and Auditing Organization for Financial Institutions).