Understanding Riba (Interest) and Gharar (Uncertainty) in Islamic Finance

UAE Laws and Islamic Finance

 

snow9

Durham, UK

 

Understanding Riba (Interest) and Gharar (Uncertainty) in Islamic Finance

 

Camille Paldi

E-mail: camille.paldi@durham.ac.uk

ABSTRACT

The philosophical and conceptual foundations behind the prohibition on riba (interest) and gharar (uncertainty) can be derived through the Shuratic process in discursive interpretation of the Qu’ran and SunnahRiba (interest) is in fact just a form of gharar (uncertainty).  Gharar (uncertainty) opens the door for speculation, ruthless greed, immorality, and social decay.  Both riba (interest) and gharar (uncertainty) result in social harm in the form of inflation, unemployment, volatility, instability, and environmental degradation.  Riba (interest) and gharar (uncertainty) are both prohibited under Shari’ah as their harm outweighs any benefit, however, gharar (uncertainty) is allowed in instances where the benefit outweighs the harm.

Keywords: Riba (Interest); Gharar (Uncertainty), Islamic Finance, Shari’ah

Introduction

In Islam, it is permissible to trade money for commodity, commodity for commodity, however, not money…

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