Gharar

Gharar (Arabic: غرر, literally 'deception', 'hazard', or 'risk') is the prohibition of excessive uncertainty or ambiguity in Islamic contracts. It is the second most significant prohibition in Islamic finance after Riba. Gharar exists on a spectrum: minor Gharar (Gharar Yasir) is permissible and unavoidable in commerce; major Gharar (Gharar Fahish) is prohibited. A contract is void due to Gharar if any of five key elements are excessively uncertain: (1) existence of the subject matter; (2) delivery capability; (3) price; (4) time of delivery; (5) specification of quality/quantity. Gharar is the primary reason why conventional insurance, forward contracts, futures, and options are restricted in Islamic finance — the existence of the future event, amount payable, and timing are uncertain. Shariah alternatives address each case: Takaful replaces conventional insurance (replacing Gharar with mutual cooperation), while Salam and Istisna replace conventional forward contracts with full-price advance payment or specified manufacturing contracts.